Note to Self: Equity Is Not a Toy!
By now, you may know that eBay acquired a 25% stake in Craigslist, the popular classified ad website based in San Francisco. But news reports have glossed over the fact that neither the company nor its founder, Craig Newmark, received a dime of the estimated $12 million to $15 million that eBay paid. What happened? In 1999, Newmark gave an employee some equity as a sign of good faith. In his blog, Newmark writes that he didn't think much of it at the time "since everyone agreed that the equity had only symbolic value, not dollar value." But when the employee left Craigslist this year, he was free to sell it -- and found a willing buyer in eBay. The auction Web business, with $2.2 billion in annual revenue, competes with Craigslist in some markets. "Entrepreneurs tend to make mistakes during the excitement of setting up a business," says Bruce Fenton, of Atlantic Capital, a private equity firm based in Westboro, Mass. "This kind of thing happens more than you think."
Darren Dahl is a contributing editor at Inc. magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, North Carolina.