Hewlett-Packard recently agreed to buy 3PAR for $2.35 billion. 3PAR makes high-end computer storage systems, and this company seemed like a must-have trophy wife for two rivals. For a few weeks there was a huge bidding war going on between HP and Dell. The bidding war began with Dell offering $18 per share, and eventually HP won the deal by offering $33 per share. In 2007, 3PAR went public at $14 a share. What a fantastic deal that must have been for the founders of the company!
Not many people realize that the founders of startups like 3PAR at the time of exit only own 2-5% of the company’s shares. Jeffrey Price, one of the founders, will receive $41.4 million for his 2% stake. He is correct, he is one of the early founding owners and only owns 2% of the company. Mr. Ashok Singhal, who owns less than 1% of the company’s shares, will walk away with $18.8 million. At the time of the deal, the ownership percentage of the third founder, Robert Rogers, was unknown. The guess is that he has peanuts. On the other hand, the company’s CEO, David Scott, who was brought into the company by investors in 2001, owns 4.6% of the company’s shares. Mr. Scott, a former HP executive, will get $95.7 million from this deal. The largest combined 38% ownership stake in 3PAR, of course, belongs to the big entrepreneurs/VC firms: Mayfield Fund, Menlo Ventures and Worldwide Technology Partners.
The story is that typically the original founders rarely remain majority shareholders when the startup reaches the exit stage. Multiple rounds of investments by investors and venture capital firms often dilute the ownership stake of the original founders. Too often, the original founding team is pushed shipboard by the big money guys. At the end of the day capitalism still rules! That is why with my startup I chose not to have investors.