Recently Hewlett-Packard agreed to buy 3PAR for $2.35 billion. 3PAR makes high-end computer storage systems and this company looked like a must have trophy wife for two rivals. For a few weeks there was quite a bidding war between HP and Dell. The bidding war started with Dell offering $18 a share and eventually HP winning the deal by offering $33 a share. Back in 2007 3PAR went public at $14 a share. What a fantastic deal this should have been for company founders!
Not many people realize that founders of start-ups such as 3PAR by the time of the exit only own 2% – 5% of company’s shares. Jeffrey Price, one of the founders will get $41.4 million for his 2% ownership. That is correct he is one of the early owners founders and he only owns 2% of the company. Mr. Ashok Singhal who owns less than 1% shares of the company will walk away with $18.8 million. At the time of the deal it was unknown about the ownership percentage of the third founder Robert Rogers. The guess is he owns peanuts. On the other hand company’s CEO David Scott who was brought in to the company by investors in 2001 owns 4.6% shares of the company. Mr. Scott former HP executive is getting $95.7 million from this deal. The largest ownership share of combined 38% in 3PAR, of course, belongs to the big money guys/venture capital firms – Mayfield Fund, Menlo Ventures and Worldwide Technology Partners.
The story is that usually the original founders rarely remain majority shareholders by the time the start up reaches exit stage. Multiple rounds of investments made by investors and venture capital firms typically dilute ownership stake of original founders. Quite often the original founders’ team gets pushed of the boat by the big money guys. At the end of the day capitalism still rules! That’s why with my start up I chose not to have any investors.