

Zynga Insiders Who Cashed Out Before The Stock Crashed - larrys
http://finance.yahoo.com/blogs/daily-ticker/zynga-insiders-cashed-just-stock-crashed-144334658.html

======
cs702
It's hard for me not to compare the likes of Mark Pincus, who has been 'taking
money off the table' from Zynga since before the IPO, to old-fashioned owner-
CEOs like Warren Buffett, who has never sold a single share of his company,
Berkshire Hathaway.[1]

[1] See <http://www.berkshirehathaway.com/news/dec2799.html> . Buffett is
donating almost all his shares in annual chunks to the Bill and Melinda Gates
Foundation, and the remainder to a few, much smaller charitable foundations,
so he will _never_ personally cash out.

~~~
lotharbot
For most investors, it's recommended that you minimize the amount of stock you
own in your own company such that you reduce the risk of having both your job
and your stock drop at the same time. When a company or industry gets hit
hard, you often hear tales of people who lose their jobs and find their
company stock has also tanked, and it's devastating. Whether you work for
Zynga or Valve, I'd recommend taking money off the table and diversifying.

Berkshire Hathaway is special in that it's a holding company with extremely
diverse holdings. It is, in essence, already internally making the sort of
investments that I would recommend others make externally.

Point being, regardless of what you think of Pincus, he's doing what sensible
investors should be doing at any company except for a Berkshire-type holding
company.

~~~
anon808
minimize? what does that mean, how much? and who recommends? where are these
rules written you're talking about?

usually people hold onto things they think are valuable and sell those they
don't.

sometimes those that sell that which they don't think is valuable will use
weasel words like 'diversification' and 'minimize exposure' to explain their
actions so they don't have to admit they don't think what they're selling is
very valuable.

~~~
lotharbot
> _"usually people hold onto things they think are valuable and sell those
> they don't."_

Usually, investment strategies are more complex than this, involving risk
management of various sorts.

You've no doubt heard the phrase "don't put all your eggs in one basket"; or,
as the Bible says, "Divide your merchandise among seven or even eight
investments, for you do not know what calamity may happen on earth" (Ecc 11:2,
NET). The naive investment strategy of simply buying whatever you think is the
"best deal" or "most valuable" carries with it considerable risk -- if your
whole net worth is in widgets and the market shifts to sprockets, all of a
sudden you're stuck with a bunch of widgets nobody wants. Or if your whole net
worth is in crops and then there's a storm that wipes them out, now all you've
got is dirt. The naive investor thinks that because they work for a profitable
company, they should invest everything in their company -- but if their
company suffers (whether due to fraud like Enron or a simple market shift like
many real estate companies in 2008) they lose their job and their investments
all at the same time.

The idea behind diversification is to target things that are valuable and
which are not strongly correlated to each other, such that even if you're
wrong or conditions change in some areas, your losses can be offset by gains
elsewhere. Diversification is not a "weasel word" (though some may
occasionally misuse it); it's a widely understood concept that's described by
pretty much every personal finance writer out there.

(Note that I'm not specifically saying Pincus is a good guy. Just that it
makes a lot of sense for CEOs and others to swap some of their equity for
equity in non-correlated assets.)

~~~
MikeCapone
> You've no doubt heard the phrase "don't put all your eggs in one basket"

Buffett and Munger's response to that is to "put all your eggs in the same
basket, and watch that basket".

At various times both men have been very heavily concentrated in their best
ideas (Buffett was once about 75% into GEICO many decades ago -- admittedly
that's extreme even for him, but many value investors aim for less than 10
investments). They say that diversification is often "diworsification" (I
think that's a Peter Lynch phrase... or maybe Phil Fischer) because it's
impossible to know that many companies well enough to have high confidence,
and because your 20th best idea will never be nearly as good as your best and
second best ideas, so it's often better to just add more to your best ideas.

Of course, the caveat of this is that you must know what you are doing.
Diversification is insurance against not knowing what you're doing, and index
funds are probably the best strategy for someone not putting in the time
(which is most people). But if you take investing seriously, high
diversification is not always necessary or even desirable.

