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Ask HN: Has anyone sold their employee stock on the secondary market?

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Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#41

Post by secondmarketsel »

I used EquityZen a few times to sell shares and had a good experience with them. The main things I'd do differently are probably not hire a lawyer or at least find one I knew specialized in startups (I had the first deal with a lawyer and subsequent without and it just seemed to add friction without value, but who knows...I'm not a lawyer haha) and learn about Qualified Small Business Stock (QSBS) for tax purposes/talk to accountant that specialized in startups. The accountant I did talk to (recommended by my lawyer :-p) didn't mention this at all even though it did qualify.

The deals did need board approval, but it seemed like it was more to determine whether they wanted to exercise the right of first refusal (they did in the first deal and did not in subsequent), but maybe standard terms have changed since the rise of secondary market platforms. It was a bit nerve-wracking the first time since I didn't know what I was doing and I was most likely the first person to do it at the company, but it ended up working out fine (probably also worth noting I was no longer an employee at the time of the deals). Good luck!

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#42

Post by mateo411 »

bb88 wrote: post #37
secondarymarket wrote: post #33

Earlier quoted context omitted.

Ah, interesting that your company had a standard policy for this. I wish mine did as well. Worried about getting (or even asking for) board approval - what incentive would they have to allow an employee to reduce their stake in the companies success prior to an IPO event?

Owning shares in a pre-ipo company comes with it's own risks. And not wanting to be diluted from future investments is a valid reason to selling your shares. It's possible for the company to dilute your shares turning them worthless, and then generates new shares. I'm sure there's lots of examples you can find of dilution, but that was what FB did to the former CFO as shown in the movie "The Social Network". People k…

It's true that the company might dilute your shares, but that also dilutes everybody else's shares too.

The greatest risk is the company won't be successful and your shares will be worthless.

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#43

Post by bb88 »

mateo411 wrote: post #42
bb88 wrote: post #37

Earlier quoted context omitted.

Owning shares in a pre-ipo company comes with it's own risks. And not wanting to be diluted from future investments is a valid reason to selling your shares. It's possible for the company to dilute your shares turning them worthless, and then generates new shares. I'm sure there's lots of examples you can find of dilution, but that was what FB did to the former CFO as shown in the movie "The Social Network". People k…

It's true that the company might dilute your shares, but that also dilutes everybody else's shares too. The greatest risk is the company won't be successful and your shares will be worthless.

I think you missed the point about issuing new shares. Everyone doesn't end up diluted in that case.

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#44

Post by s1artibartfast »

mateo411 wrote: post #42
bb88 wrote: post #37

Earlier quoted context omitted.

Owning shares in a pre-ipo company comes with it's own risks. And not wanting to be diluted from future investments is a valid reason to selling your shares. It's possible for the company to dilute your shares turning them worthless, and then generates new shares. I'm sure there's lots of examples you can find of dilution, but that was what FB did to the former CFO as shown in the movie "The Social Network". People k…

It's true that the company might dilute your shares, but that also dilutes everybody else's shares too. The greatest risk is the company won't be successful and your shares will be worthless.

It happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution.

Example: Cap table: Founder 10%, ex-employees 10%, VC 80%

Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1.

Step 2) New stock plan with 10% for founder

Cap table: Founder 11%, ex-employees 1%, VC 88%

Step 3) Founder and VC high-five

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#45

Post by HWR_14 »

s1artibartfast wrote: post #44
mateo411 wrote: post #42

Earlier quoted context omitted.

It's true that the company might dilute your shares, but that also dilutes everybody else's shares too. The greatest risk is the company won't be successful and your shares will be worthless.

It happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution. Example: Cap table: Founder 10%, ex-employees 10%, VC 80% Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1. Step 2) New stock plan with 10% for founder Cap table: Founder 11%, ex-employees 1%, VC 88% Step 3) Founder and VC high-five

Isn't that something the exemployee would be able to sue over? Like, it's clearly fraudulently done to steal their equity.

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#46

Post by bb88 »

HWR_14 wrote: post #45
s1artibartfast wrote: post #44

Earlier quoted context omitted.

It happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution. Example: Cap table: Founder 10%, ex-employees 10%, VC 80% Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1. Step 2) New stock plan with 10% for founder Cap table: Founder 11%, ex-employees 1%, VC 88% Step 3) Founder and VC high-five

Isn't that something the exemployee would be able to sue over? Like, it's clearly fraudulently done to steal their equity.

Yes, but you have to sue over it. For most people, it's probably not worth it. Besides, since it's a private company, equity is what the board/executives say it is.

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#47

Post by HWR_14 »

bb88 wrote: post #46
HWR_14 wrote: post #45

Earlier quoted context omitted.

Isn't that something the exemployee would be able to sue over? Like, it's clearly fraudulently done to steal their equity.

Yes, but you have to sue over it. For most people, it's probably not worth it. Besides, since it's a private company, equity is what the board/executives say it is.

> Besides, since it's a private company, equity is what the board/executives say it is.

Can you clarify that?

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#48

Post by s1artibartfast »

HWR_14 wrote: post #45
s1artibartfast wrote: post #44

Earlier quoted context omitted.

It happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution. Example: Cap table: Founder 10%, ex-employees 10%, VC 80% Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1. Step 2) New stock plan with 10% for founder Cap table: Founder 11%, ex-employees 1%, VC 88% Step 3) Founder and VC high-five

Isn't that something the exemployee would be able to sue over? Like, it's clearly fraudulently done to steal their equity.

Dilution is extremely common and a lot of this funding stuff comes down to businesses strategy. My example was extreme, but there is tons of gray area for this kinda thing

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#49

Post by zwily »

s1artibartfast wrote: post #44
mateo411 wrote: post #42

Earlier quoted context omitted.

It's true that the company might dilute your shares, but that also dilutes everybody else's shares too. The greatest risk is the company won't be successful and your shares will be worthless.

It happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution. Example: Cap table: Founder 10%, ex-employees 10%, VC 80% Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1. Step 2) New stock plan with 10% for founder Cap table: Founder 11%, ex-employees 1%, VC 88% Step 3) Founder and VC high-five

See: The Social Network. I now refer to it as “Getting Eduardo’d”

Re: Ask HN: Has anyone sold their employee stock on the secondary market?

#50

Post by s1artibartfast »

HWR_14 wrote: post #47
bb88 wrote: post #46

Earlier quoted context omitted.

Yes, but you have to sue over it. For most people, it's probably not worth it. Besides, since it's a private company, equity is what the board/executives say it is.

> Besides, since it's a private company, equity is what the board/executives say it is. Can you clarify that?

Maybe they meant valuation is what the board say it is
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