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VA Linux founder becomes paper billionaire in a day

The astonishing trajectory in the stock price for the Linux hardware specialist on the first day of trading creates instant wealth for the company's investors and founders.

Before much of Silicon Valley was awake, VA Linux Systems founder Larry Augustin had become a billionaire, at least on paper.

The astonishing trajectory in the stock price for the Linux hardware specialist on the first day of trading created instant wealth for the company's investors and founders. Not only did Augustin end the day as a paper billionaire, venture capitalist Sequoia Capital's investment is worth about $2.2 billion. Intel, another investor, holds VA stock worth nearly $1 billion.

VA Linux vice president John Hall's stake in the company is worth about $700 million.

VA Linux Systems makes computers, chiefly servers, that run Linux, a Unix-like operating system created by Linus Torvalds and numerous other programmers.

The surge in wealth is a result of Linux fever on Wall Street. Shares in VA Linux, which trades under the symbol "LNUX," were priced at $30. The first trade, however, came in at 299 and the shares closed at 239.25, a 698 percent gain.

Augustin and his wife are listed as the owners of 6.6 million shares, according to documents filed with the Securities and Exchange Commission.

As soon as trading began in the stock, the shares were worth $1.98 billion. At the closing price of 239.25, the value of the Augustins' stake dipped to $1.6 billion. Sequoia and Intel, meanwhile, own approximately 9 million and 3.5 million shares, respectively. Hall is listed as the owner of roughly 2.9 million shares.

Others have already made fortunes off of Linux. Red Hat chairman Robert Young, founder Marc Ewing and investor Frank Batten saw their interests in that company hit the billion dollar mark. However, it took about a month. In Augustin's case, it took minutes.

Directors and officers of VA Linux collectively own roughly 25.5 million shares, which translates to more than $6 billion. Company representative's refused to comment, because the company is in an SEC-mandated quiet period.

This new-found wealth, of course, comes with restrictions. A substantial portion of the holdings of Augustin and others currently exist as stock options that cannot be immediately exercised. Also, Augustin and other officers of the company also hold their shares and options to a right of repurchase. That means if they leave the company, VA Linux has the right to buy back a certain amount of shares at the original offering price of $30.

Stock held by early investors is also subject to SEC regulations and can only be sold during prescribed periods of time.