------
ChuckMcM
The missing piece in this story is when the registration for this sale was put
out. It isn't like you can just 'decide' to sell this many shares, my guess is
that it is mentioned in the original prospectus somewhere that some point
after the IPO these additional shares would be sold. That it occurred in the
same quarter that the stock melted down means that they better have solid
documentation and there are going to be lawyers sniffing around for a
potential shareholder suit. If the paper trail is solid though no suit will
materialize.

~~~
antr
I sometimes wish that VCs had some legal responsibility when blogging about
their portfolio companies too, specially when discussing valuations. They keep
cheerleading on a clear conflict of interest, non-stop. Here is Fred Wilson:

"Pandora is at ~$1.5bn. LinkedIn is at ~$6bn. Groupon is at ~$15bn, Zynga is
at ~$7bn, and TripAdvisor is at ~$3.5bn.

We can (and surely will in the comments) argue about these valuations. Some
will say they are too high. Some will say they are too low. That's what makes
a market. But in the aggregate, these valuations do not seem ridiculous to me.
The public market investors are valuing these companies at prices that have
some rationality to them." Source: [http://www.avc.com/a_vc/2011/12/some-
thoughts-on-the-ipo-mar...](http://www.avc.com/a_vc/2011/12/some-thoughts-on-
the-ipo-market-for-web-companies.html)

When he says "...these valuations do not seem ridiculous to me." he is
implicitly saying that their is (fundamental value) upside to the stock. Not
in a million years could Fred Wilson sustain such argument with numbers.
Implied growth rates just to value Zynga at ~$7bn means double digit growth
(revenue and cash flow) for years, AND even higher growth rates are required
if IPO investors want a return on their investment. Unfortunately his audience
buys into the hype, regardless of the real economic value behind the
companies, and for him to keep doing this on a clear conflict of interest
demonstrates his low moral standards. These actions should not go unpunished,
and are no different to any other legal "issues" that lawyers might pick up
from the Zynga prospectus.

~~~
veyron
" They keep cheerleading on a clear conflict of interest, non-stop"

That's their business model: they buy and then pump the companies in hopes
that someone will buy stake from them at a higher valuation later. The nature
of the VC model precludes multi-decade investments and incentivizes quick
exits even if they blow up in others' faces

FW replied to a similar remark i made:
<http://news.ycombinator.com/item?id=4068495>

~~~
anon808
that is exactly correct. VC's are facilitators, middlemen, and wholesalers,
they are not equity holders. Their goal is to move equity. If the 'end-user'
of the equity ends up owning a great business, great, if not, makes no
difference to the VCs. You could argue there's reputation risk at stake but I
don't see it: Fred Wilson made his name with geocities, a company that never
earned any dividends for its ultimate owners (yahoo) while generating huge
returns for its equity resellers. And we celebrate him and that deal as a
success. Finding the greatest sucker is not a sustainable strategy, it's
simple wealth transfer, no value gets created. it's not a way forward.

~~~
qq66
It's true that VCs have moved a lot of eventually worthless equity but they've
also moved a lot of really valuable equity. Google, Amazon, Genentech, Oracle,
etc. are companies with real, fundamental long-term value which could not have
existed without some kind of investor (whether you call it a "VC" is largely
semantic).

------
Judson
Interesting to note that it was pretty well reported[0][1][2] that the bulk of
this second Zynga offering would be for management and PE firms to get
liquidity. This, though, is the money quote from the Reuters article that
could have been a red flag (Though I'm honestly not sure how often it
happens):

"Zynga waived a lock-up arrangement to facilitate the offering. Investors are
typically expected to wait about six months after an initial public offering
to sell their shares."

[0]:[http://www.cnbc.com/id/46833267/Zynga_Shareholders_Selling_4...](http://www.cnbc.com/id/46833267/Zynga_Shareholders_Selling_43_Million_Shares)

[1]:[http://blogs.wsj.com/deals/2012/03/14/zynga-shareholders-
to-...](http://blogs.wsj.com/deals/2012/03/14/zynga-shareholders-to-sell-up-
to-400m-in-shares/)

[2]:[http://www.reuters.com/article/2012/03/23/net-us-zynga-
idUSB...](http://www.reuters.com/article/2012/03/23/net-us-zynga-
idUSBRE82K1BX20120323)

------
ghshephard
Because I have a friend working at Zynga, I'm sad that their stock is going
down - but, given Zynga's business model of wholesale ripping off other
people's game concepts, and slapping down their own art and calling it "new"
(Dream Height versus Tiny Towers) - I'm actually pleased that their stock is
taking a hit.

I've even heard it rumored that Pincus actually _encourages_ his team to take
other people's game concepts, and change the trade dress/graphics art and
market it under the Zynga name, rather than investing in creating brand new
game concepts.

I worked at Netscape at the end when we decided to just wholesale clone
Yahoo's portal, and create "Netscape.com" - people worked really hard, wall
after wall was covered with mockups of Yahoo, and the equivalent netscape.com
version - it was a thoroughly depressing place to work, and any engineer with
a sense of self worth quickly departed.

I'm not saying there isn't a business model there - I'm sure there is - it's
just not one I would hope the best engineers would aspire to.

------
mrgoldenbrown
Pincus brags on camera about how he got started by putting malware on
customer's computers. Why is it surprising that he would pull something shady
now?

------
larrys
"I know many of these folks personally, including at the company's
underwriters, and like and respect them. I think the last thing they would
intentionally do is unload stock when they thought it was about to crash--
especially when the amount they made in the sale, though huge, is still
relative chicken-feed for them.

