The latest string of social media initial public offerings (IPOs) is fast creating a select handful of fantastically wealthy company founders and early stage investors. The financial headlines are full of details. The coming IPO of Facebook is estimated to put founder Mark Zuckerberg's net worth in the neighborhood of $20 billion, give or take a few billion dollars. LinkedIn's chairman Reid Hoffman is worth around $2 billion thanks to a recent IPO, and while he looks poor in comparison to Zuckerberg, he has enough excess capital to survive for many lifetimes.
The list goes on. Zynga's founder is now worth close to $2 billion while Pandora's CEO owns an estimated 3% of the firms market capitalization of $1.75 billion for an estimated worth of $52.5 million. Early stage investors in these firms are also doing well. Early Facebook investors tried to sell billions in stock a year ago when the implied value of the firm was closer to $70 billion. They may have lost out as the total IPO value is being pegged above $100 billion, but this still means huge wealth creation in just a few years.

Regular Folks Getting Rich
What gets less coverage is that a multitude of everyday employees are getting rich from the social media IPO wave. The Facebook IPO is expected to create in excess of 1,000 millionaires, many of whom came to work for the networking wonder story by sacrificing current salary for huge upside potential via company stock and related stock options. A recent article in the San Francisco Chronicle even detailed a Korean artist who was hired to paint murals in Facebook's office and chose stock instead of cash for his work. The savvy move was estimated to earn him $200 million once the IPO takes place.

Again, Facebook is hogging the headlines because of the scale of wealth creation it is generating for those associated with its beginnings. But other unexpected millionaires include around 30 investors and employees associated with LinkedIn. Around a dozen initial investors and employees from Pandora have shared in the largesse brought by the IPO. Zynga went so far as to detail that it could see its competitive edge decrease from its new class of wealthy employees who might be less inclined to log long hours creating its popular games now that many are now worth millions. The risk also exists for Facebook, as roughly one third of its 3,000 employees will soon be rich.

These fears could be overblown. Past tech IPOs from the likes of Google, which at the time of its IPO had around 1,900 employees, have done just fine even though many employees struck it rich and broke out on their own to either enjoy their new wealth or commit the capital to their own start-up venture. The same goes for employees of Apple over the past decade - some of whom have enjoyed the gains of a stock that has risen from $10 to more than $500.

The Bottom Line
These unexpected individuals now have some interesting decisions to make with their windfalls. Mark Cuban is a prime example of how to diversify one's wealth prior to the bursting of a bubble. He famously minimized his exposure Yahoo shares after the firm acquired his Broadcast.com for more than $5 billion, saving himself billions as Yahoo plummeted after the dotcom bubble burst. Others may choose to sit tight, in hopes that their respective social media firms continue to grow sales, and eventually grow profits for the benefit of all new shareholders.

Related Articles
  1. Investing Basics

    How An IPO Is Valued

    The process of determining a company’s initial share price includes quantitative and qualitative components.
  2. Budgeting

    5 Apps Every Investment Banker Should Have

    Learn more about how apps for various platforms benefit investment banking, and discover five apps all investment bankers should download.
  3. Fundamental Analysis

    Will Health Care Continue to Drive IPOs in 2016?

    Learn why health care IPOs may be slowing in 2016, and how Obamacare, poor previous filings and economic factors are affecting the health care sector.
  4. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  5. Investing Basics

    Inside IPO Roadshows

    Understand more about IPO road shows. Learn the reasons why an IPO road show is important for the success of a company's public offering.
  6. Stock Analysis

    If You Had Invested Right After Berkshire Hathaway's IPO (BRK.A)

    Learn how much you would now have if you had invested right after Berkshire Hathaway's IPO, and find out the classes of shares that you could invest in.
  7. Stock Analysis

    Is Now the Right Time to Buy Coty? (COTY)

    Find out whether fragrance and color cosmetics powerhouse Coty deserves a place in your portfolio. Will recent acquisitions help turn the company around?
  8. Economics

    Does Big Money Hurt or Help Clinton and Rubio?

    Marco Rubio and Hillary Clinton lead their parties in raising money from Wall Street. Is that a help or a hindrance?
  9. Stock Analysis

    Moderna Therapeutics: An IPO Candidate in 2016?

    Find out the reasons why 2016 may be the year when highly valued biotech company Moderna Therapeutic files for an initial public offering (IPO).
  10. Stock Analysis

    Domo Inc: An IPO Candidate in 2016?

    Learn about key information on Utah-based technology startup Domo Inc. and how the Domo dashboard differentiates itself in the world of business intelligence.
RELATED FAQS
  1. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  2. When did Facebook go public? (FB)

    Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization ... Read Full Answer >>
  3. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  4. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  5. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  6. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center