penguin_5.jpg

penguin_5.jpg

It looks like the three instant multi-millionaires from Kelowna aren’t quite as multi as previously thought. Lane Merrifield, Dave Krysko and Lance Priebe were co-founders of Club Penguin, the social networking website for kids that was sold to Walt Disney Co, almost two years ago.

At the time, everyone was agog at the total sale number -- $700 million. Much was written about how the three had managed over a couple of years to build a “valueless” business that finally had a value. And it was hailed as a pointer to the new world of social networking, which many said had no business model. Obviously, Club Penguin proved them wrong, but the actual sale price was half that – $350 million. The other half was based on performance, and would be doled out in two $175 million payments over two years. This type of deal is not uncommon in the tech space. Because it’s so difficult to predict the future in a rapidly evolving industry, many companies frame their deals this way as a kind of pricing insurance against changes in the marketplace (In fact, given the sudden and massive economic changes over the past six to eight months, perhaps all industries should start thinking this way). Club Penguin didn’t “earn out” its predefined earnings targets in 2008, so the purchase price has just fallen by $175 million. If the same thing happens in 2009 – and there is a good likelihood of that because of the recession – it falls by a similar amount. Obviously, this doesn’t mean the Kelowna trio are ready for the poorhouse. They’re each still worth close to $100 million. And I’m sure they don’t really care all that much They were driven all along by strong personal values, and as a result are probably pretty well grounded. And in that is perhaps a lesson for anyone else hoping to make a big score in whatever kind of pursuit. Just how much is enough?