Also, all of these folks only sold a fraction of their holdings, so they've
been hammered along with the rest of Zynga shareholders by the subsequent
collapse."

The above is of course what is "below the fold" and the "to be sure" statement
that is supposed to inoculate against accusations of being misleading.

But above the fold of course is the link bait title that draws you in and
makes you think that something terribly wrong has happened with this cash
out.[1] Missing of course is the amount of other stock or what their losses
were.

An alternative piece that could have been equally good bait would have been
perhaps "Zynga insiders who took a bath when the stock crashed" with the "to
be sure" as "they also cashed out a small percentage of their holdings ..."

[1] Edit: I'm not making a judgement on whether what was done was wrong by the
way I am only presenting my opinion on how this was written and an alternative
version.

~~~
samstave
No matter what anyone says, to me, zynga is silicon valleys groupon. The worst
company in the valley.

I like seeing them fail.

~~~
larrys
"I like seeing them fail."

PG was just talking the other day about HN'ers who have feelings like that:

<http://news.ycombinator.com/item?id=4293786>

I'd be curious if you get a chance of your comments to that thread
(particularly what I said I felt was a possible reason and PG's response).

Of course no matter which way you slice it it does make interesting watching.
As they say in news "if it bleeds it leads". People love a good train wreck.

~~~
mattmaroon
I'm not sure the comment you're replying to views all startups as a con like
PG was talking about. A lot of people just dislike Zynga because of their
early shady business practices, and the fact that their games are seen as a
dumbing down of the industry.

Zynga is sort of the Nickelback of the startup world.

~~~
adharmad
Not to mention their recent move of asking employees to return unvested
options.

~~~
captaintacos
Not to mention the shameless cloning of games from smaller indie companies
such as NimbleBit's Tiny Tower
<http://www.pcmag.com/article2/0,2817,2399380,00.asp>

------
corford
From the article: "I think the last thing they would intentionally do is
unload stock when they thought it was about to crash"

It looks like at least one law firm disagrees:
[http://www.marketwatch.com/story/newman-ferrara-llp-
announce...](http://www.marketwatch.com/story/newman-ferrara-llp-announces-
investigation-of-zynga-inc-2012-07-26)

------
RyanMcGreal
Flagged as irresponsible linkbait. The article itself acknowledges that these
people "only sold a fraction of their holdings, so they've been hammered along
with the rest of Zynga shareholders by the subsequent collapse."

------
neurotech1
This is ridiculous! Zynga is an over-inflated bubble stock, simple as that.
Every Retail Investor/Stock Broker/Investment Advisor should always be
watching what the Insiders do. If a CEO of a company dumps significant amounts
of their stock holdings, watch out. It's as simple as that.

If hypothetically, Larry Page & Sergey Brin sold off a large chunk of their
stock, I'd be a sign to be careful of Google stock until the market reacts and
the reasons are fully known.

------
bkmrkr
[http://www.sec.gov/cgi-bin/browse-
edgar?action=getcompany...](http://www.sec.gov/cgi-bin/browse-
edgar?action=getcompany&CIK=0001439404&owner=include&count=40)

[http://www.sec.gov/Archives/edgar/data/1134069/0001209191120...](http://www.sec.gov/Archives/edgar/data/1134069/000120919112022046/xslF345X03/doc4.xml)

ouch

------
mkramlich
If one sells stock for $200m cash, like Pincus did in this case, arguably one
would be immune from being "hammered" later on. Assuming he does reasonably
safe/wise things with that cash.

------
joshu
the VC insiders were likely going to sell based on the instructions of the LPs
(either to distribute cash or stock) and not for any other reason...

------
iblaine
It is common for 100% of all shares of an IPO to come from insiders and VC
firms? Or should at least some of it come from the company itself?

------
teeja
Whenever I read about these things, the words "milking machine" come to mind.
Get enough cows in the barn and turn 'em on.

------
brianjyee
I'm in the "insider trading should be legal" camp.

------
vtry
The investors should demand their money back.

------
snorkel
I suppose we should all be glad that some VCs were able hit a jackpot so soon,
this is just what provides incentives for other VCs to keep investing in tech
startups.

~~~
tatsuke95
> _"I suppose we should all be glad that some VCs were able hit a jackpot so
> soon, this is just what provides incentives for other VCs to keep investing
> in tech startups."_

If I said: _I suppose we should all be glad that some mortgage brokers were
able to hit the jackpot so soon, this is just what provides incentives for
other mortgage brokers to keep pushing home loans on people._

I'd be lynched.

I agree it's a dog-eat-dog world, and that investors have to know what they
are getting into when this stuff goes public. But the fact that VCs are
pumping this crap up then dumping it on the public (who end up taking a bath)
is not a positive development. It sucks, because for every Zynga (or pets.com,
or webvan) there are 5 great companies that these VCs are supporting. But how
can the public continue to trust this system? Fool me once...

