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 big bidding war between HP and Dell. The bidding war started when Dell offered $ 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 this should have been for the founders of the company!
Not many people realize that founders of startups like 3PAR at the time of exit only own between 2% and 5% of the shares in the company. Jeffrey Price, one of the founders, will receive $ 41.4 million for his 2% ownership. That is correct, he is one of the first owner founders and only owns 2% of the company. Ashok Singhal, who owns less than 1% of the company’s shares, will keep $ 18.8 million. At the time of the deal, the percentage ownership of the third founder, Robert Rogers, was unknown. It is supposed to have peanuts. On the other hand, the CEO of the company, David Scott, who was incorporated into the company by investors in 2001, owns 4.6% of the shares of the company. HP executive Mr. Scott will receive $ 95.7 million from this deal. The largest combined 38% ownership stake in 3PAR, of course, belongs to the large entrepreneurs / venture capital firms: Mayfield Fund, Menlo Ventures, and Worldwide Technology Partners.
The story is that 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. Very often, the original founders’ team is kicked off the ship by the wealthy. At the end of the day, capitalism still rules! For this reason, with my start-up, I chose not to have investors.