Forbes may have bumped Mark Zuckerberg up to the #35 on its “Forbes 400” list last week with an estimated worth of $6.9 billion. But until Facebook goes public, all those billions are still theoretical, based on Zuckerberg’s shares in the company. In fact, in Silicon Valley terms, says Andrew Ross Sorkin, Zuckerberg is “paper-rich, cash-poor.” (We guess he’s not counting the $2 billion in revenue the company is expected to pull in this year.) How does this affect Zuckerberg’s generous, if well-timed, $100 million donation to Newark’s public schools? As Sorkin explains, unlike the donors who’ve agreed to give $40 million in matching gifts, Zuckerberg isn’t handing over cash. Instead, he’s giving away $100 million in Facebook shares to the foundation he started, Startup: Education. The foundation can then sell those shares for cash on the secondary market, “a nebulous world where big-time investors buy into companies before they go public.”
Last month, The Financial Times said the going price was about $76 a share, which would mean the market value for Facebook is $33 billion. Back in June, Elevation Partners, a buyout firm with Bono as a partner, paid $120 million for shares in Facebook with the assumption that its value was $23 billion, which means it has jumped significantly in just four months (Forbes’s estimate on Zuckerberg’s worth was also derived from that $23 billion valuation.) Once more than 500 individuals or institutions own shares in a company, the Securities and Exchange Commission requires it to go public.
Because the $100 million donation is based on Facebook’s internal estimate of its own value and not based on the secondary market’s valuation, the gift could be worth even more once the foundation sells it shares. There’s some debate over this in tech circles since, as Sorkin points out, private companies don’t have to disclose financials. Estimates of the company’s worth in the secondary market are “a guessing game.”
As for the timing of the donation, Sorkin says:
Can’t it be both?