DealBook: Huge Payday for Chief Executive Who Is Leaving Nokia

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The Payday at Twitter Many Were Waiting For

He had already signed up a number of well-known Silicon Valley financiers, but he also dashed off a note to his old friend Dick Costolo, who had just sold his company to Google, asking if he would like to put in $25,000 or $100,000.

“I’m on the $25k bus,” Mr. Costolo replied three minutes after receiving the e-mail. “Thanks Ev, this will be a lot of fun.”

Mr. Costolo, who is now the chief executive of Twitter, is one of a handful of individual investors who stand to reap the rewards of a potential initial public offering of stock in the social network. The company said on Thursday that it had filed early paperwork with regulators to conduct such a sale, which will probably occur late this year or early next year.

Although many details are still unclear — most of all the offering price of Twitter’s stock — Mr. Costolo’s initial investment is probably worth more than $10 million, with additional shares he has received as an executive worth many millions more, according to people knowledgeable about the company’s finances.

Twitter declined to comment on its finances, citing the confidential nature of its I.P.O. filings at this stage in the process.

Mr. Williams, who provided crucial early financing for Twitter and remains its largest shareholder, will almost certainly become a billionaire. The venture investor Chris Sacca and at least two venture capital firms, Union Square Ventures and Spark Capital, will also most likely end up with stakes exceeding $1 billion each, according to an analysis of financial documents and interviews with people who know about Twitter’s finances. Others could make tens of millions or even hundreds of millions of dollars.

Not everyone will be so lucky.

Twitter struggled in its early days, even laying off employees as it tried to conserve its cash. Just two years ago, there were questions about its viability as it tried to figure out how to wring revenue from the endless stream of 140-character messages generated by its users. Many early investors and employees sold hundreds of millions of dollars of stock in 2011 to a Russian investment firm, DST Global, that was eager to buy in.

“To see it come to life and have it taken away, I was devastated,” said Dom Sagolla, an early employee of Twitter who was laid off in May 2006 and never received stock. While Mr. Sagolla has made some money by proxy from Twitter — he wrote a book that tells newcomers how to use the service and is doing some paid public speaking — he does not stand to benefit as Twitter heads to Wall Street.

Twitter’s I.P.O. will not be nearly as large as Facebook’s $16 billion offering last year, but it will still create a multimillionaires club of dozens of early believers.

“For me personally, this is a once-in-a-decade or once-in-a-career kind of investment,” said Bijan Sabet, a partner at Spark Capital, one of the earliest investors in Twitter.

If history is a guide, the money generated by the Twitter offering will also provide the seed money for the next generation of scrappy tech companies that could grow to compete with Twitter.

“When you have a successful I.P.O., it gives people confidence both in the public and private markets and they are directly correlated,” said James A. Moore, a senior executive at Columbia Business School’s entrepreneurship program and founder of J. Moore Partners, a technology mergers and acquisitions consulting firm.

Indeed, Mr. Williams and his other two co-founders, Jack Dorsey and Biz Stone, are no longer involved with daily operations at the company and have moved on to new ventures. Dozens of other very early employees have also left, although many still hold stock worth millions.

How many millions will depend on the final valuation placed on the company for the stock offering. Investment bankers will gauge investors’ interest in the stock and work with the company to set a price.

In March, Twitter set off a frenzy of interest after it said it was valuing the stock it was offering to employees at $17 a share, according to VC Experts, a private company data provider. That price implied that the company was worth more than the $8 billion valuation it had when it raised money in 2011.

Since then, interested parties have been willing to pay as much as $30 a share for a piece of the company in private transactions, according to Michael Pachter, an analyst at Wedbush Securities.

On the public stock exchanges, Internet companies have been surging. This week, investors have plowed money into companies like Facebook, Netflix and Pandora, sending their stock prices to record highs.

“Internet valuations are crazy right now and investors are willing to pay a lot for equity in Internet stocks,” Mr. Pachter said. “Twitter is taking advantage of this.”

In hindsight, some Twitter shareholders who cashed out early have expressed regrets. But “in our case, we are early-stage people, and we had had a remarkable run,” said one early investor who sold millions of dollars of stock in 2011, when the Russian investment firm was buying.

And then there were those who never got any stock at all, like Florian Weber, one of the earliest programmers at the company. He worked on the project before it was even fully separate from Odeo, the now-defunct company where it was hatched.

Mr. Weber, a German citizen, said he was hired as a contractor, not an employee, so he never received any stock options.

“Coming from Germany, it’s not something that I pushed terribly hard for,” said Mr. Weber, who often worked remotely from Hamburg and eventually tired of telecommuting.

“As far as I know, I’m the only one who does not have stock options,” he said. But he has no regrets. He eventually started his own company, Amen, in Germany, which was just sold to a bigger firm, Tape.tv. “I’m very happy with my life.”

