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Ex-billionaires poised to make a comeback

April 04, 2009 12:14 IST

Last year Mark Zuckerberg was the youngest billionaire on earth. Now 24, he had built Facebook into the world's most addictive social-networking site and sold a small stake in the company to Microsoft for $240 million. The number of people joining Facebook was growing at a ridiculous clip. It was easy to imagine the company was worth at least $5 billion, meaning Zuckerberg's stake was of the 10-figure variety.

Then came the market crash of 2008. These days private companies--especially those that don't have a definitive plan to monetize their user base--can't command the rich multiples they once could. Facebook's value fell below the threshold necessary to make Zuckerberg's cut worth more than $1 billion, and he became one of 355 tycoons to drop off the Forbes list of the world's billionaires.

Will he rally to become a billionaire again? Probably. Facebook is still rapidly growing its user base: The company now boasts 200 million members, a 100 per centĀ jump in seven months. If the company's financials can catch up to its membership growth (it recently had estimated revenues of $300 million), Zuckerberg should be able to take Facebook public--or sell it--to repair his depleted fortune.

History is a mixed bag when it comes to how the wealthy react to economic declines. Some moguls lose vast sums and then make it back again, while others get a taste of billionairehood and then quickly lose it forever.

Cisco Systems CEO John Chambers debuted on the Forbes list of the richest Americans in 2000 with a net worth of $1 billion. He dropped off a year later when the stock market crashed following the tech bust. He has not returned.

Michael Saylor, CEO of MicroStrategy, also rode the dot-com wave; he debuted on the 1999 Forbes 400 at $7.5 billion. His public holdings peaked in March 2000 at $13.8 billion, but most of that paper wealth had evaporated a year later. Saylor dropped off our billionaire rankings in 2001 and has not made a comeback.

But several investors who lost big after the dot-com bubble have rallied since. Ted Forstmann made huge bets on XO Communications and McLeodUSA during the heady days of tech, and lost big when both companies ended up in bankruptcy. In 2004 his fortune had fallen to $725 million.

But he fought back. His holding company invested $700 million in talent agency IMG and millions more into gym outfit 24 Hour Fitness. He cleaned up both company's balance sheets and achieved billionaire status in 2007.

Yasumitsu Shigeta founded his company, Hikari Tsushin, at age 23. When the company went public eight years later, Shigeta made history as one of the youngest chief executives in Jasdaq history. He listed Hikari Tsushin on the Tokyo Stock Exchange in September 1999. Shigeta's net worth soared to $42 billion at the height of the dot-com bubble, but lost $40 billion a few months later.

Shigeta recovered by diversifying his business into medical insurance and office equipment. He returned to billionaire status in 2005 and remains one of the richest men in Japan. Most recently we pegged his net worth at $600 million on our list of the 40 richest people in Japan.

Pizza patriarch and sports team owner Michael Ilitch fell off the Forbes 400 in 2005 after other tycoons outpaced his $815 net worth. Ilitch bounced back a year later after revamping his Little Caesars pizza chain and watching the value of his two pro sports teams, the Detroit Redwings and Detroit Tigers, soar.

In 2006 his net worth rose to $1.5 billion, and his sports and pizza empire have since successfully weathered the current recession. Ilitch's net worth was estimated at $1.4 billion this March, down 13% from 2008.

Out of the 355 billionaires who dropped off this year's list, who will not return? It's going to be tough for the five former billionaires from hedge fund outfit Fortress Investment Group.

Wesley Edens, Michael Novogratz, Peter Briger Jr., Robert Kauffman and Randal Nardone burst onto the billionaire club following Fortress's public offering in early 2007, but their fortunes have fallen precipitously ever since. Many believe that the heady days of hedge funds are over for good and that the Fortress Five will be unable to recover.

Those likely to make a comeback: real estate moguls who can cover their short-term debt and hang on for the long haul. Herb Simon lost his billionaire status, his shares of Simon Property Group have fallen 60 per centĀ in the past six months. Still, analysts say the company's portfolio is full of great properties.

Manhattan apartment titan Leonard Litwin should also regain his 10-figure fortune when the recession ends and New York City's real estate prices stabilize.

Claire Obusan, Forbes