RE:All those AH's who were rude to me F Y I was right! In a successful private company, a majority of a founding CEO’s wealth may be tied up in their company shares — and with a typical tech startup, all of their wealth. These are risky companies that, despite having grown to considerable size and being valued at billions of dollars, still have a significant chance of going out of business in the next several years and pay salaries that are far under market for their top executives. So you have a top executive, overseeing thousands of employees and commanding great resources, living in a small rental apartment, unable to afford things like buying a house, major medical expenses, college tuition for children, or entertaining at the level of their investors, customers, and vendors. A slight miscalculation or a lawsuit and they are personally bankrupt.
I have certainly seen this over the years, founders who are billionaires or near-billionaires on paper, who are left with nothing at the end of the day because of a miscalculation, and probably out of the game and not employable at that level again because the industry has moved on and their skills and insight are not relevant anymore. I’ve seen some other billionaires who managed to salvage a few million or tens of millions of dollars, even if a fraction of their former paper wealth, but enough to set themselves up to be financially secure with a house, money to invest, donate to charity and live in comfort.
In reality, many private company founders do find a way to diversify their ownership, and it does not make them less effective or indicate that they believe their company is in trouble or overvalued. You could analogize it to somebody who owns a gold mine and nothing else. Suppose they want to sell some of their gold to the public instead of hoarding it. That does not mean they don’t believe in their mine or the value of gold, it means they have some understanding of personal finance.
If a company’s structure and governance procedure is reasonable, any stock sale by the CEO or other founders and top executives would require participation and approval of the Board and its investors overall. There are fiduciary duties to watch for, and questions of inside knowledge. The CEO cannot setup a major stock sale on a whim. These set up checks and balances to make sure that the CEO does not setup a sale that is exploitive of others, and does not sell all of their stock. It is hard to fathom that a CEO would sell all or nearly all of their stock, so as to eliminate their personal incentive in the company’s success. Public companies have much more detailed laws in place to prevent trading on inside knowledge, or stock price manipulation.