When Jay Chaudhry sold his first company for $70 million, he focused less on his own riches, he says — and more on how the deal could turn dozens of his employees into millionaires.
Chaudhry, 65, is known today as the billionaire founder and CEO of Zscaler, a cloud cybersecurity firm valued at roughly $28 billion, as of Wednesday afternoon. Back in 1998, he was a first-time entrepreneur selling the startup he launched with his wife Jyoti, SecureIT, to VeriSign in an all-stock deal for a huge windfall.
Nearly two years after the deal closed, as VeriSign’s stock price soared, more than 70 of SecureIT’s 80 employees “on paper, were millionaires,” Chaudhry tells CNBC Make It.
“People were going crazy in the company, because they had never thought of so much money,” he says. “A lot of them were buying new houses. They were buying new cars. I know one guy, he took six months off, rented a [mobile home] and went around the country. They could do what they wanted to do.”
Between the time of the acquisition and February 2000, VeriSign’s stock increased by more than 2,300%, closing at a high of $253 per share, helped by two stock splits and a temporary bubble for tech stocks. The bubble burst later that year, and VeriSign’s stock lost roughly 75% off that high point at the end of 2000, sinking to a low of nearly $4 in 2002.
Jay and Jyoti Chaudhry pose with Jay Johnson, the former vice president of sales at SecureIT, at a 1999 party celebrating Chaudhry upon his departure from VeriSign.
Source: Jay Chaudhry
Chaudhry recalls advice from Jim Bidzos, VeriSign’s then-chairman, on what to do with his shares: Sell some of the stock little by little “on a regular basis.” The strategy helped Chaudhry reap some benefits of VeriSign’s soaring stock before the market cratered, he says.
SecureIT employees who held onto their VeriSign stock were likely rewarded by their patience: It closed at $254 per share as recently as January 2021. The price currently sits at roughly $175 per share.
Chaudhry says he doesn’t know if or when his former employees cashed in their own shares. When he left VeriSign at the end of 1999, his former employees threw him a party — but it wasn’t until later that he fully understood the impact the decision to sell SecureIT had on those employees, he says.
“I went home that night and looked at the spreadsheet of all the [stock] options they had, and I multiplied by the stock price of VeriSign. That’s when I realized that the math was about 70 or 80 millionaires, with stock options,” Chaudhry says. “It was impressive.”
‘Those employees make the difference’
Chaudhry himself already had enough money to be happy: He and his wife had a “nice, typical middle-class house at that time, and we didn’t have any fancy cars or fancy payments,” he told Make It last week.
He credits his ability to give employees so much stock to his bootstrapping approach. Chaudhry and his wife funded SecureIT themselves, emptying their life savings of roughly $500,000, instead of taking on outside investors.
That freed up more equity in the company to distribute, which was “good, because those employees make the difference — they [were] working day and night,” he says.
The story is reminiscent of fellow billionaire Mark Cuban, who recently noted that he handed out employee bonuses after selling Broadcast.com to Yahoo for $5.7 billion in 1999. The act turned hundreds of his employees into instant millionaires, Cuban said.
Cuban has paid out bonuses to employees at every company he’s sold, starting with CompuServe’s acquisition of software firm MicroSolutions in 1990, he told Make It last month. That includes sales of his majority stakes in HDNet, now known as AXS TV, in 2019 and the NBA’s Dallas Mavericks last year, he wrote on social media platform X.
“And only HDNet had any layoffs right after the sale,” Cuban added.
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