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Dear Unicorn, Exit Please

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Re: Dear Unicorn, Exit Please

#21

Post by scurvy »

zkhalique wrote: post #9
j_baker wrote: post #5

Earlier quoted context omitted.

Because there's no one they can sell their shares to. With a public company, you can sell your shares on the stock market.

Perhaps they should be able to sell their shares back to the company? The company would be responsible for raising more money and have some allocation for share buyback.

Some well-run startups make arrangements for this when raising a round. The VC will agree to buy into the round at X dollars per share. They'll also agree to buy up to Y dollars worth of stock from employees who want to sell. VC gets more ownership of the company, and the company doesn't have to give up more ownership. It's overall a good situation. I know that Cloudflare and a few other companies offer this.

Re: Dear Unicorn, Exit Please

#22

Post by iaw »

birken wrote: post #16

I think that if you held a secret poll of founders of these companies, the majority of them would say they don't want this to change. Retention is really hard, and this is an incredibly powerful retention device at a fast growing company. As an employee though, you can always vote with your feet. When considering a job at a startup, you should go over the stock option plan and ask hard questions. Remember... the foun…

I think what's challenging in the current environment is that the most vested employees came on to a set of implicit promises made in the early stages of the company about long-term exit strategies. A decade ago the idea of a unicorn was unheard of so the equity grants seemed to have a closer date of execution than it was in reality.

Re: Dear Unicorn, Exit Please

#23

Post by scurvy »

chrisco255 wrote: post #3
api wrote: post #2

Unicorns feel like an artifact of making it a little too hard to go public.

Exactly, no one wants the additional overhead, requirements, and legalities that go along with going public.

Yeah, it really sucks to be forced to act like a grown-up, real company spending money on oversight and compliance. Much more fun to just buy pingpong tables and keep the beer kegs full.

Re: Dear Unicorn, Exit Please

#24

Post by bkjelden »

chrisco255 wrote: post #3
api wrote: post #2

Unicorns feel like an artifact of making it a little too hard to go public.

Exactly, no one wants the additional overhead, requirements, and legalities that go along with going public.

It's more than just overhead - going public forces you to think in terms of quarterly earnings reports.

It's very hard for a tech company to thrive in that kind of environment - capital expenditures required to develop new products or enter new markets will often not be profitable for several years, and getting the public market to understand that is impossible.

Re: Dear Unicorn, Exit Please

#25

Post by somic »

chrisco255 wrote: post #3
api wrote: post #2

Unicorns feel like an artifact of making it a little too hard to go public.

Exactly, no one wants the additional overhead, requirements, and legalities that go along with going public.

Not entirely true. IPO as a process exists to allow companies to raise money from the public, especially when private funding is not available. Overhead, requirements and legalities are a side effect, and if you have any money in a public market (like 401(k) in US), you absolutely want that. I do.

When private funding is available, IPO is not needed by definition. And since comp structures are set up with the expectation of IPO or exit, it's employees who are affected.

If you are negotiating an offer with a private company, you should attempt to price the risk of having to forfeit your stock comp. This risk has increased recently (that's what this story is about) but most people still under-negotiate it in their offers.

Re: Dear Unicorn, Exit Please

#26

Post by beambot »

hatred wrote: post #12
chrisco255 wrote: post #4

Why isn't it easier for employees to sell shares of private companies?

Most companies have a Right of first refusal clause embedded in the options agreement effectively limiting selling shares of private companies even after exercising options. If they are RSU's , I am assuming they can't be sold at all in the private markets ? Can anyone with prior experience elablorate on these ?

It's due to the SEC. The SEC places restrictions on who can buy shares in the private startups -- eg. you need to be an "accredited investor" to purchase them (>$1M liquid assets or >$200k/yr earnings). The SEC also places limits on the number of shareholders a company can have without (effectively) going public... which creates an incentive for startups to disallow current/former employees from selling their shares on the semi-private market.

Re: Dear Unicorn, Exit Please

#27

Post by 7Figures2Commas »

> This is why companies with skyrocketing valuations are particularly dangerous for employees. Shelling out tens or hundreds of thousands of dollars is hard enough for most. You can imagine needing to pay millions of dollars to acquire your options when you don’t have it.

Huh? The exercise price for options is established when employees are granted stock options, which almost always occurs at the beginning of employment. Employees can calculate the total cost of exercise based on the information contained in the Notice of Stock Option Grant. You can and should ask for this information before you join a company.

If you are granted 100,000 options with an exercise price of $0.20, you know that the total cost of exercise (assuming full vesting) will be $20,000. The company's valuation could increase fifty-fold and it wouldn't affect the cost of exercise.

Companies with skyrocketing valuations can be precarious for employees who join late, but here too employees can calculate everything up front and they should take into concern liquidity risk when evaluating what their options are really worth.

Re: Dear Unicorn, Exit Please

#28

Post by scurvy »

joshjkim wrote: post #20
chrisco255 wrote: post #4

Why isn't it easier for employees to sell shares of private companies?

It's getting easier with companies like sharespost.com but securities regulation generally discourage the sale of private company stock in any "open" (aka. public) way - this is ostensibly to protect buyers of stock from investing in risky assets that they know little about and for which there is little public information. Buyers are generally hesitant because they want to get financial info and other private data to…

It's damn near impossible to find a buyer without financials. Unless you work at a unicorn that raises money on hype, you're going to have a really tough time.

Re: Dear Unicorn, Exit Please

#29

Post by somic »

bkjelden wrote: post #24
chrisco255 wrote: post #3

Earlier quoted context omitted.

Exactly, no one wants the additional overhead, requirements, and legalities that go along with going public.

It's more than just overhead - going public forces you to think in terms of quarterly earnings reports. It's very hard for a tech company to thrive in that kind of environment - capital expenditures required to develop new products or enter new markets will often not be profitable for several years, and getting the public market to understand that is impossible.

Focus on quarterly numbers is a side effect, which is unfortunate. You go public not because you want to report quarterly. You go public because you want public funding and potentially better terms than private funding.

Re: Dear Unicorn, Exit Please

#30

Post by hatred »

beambot wrote: post #26
hatred wrote: post #12

Earlier quoted context omitted.

Most companies have a Right of first refusal clause embedded in the options agreement effectively limiting selling shares of private companies even after exercising options. If they are RSU's , I am assuming they can't be sold at all in the private markets ? Can anyone with prior experience elablorate on these ?

It's due to the SEC. The SEC places restrictions on who can buy shares in the private startups -- eg. you need to be an "accredited investor" to purchase them (>$1M liquid assets or >$200k/yr earnings). The SEC also places limits on the number of shareholders a company can have without (effectively) going public... which creates an incentive for startups to disallow current/former employees from selling their shares…

That explains it. Thanks !
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