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Why Chipotle's Founder Isn't A Burrito Billionaire (And May Never Be)

This article is more than 9 years old.

Chipotle founder and CEO Steve Ells could have been the first burrito billionaire.

Chipotle stock is soaring again, up 12% on the strength of its recent earnings report. The shares are now up 22% in 2014 and 63% over the last year. But that recent growth doesn't even begin to capture the exponential expansion of Chipotle. In January 2006, it held its initial public offering at $22 a share. The stock popped 100% in one day and is up over 1400% since. Shares are now worth a record high over $660.

When a $20 billion market cap company emerges in less than a decade, a billionaire often isn't far behind. Look no further than Netflix's Reed Hastings, who joined the richest club last month due to his streaming empire. And Steve Ells, the original founder of Chipotle, remains the company's chairman and co-CEO. Surely he must have a sizable stake.

Ells does have a sizable stake, and he's become remarkably wealthy in a short period of time from it. But he isn't close to billionaire status yet -- and may never be. Here's why.

As of Chipotle's 2014 proxy statement in March, Ells held 339,474 shares of Chipotle stock (including some options). That's just over 1% of outstanding shares, and at current prices his stake is worth over $200 million.

While most people would love to have Ells' shares, and he's probably quite comfortable with the fortune he has amassed, that stake is much lower than that of many other comparable CEO-founders. For example, Hastings has been heavily diluted over time, but still has just under 4% of Netflix's outstanding shares.

The primary reason Ells' stake is so low is that he has been selling stock since Chipotle's 2006 IPO. Even as Ells has had options vest over time, his total share count has dropped:

While Ells banked cash profits on his stock sales, there's no investment he could have made with that money that would have been more lucrative than keeping it in Chipotle stock. For example, if Ells had never sold a single share since the IPO, just that original pot would now be worth about $700 million (up from a scant $22 million in 2006).

Yet there's another, more fundamental reason for Ells falling short of billionaire status: selling out to McDonald's. Back in 1998, Chipotle was only a 14-restaurant chain, mostly in the Denver, CO area. In order for Ells to supercharge expansion of his promising fast casual concept, he needed money. That cash infusion came in the form of an investment from fast food king McDonald's. While the Golden Arches initially took only a minority stake, by the time Chipotle went public in 2006, McDonald's owned more than 90% of the company.

McDonald's no longer owns any shares of Chipotle (something it must also now regret), but the impact on Ells' ownership stake was permanent. When the parent company took over that much of Chipotle, it was tough for Ells to retain a big chunk. He only had about 4% of the company before the IPO.

Still, if Ells could do it again, he probably wouldn't renege on his deal with McDonald's. The burger behemoth put Chipotle all over the map -- growing from just 14 stores to over 500. The expansion since (up to 1,681 locations) wouldn't have been possible without that startup capital.

But that decision may prevent Ells from ever becoming a billionaire. Not that anyone should discount Chipotle stock after the torrid run it has sustained, but shares will likely need to more than double in price again before he sniffs placement on the Forbes 400 list. That's a lot more burritos.

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