Sai,
Below is an excerpt from an article that directly pertains to the issues you've been raising. The entire article can be reviewed at.
"...The challenges of being a public company certainly are different from those that faced Olim and his twin brother, Matthew, when they were launching the CDnow music retailing site. The twins, now worth more than $70 million combined, four years ago were operating the company out of the basement of their parents' house.
Mom and Dad even got a chunk of equity in the company when they agreed to pay off $80,000 in credit-card debt racked up by the brothers during the early days of the company.
"After all they spent on college and braces and everything else, they joke that they're just now getting their return on their investment in us," Jason Olim said.
But whether tapping their parents' bank account was business savvy or merely a matter of survival, the Olims latched onto one of the key ingredients in the recipe for creating personal wealth in today's market for Internet stocks.
Executives who can find favorable financing early in the life of their company without handing huge chunks of ownership to outside investors are in a better position to reap the rewards of Wall Street's Web fever.
In companies where venture capitalists and outside investors fund much of the early growth in exchange for equity, executives forfeit much of the stock that would otherwise propel them into the ranks of the megawealthy.
Take the case of Verio Inc., a company that has embarked on a broad consolidation of regional Internet service providers. The three prime company backers - Brooks Fiber Properties Inc., Nippon Telegraph and Telephone Corp. and Norwest Equity Partners - each hold stakes in the company worth more than $100 million.
The two top executives in Verio, in contrast, together hold stock valued at less than $10 million. Verio CEO Justin Jaschke is worth $4.7 million, and the estate of Marc Johnson, the Verio president who died earlier this year, is worth $3.3 million.
Compare Verio's fate with that of MicroStrategy Inc.- a 9-year-old developer of decision-support software used mostly to pull information from databases for delivery via the Internet. More than 90 percent of MicroStrategy's stock is held by employees, including the 75 percent stake owned by company Chairman Michael Saylor that is now worth $770 million.
But those types of payoffs do not come without assuming some level of risk. Saylor, for instance, personally guaranteed a $10 million loan prior to the company's stock offering to fund continued growth earlier this year rather than turn to venture capitalists for pre-IPO financing.
In hindsight, Saylor's decision looks like a no-brainer as the company's stock has nearly tripled in the months since its offering at $12 per share. But, at the time, Saylor found himself on the hook for a loan that could have wiped out his net worth had Wall Street soured on the Internet, forcing MicroStrategy to pull back from its offering.
"We took on a lot of risk," according to Saylor. "If the IPO had crashed, I would have been in big trouble."
But with aspirations of building a company over the long haul that carries the same kind of clout now enjoyed by an Intel Corp. or a Microsoft Corp., some risk is warranted, Saylor said.
"When you start to hedge your bets, you lose your nerve," said the 33-year-old Saylor. "I'd rather lose dismally than hedge my bets and be a mediocre winner."
Stock Options For Talent
More and more Internet companies are betting on themselves and their employees, increasing their reliance on stock options in recruiting and retaining key employees.
Technology firms last year issued employee options to buy shares equivalent to 4.5 percent of the companies' outstanding stock. The comparable median rate for 1996 was 3.3 percent of company equity issued in stock options, according to iQuantic Inc., a Chester, N.J.-based human resources consulting firm.
The trend means that more and more companies are relying on the tactic of paying top talent with stock options, possibly instead of using cash raised from venture capitalists.
But while today's Internet workers may be grabbing stock options by the bushelful in the hopes of becoming the Web's next paper millionaire, they also run the risk of killing the goose that laid the golden egg...."
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