After Putney sale, CEO gave nearly $1M of her proceeds to employees
By WHIT RICHARDSON Friday June 3, 2016
No one would have blamed Jean Hoffman if, after the company she founded in 2006 was sold for $200 million, she had pocketed the money and moved onto her next project.
But that’s not what she did.
Instead, after a British pet pharmaceutical company paid $200 million to acquire Putney Inc., Hoffman gave nearly $1 million of her proceeds from the sale to the company’s employees, many of whom were laid off during the transition, Maine Startups Insider has learned.
Though she was hoping to avoid the spotlight for her gifts, Hoffman agreed to speak with Maine Startups Insider after news of her generosity leaked.
After the sale closed in late April, Hoffman gave $14,000 to each Putney employee who had been there at least six months. She said “around 60” employees received such a gift, which means she gave approximately $840,000 out of her own pocket to Putney employees. The company had 62 employees when the sale was announced in March.
The amount of each gift was $14,000 because that’s the maximum personal gift allowed under IRS rules without triggering the gift tax.
“Sharing a portion of my proceeds really came from gratitude on my part. These members of the team built the company with me and my success was because of them.”
The revelation is a bright spot in the aftermath of Dechra Pharmaceutical’s acquisition of Putney, which had been marred by the former’s decision to immediately lay off 17 of Putney’s 62 employees.
Hoffman is no longer involved with the venture-backed company she founded in 2006 to develop generic pharmaceuticals for pets. She said Dechra did not want her involved after the sale closed.
Because it was a private company, it’s not known how much Hoffman made on the sale, but she was no longer majority shareholder, having sold much of her equity to raise funds to keep the capital-intensive business afloat. Still, it’s safe to say the transaction made her a millionaire several times over.
Hoffman was under no obligation to gift that money to five dozen employees she no longer worked with, so then why did she do it?
“Because I felt the contributions of Putney’s team were so important and so integral to our success,” she told Maine Startups Insider. “And I really felt that my return in the transaction was in considerable part because — and would not have been possible without — the contributions of the team and people staying through to the end. And I didn’t feel that the investors were rewarding the team as fully or as generously as I wanted them to be — as they had earned.”
Startup CEOs and investors rewarding employees is not unheard of, but it’s often done via generous stock options and accelerated vesting schedules triggered by an event like an acquisition. Handing out personal checks to every member of the team is not so common.
A fight to reward Putney’s team
Hoffman’s gifts were on top of whatever proceeds employees with stock options received from the sale and the bonuses that all employees received as part of a retention plan to provide employees with an incentive to stay through the sale.
But Hoffman said she had to fight the company’s board to make sure those bonuses, retention and severance plans were put in place. In fact, Hoffman said she threatened to resign when she became worried the board would push forward with the sale without implementing the employee incentive plans, including accelerating the vesting of all outstanding employee stock options.
“Our largest investor in particular was very difficult to work with in a lot of ways, and I had a lot of tension with them over their blocking of granting stock options that had previously been voted on,” she said. “They generally did a lot of things to lessen the benefits shared with the team of the anticipated Putney exit.”
Hoffman wouldn’t name the difficult investor, but Putney’s largest investor was Pennsylvania-based Safeguard Scientifics Inc., which had invested $14.9 million in the Portland company since September 2011 and owned 28 percent of it. It received initial cash proceeds of $58 million from Putney’s acquisition, it revealed in a news release.
Fortunately, Putney’s board blinked and rather than Hoffman resigning, the retention plans were put in place and all outstanding employee stock options did vest, “which was the right thing to do,” Hoffman said.
But she still felt she wanted to do more for the Putney team, which she saw as integral not only to the company’s success, but to her growth as a CEO.
“What interests me about building companies, and interests me in general, is always new challenges,” Hoffman said, adding that there were a number of new challenges in building Putney. “As I looked at what I wanted to develop in myself, it was additional leadership skills related to leading a more powerful board, raising capital and working with a more senior leadership team, and building a larger company whose success would be much more dependent on other people and my ability to attract, motivate and work with other people.
“So it was an opportunity to build something much larger than myself, and Putney truly provided me with that learning opportunity,” she said. “I feel like I grew tremendously, and we grew tremendously as a company because of the team. So, sharing a portion of my proceeds really came from gratitude on my part. These members of the team built the company with me and my success was because of them.”
To James Morin, Putney’s manager of commercial operations, who is still employed by Dechra, Hoffman’s generosity is a exclamation point to her tenure building the company from the ground up, and offers a valuable lesson in leadership.
“When push came to shove, she fought for us,” Morin said. “Honestly, I’m going to save that check. As someone who wants to run my own business one day, it will forever remind me what it means to be a leader.”
Despite layoffs, exits strengthen startup community
Hoffman recognized Putney had a lot of runway for growth and needed a more mature investor base, but because she was no longer majority shareholder, the desire of the company’s largest investors, who wanted to cash out, dictated the business cycle.
And, while she did not enjoy seeing members of her former team being laid off, Hoffman is confident they will land on their feet.
Company acquisitions, especially by larger, out-of-state companies, are sometimes viewed in a negative light because of the layoffs that can sometimes result, but Hoffman thinks the churn results in a net positive despite the short-term discomfort.
“There are a lot of great people at Putney who learned very desirable skills who are now part of the Portland startup community and ecosystem,” she said. “And I do think in that way, no matter the result of an exit, the training of people, the success of people in building a company and then being available to build other companies is a great positive.”