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Maybe I missed it but there doesn't seem to be much info on the selling price. Did it sell on the valuation implied by the last funding round or was it lower to "solve the risk problem for the investors?".
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It is possible to use a specialized finance vehicle in order to create a synthetic liquidity event for non-transferable exercised options; it is, in effect, a non-recourse promissory note.
Just when I thought I was getting the hang of how equity works... I didn't understand a word of that (other than non-transferable exercised options).
What did you mean by "changing the attractiveness of the shares" ?
don't many option plans say that shares are non transferable until a liquidity event unless company decides they should be transferable (ala what uber did recently).
Yes. This is SOP for law firms authoring stock option agreements after Facebook IPO'd. OP is extraordinarily lucky that his company allowed a stock transfer, with extraordinary being too weak of a word to describe his circumstance.
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Yes, there are several strategies. Each of them impacts significant discount on sale price, requirements to make a sale, or significant risk to option holder. Kind of like saying "anyone can buy a car without having a job or savings" — it's true, but those deals aren't comparable to those that can buy a car with cash.
There are funds/financial firms that will fund your options exercise, and take nothing if your common shares go to zero (they take a cut if there is an IPO or other significant liquidity event). Its an equity-backed loan with no recourse. Appears to be a reasonable option if you have a large amount of options and prefer the cash now vs later. > All of these deals require approval by the company. Which means you don't…
Most stock options have short expirations (10 year is still very uncommon). There is no "now vs. later" choice, it's a "now or never choice"
All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of.
That kind of deal is in the 1% of deals they make. Almost all require option holders either repay loans or take on significant risk.
I know this stuff sounds great on paper, in practice it is another world. Not to mention the absurdity of giving away half or more of your gains to a private equity firm from options you earned, just because the company has made a weird rule.
Apologies, but it leaves reader with the main question unanswered - how?
1) The company is disincentivized to help you sell your stock/options because it will create a new valuation of common stock. Companies use the lure of a low 409a to attract employees, especially savvy executives, with equity packages. Doing anything to set a higher future strike price is not in their interest.
2) Your NDA almost certainly prohibits you from communicating anything meaningful about the financial success and any future roadmap to possible investors. The company isn't required to open their books to a potential new purchaser and the limited data you can get via Delaware company shareholder rights almost certainly can't be communicated either.
3) It is illegal to market your shares to non-accredited investors.
4) Remember you are selling common, investors are almost always buying preferred with liquidation preferences and other rights attached. The valuation you can ever achieve is limited pre-exit (where all shares usually achieve the same valuation).
Things you can do:
1) The best time to sell like this is during the next round of fundraising. If you are on good terms with the company and probably have already left the company, you may be able to tack on your common shares in a sidenote to one of the investors.
2) Approach existing shareholders (including the founders) as they are best placed to buy your shares. Remember though they probably have board material access and will have more informational rights and access than you do. They will try to price down the shares below their true value.
3) Some specialist secondary VC firms exist who will either buy shares or offer you a personal warrant on the shares. You probably need to be holding $1MM+ of equity for this to be worthwhile.
Overall: this is really a firesale approach. If the company is doing well, existing investors will buy at a huge discount and if the company is not doing well/unclear you almost certainly won't be able to sell.
It's almost certainly never worth trying to sell pre-exit.
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Yes. This is SOP for law firms authoring stock option agreements after Facebook IPO'd. OP is extraordinarily lucky that his company allowed a stock transfer, with extraordinary being too weak of a word to describe his circumstance.
Are they actually non transferable or are they required to give the right of first refusal to the company? If they are non transferable at all, what limitations are there? Can you transfer them in bankruptcy or divorce?
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There are funds/financial firms that will fund your options exercise, and take nothing if your common shares go to zero (they take a cut if there is an IPO or other significant liquidity event). Its an equity-backed loan with no recourse. Appears to be a reasonable option if you have a large amount of options and prefer the cash now vs later. > All of these deals require approval by the company. Which means you don't…
I … oof. I'm sure this stuff does look good from the outside. From experience, it is not anything close to that. Most stock options have short expirations (10 year is still very uncommon). There is no "now vs. later" choice, it's a "now or never choice" All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of. That kind of deal is…
And they're right, it is fairly risk free. The investors understand (and sign a lot of paperwork indicating that) they understand it's extremely high risk and will possibly end up that (a) the shares will be worth nothing or (b) the company may never, ever offer a liquidity event. In the event that they do, the shares or derived value thereof transfer to the lender/investor. In the event that they don't, the instrument performs exactly like a loan/promissory note backed by the equity the shareholder owns with no vehicle for enforcing repayment beyond derived value from the shares.
don't many option plans say that shares are non transferable until a liquidity event unless company decides they should be transferable (ala what uber did recently).
Though I'm not sure what's stopping you from just making up a contract that says I agree to sell you X shares for price $Y in the event that they become publicly transferrable and then selling that contract.
I think options agreements usually contain language that say you're not allowed to do that, so maybe the risk is if you were to get caught doing that they could cancel all your options.