Founders, Hold on To Your Stocks

For founder-CEOs in hot private companies, it may be tempting to sell shares for some quick liquidity.

But if an IPO is still the long-term plan, it’s best to hang on to a sizable stake.

That was the general finding from a peHUBsurvey on the question of what size ownership stake is optimal for a still-active founding CEO or executive prior to a public offering.

The largest group – 44% of respondents – said they’d like to see a founder-CEO hold 15% or more of company shares. The second largest group – 37% – said a stake of 5% to 10% was optimal.

Another 15% said the appropriate range varies widely, while just 4% said it wasn’t important in evaluating an investment. One said the stake should be “significant enough compared to his (or her) net worth.” There were a total of 89 survey responses as of noon Monday.

The survey came on the heels of a spate of filings by venture-backed companies in which founder-CEOs were largely holding far less than 15% and, in some cases, reduced leadership roles.

At music streaming site Pandora, for instance, the company’s famously persistent founder, Tim Westergren — who stuck with the dot-com bubble-era company for years without pay — owns a whopping 2.39% of the company. (Westergren is the company’s chief strategy officer.)

At LinkedIn, founder Reid Hoffman and his wife, Michelle Yee, own a sizeable 21.3% of the company. But Hoffman, now a partner at Greylock, is no longer CEO. That post is now held by former Yahoo executive Jeff Weiner, with Hoffman serving as executive chairman.

Meanwhile, at vacation rental site HomeAway, co-founder and CEO Brian Sharples holds a 3% stake, while co-founder and Chief Strategy Officer Carl Shepherd has just under 1 percent. In contrast, HomeAway’s five largest venture backers own 74% of the company.

Those stakes are smaller than some held by famous founders of IPOs past. For instance, when Google went public in 2004, Sergey Brin and Larry Page each owned 16% of the company, with CEO Eric Schmidt holding another 6.1%. And Steve Jobs reportedly had a 15% stake in Apple at the time of its 1980 IPO.

Probably the most famous case of a tech founder with an outsized post-IPO stake is Bill Gates, who owned 46% of Microsoft when the company went public, shortly after his 30th birthday, in 1986.