News of Twitter's IPO comes with the obligatory story about how many people of modest means have instantly become millionaires: an estimated 1,600, according to the San Jose Mercury News. These are employees -- largely engineers -- who got stock and whose net worth is now, at the minimum, into seven figures.
That is, seven figures on paper. But if you're thinking of taking a job at the Next Big Opportunity, it's best to realize how rare the chance to cash in is and how many things can go wrong, even if you wind up at the right company.
Who will IPO? Who knows?
Identifying a business that could go the distance, or at least be bought by a large corporation for a significant amount, is far easier said than done. According to a report from the Ewing Marion Kauffman Foundation, which studies entrepreneurship, 2010 saw the lowest number of new businesses started in three decades, and even then there were 390,000 new companies in that year alone. In that year, there were only 253 IPOs in total, according to Renaissance Capital. This year there have been only 226 IPOs in the U.S. to date.
That's a slim number. One possible way to identify which companies might eventually have an IPO is to watch where venture capital firms put their money. Think like an investor and keep an eye on sites that carry such information, like the Wall Street Journal's Venture Capital Dispatch.
Get the right job
Assuming you do your homework and see a good prospect, you now need to get a job there and negotiate stock as part of your compensation. The problem is that you'll need a skill and experience that the company considers important enough to have to warrant offering stock. That doesn't necessarily mean being an engineer. When Google had its IPO, the millionaire ranks included "secretaries, a company masseuse and a company chef," according to the New York Times.
Then keep it
Once you're employed at a pre-IPO company, there is no guarantee that you will keep the job. You could leave for any normal reason at all -- even be laid off. That happened to Dom Sagolla, an early Twitter employee. Laid off in May 2006, he never received stock, according to the New York Times, and now is "devastated" at coming so close only to lose the chance.
Rolling the dice
Once you've got the shares or stock options (the right to buy shares at a specified price on a later date), you're now in the boat with most investors. Companies typically prohibit employees from selling the shares they have outright for six months after the IPO date, and stock prices can do a lot in that time. Like sink.
Laurie Petersen, editor-in-chief at AOL Jobs, has actually gone through the IPO roller coaster twice -- at iVillage and Barnes&Noble.com -- and still has a day job. Hint, it's not because she's grown bored of tropical drinks on a beach. Much of making the millions you may have on paper is still a matter of luck and timing. Often stock vests over time, so you won't have all your shares at once. And if the price drops far enough, what you do have may literally be worthless.
The smart approach for making money off an IPO company is to forget the big payoff dream and focus on building your career and bank account.
Image: Flickr user Anthony Quintano