Alexandra Stevenson contributed reporting from New York.

Bits Blog: Rich Payday for New Zynga Chief

Don Mattrick ran Microsoft’s Xbox business. Zynga tossed in a $5 million signing bonus for him to become its new chief executive.

There is nothing virtual about the currency that Zynga’s new chief executive, Don A. Mattrick, will get for taking the helm of the troubled social games company.

In a filing with securities regulators on Wednesday afternoon, Zynga said that Mr. Mattrick will receive a compensation package worth around $50 million over the next several years, and perhaps more if he succeeds in turning around the company. That will buy Mr. Mattrick a lot more than the imaginary money Zynga doles out to its gamers so they can buy fake tractors and seeds for their virtual farms.

Zynga found many different ways to pay Mr. Mattrick, the filing shows. There is a $1 million base salary, which will be augmented by an annual bonus of two to four times his salary, or $2 million to $4 million. Zynga is tossing in a $5 million signing bonus as well.

The biggest part of the package, though, is a “make-whole grant” of restricted stock worth $25 million to make up for the compensation he is forfeiting by leaving Microsoft, where he ran the Xbox games business. Mr. Mattrick, who is scheduled to start at Zynga on Monday, needs
to stay there for three years to collect this grant in its entirety.

Zynga is also making an “inducement grant” of restricted stock and options to Mr. Mattrick that he will collect in full after staying at the company for five years. This grant has a total target value of $15 million.

To give Mr. Mattrick an extra incentive to perform at Zynga, the company said it would make additional annual equity grants starting in 2014. Those grants will be worth about $7 million a year.

Major Banks Aid in Payday Loans Banned by States

With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

“Without the assistance of the banks in processing and sending electronic funds, these lenders simply couldn’t operate,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.

The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.

But state and federal officials are taking aim at the banks’ role at a time when authorities are increasing their efforts to clamp down on payday lending and its practice of providing quick money to borrowers who need cash.

The Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau are examining banks’ roles in the online loans, according to several people with direct knowledge of the matter. Benjamin M. Lawsky, who heads New York State’s Department of Financial Services, is investigating how banks enable the online lenders to skirt New York law and make loans to residents of the state, where interest rates are capped at 25 percent.

For the banks, it can be a lucrative partnership. At first blush, processing automatic withdrawals hardly seems like a source of profit. But many customers are already on shaky financial footing. The withdrawals often set off a cascade of fees from problems like overdrafts. Roughly 27 percent of payday loan borrowers say that the loans caused them to overdraw their accounts, according to a report released this month by the Pew Charitable Trusts. That fee income is coveted, given that financial regulations limiting fees on debit and credit cards have cost banks billions of dollars.

Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.

Lawmakers, led by Senator Jeff Merkley, Democrat of Oregon, introduced a bill in July aimed at reining in the lenders, in part, by forcing them to abide by the laws of the state where the borrower lives, rather than where the lender is. The legislation, pending in Congress, would also allow borrowers to cancel automatic withdrawals more easily. “Technology has taken a lot of these scams online, and it’s time to crack down,” Mr. Merkley said in a statement when the bill was introduced.

While the loans are simple to obtain — some online lenders promise approval in minutes with no credit check — they are tough to get rid of. Customers who want to repay their loan in full typically must contact the online lender at least three days before the next withdrawal. Otherwise, the lender automatically renews the loans at least monthly and withdraws only the interest owed. Under federal law, customers are allowed to stop authorized withdrawals from their account. Still, some borrowers say their banks do not heed requests to stop the loans.

Ivy Brodsky, 37, thought she had figured out a way to stop six payday lenders from taking money from her account when she visited her Chase branch in Brighton Beach in Brooklyn in March to close it. But Chase kept the account open and between April and May, the six Internet lenders tried to withdraw money from Ms. Brodsky’s account 55 times, according to bank records reviewed by The New York Times. Chase charged her $1,523 in fees — a combination of 44 insufficient fund fees, extended overdraft fees and service fees.

For Subrina Baptiste, 33, an educational assistant in Brooklyn, the overdraft fees levied by Chase cannibalized her child support income. She said she applied for a $400 loan from Loanshoponline.com and a $700 loan from Advancemetoday.com in 2011. The loans, with annual interest rates of 730 percent and 584 percent respectively, skirt New York law.

Ms. Baptiste said she asked Chase to revoke the automatic withdrawals in October 2011, but was told that she had to ask the lenders instead. In one month, her bank records show, the lenders tried to take money from her account at least six times. Chase charged her $812 in fees and deducted over $600 from her child-support payments to cover them.

“I don’t understand why my own bank just wouldn’t listen to me,” Ms. Baptiste said, adding that Chase ultimately closed her account last January, three months after she asked.

A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.