Deborah L. Jacobs
As many of you may already know (if not, it’s reported here), in 2005 Sean Parker, then President of Facebook, hired David Choe to create explicit murals on the walls of the company’s first offices in Palo Alto, California. Choe faced a decision: receive payment of thousands of dollars (with unknown zeros) or opt for an equivalent amount of Facebook stock. Choe chose the stock, a move that is now estimated to be worth around $200 million as Facebook prepares to go public.
Choe’s remarkable success story is one that captures our collective imagination. However, it is also a story that most of us cannot replicate, whether as freelancers, employees, or investors. Attempting to do so could lead to severe financial repercussions.
Instead of fixating on chasing the next hot stock, we should view Choe’s journey as a parable from which we can draw valuable lessons. Here are six insights we can learn from his experience:
1. Freelancers Typically Require Cash, Not Stock
As I mentioned in my article, “How To Make Money Without A Job,” freelancers face significant challenges such as setting fair fees and managing expenses while waiting for clients to settle payments. Choe’s investment in Facebook stock only paid off because he had the financial stability to hold onto it as its value soared. If he had needed immediate cash flow to cover his bills, he would have had no choice but to opt for cash compensation.
2. Invest in What You Understand
Accepting stock or stock options as compensation entails making an investment. In the words of Warren Buffett, one should not invest in companies they do not comprehend or cannot influence. During the late 1990s, people lost sight of this principle when stock-option fever took hold. Compensation packages across various positions, from secretaries to top executives, heavily relied on stock options. While some individuals profited immensely, the market downturn left many holding worthless options.
Ironically, Choe himself made a misjudgment back in 2005 when he expressed skepticism about the entire concept of Facebook. Despite his reservations, he invested against his better judgment and happened to strike luck.
3. Be Prepared for Potential Losses
Most start-up companies do not go public, and for every dot-com millionaire, there are numerous individuals who suffer losses from failed ventures. This includes former employees whose compensation consisted primarily of stock in now-defunct companies, independent contractors like Choe, and venture capitalists. Although the stock Choe received turned out to be incredibly valuable, there was a genuine possibility that Facebook could have failed. In such a scenario, he would have essentially worked on the murals for little to no compensation.
4. Diversify Your Investments
It is likely that Facebook represented only a fraction of Choe’s investment portfolio at the company’s inception. However, with its impending IPO, Facebook is set to become a substantial portion, if not the majority, of his net worth. Choe should seriously consider diversifying his investments to reduce exposure to a single company.
5. Exercise Caution and Skepticism
The Facebook success story has generated collective excitement and euphoria, making us more susceptible to scams and get-rich-quick schemes. When evaluating new investment opportunities, it is crucial not to neglect due diligence and remain vigilant.
6. Pursue Your Passion
When Choe took on the assignment for Facebook, he likely did not envision the immense wealth it would bring. Instead, he focused on doing work that he genuinely enjoyed, which is always a wise approach. While following your passion may not guarantee millionaire status, it will undoubtedly enrich your life in one way or another.
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