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Something very common in the poker tournament world is equity swapping. In any given tournament a player might swap 5-10% of their action with one or more other players. This is a way to reduce variance while maintaining similar equity (assuming roughly equal skill levels). Why isn't there a service for allowing employees at different startups to swap their equity to reduce their variance?
> with or without the startup's consent I'm not convinced this is possible in the long run. The idea seems to be that employees can't sell the shares themselves, but can sell the kind of derivative around which Equidate is based. That may be true at the moment, in that the employees may not be contractually forbidden from writing such a derivative. But if companies currently forbid sales of the shares themselves, won…
IIRC Google explicitly bans employees from trading in any derivatives of the company stock (other than incentive stock options issued by the company). I'd assume that is standard boilerplate at other companies as well.
Earlier quoted context omitted.
I don't understand why companies would want to prevent employees from selling stocks. Most startup equity is worth very little. Giving employees more options to sell said equity makes it worth more which also makes it a more effective means of recruiting employees.
There are a number of reasons for it, one they can constrain what employees do, but they can't constrain what 3rd parties do. Investors are bound by their term sheets, employees by their employment agreements, and these people who hold stock and are 'unbound' might cause trouble. (not that they will its just that if they do the company has a limited number of ways to respond)
Walk me through the mathematics of why an Employee at a startup they believe in and have vested equity in would sell that pre-IPO to an investor? Can you provide a few scenarios? I imagine other HN readers are curious too, especially given our(collective) lack of experience with IPO's....well at least mine.
Everyone believes in their company, even the people who work at companies that turn out to be duds. If 90% of your wealth exists only in the theoretical value of your pre-IPO stock, that's not a good balanced portfolio.
Why would this be true? If desperate, I'm willing to work for any (non-evil) company I believe can pay me what they owe. The product can be absolute garbage that'll never sell, that's not really my problem. It would obviously impact my valuation any stock options, but that's another story.
(I'm happy to work at a place I do believe in - although I'm still glad they pay cash and not stock).
I can see two practical problems with this, and am curious about how they deal with them: - The investors will not be entitled to the same information as stockholders, which will limit their ability to properly value the shares. This, in turn, should increase their risk perception and lower the price they offer. - Even if the contract between the investor and the employee is sound, the employee could fail to deliver…
Under what conditions have employers been able to pull back shares that are already vested without being sued into oblivion?
I can see two practical problems with this, and am curious about how they deal with them: - The investors will not be entitled to the same information as stockholders, which will limit their ability to properly value the shares. This, in turn, should increase their risk perception and lower the price they offer. - Even if the contract between the investor and the employee is sound, the employee could fail to deliver…
Regarding the second point, failure to deliver is an insurable risk, and would probably spawn a related market in derivatives. Anyone trading the contract on the shares that the employee wishes to sell will probably go over the employment agreement and the corporate bylaws very carefully in order to assess this risk. Under what conditions have employers been able to pull back shares that are already vested without be…
Yes, but whoever insures the risk would face the same difficulty in getting enough information to properly assess the risk. I'm not saying it's not doable. However, it might not be doable well enough, and cheaply enough, that there's enough margin of safety for the investor, above the lowest price at which the employee would be willing to 'sell'.
Under what conditions have employers been able to pull back shares that are already vested without being sued into oblivion?
Skype pulled back options that were already vested: http://finance.fortune.cnn.com/2011/06/24/skype-vesting_cont...
I'm not aware of any similar instance for vested shares.
> with or without the startup's consent I'm not convinced this is possible in the long run. The idea seems to be that employees can't sell the shares themselves, but can sell the kind of derivative around which Equidate is based. That may be true at the moment, in that the employees may not be contractually forbidden from writing such a derivative. But if companies currently forbid sales of the shares themselves, won…
I don't understand why companies would want to prevent employees from selling stocks. Most startup equity is worth very little. Giving employees more options to sell said equity makes it worth more which also makes it a more effective means of recruiting employees.
Especially when liquidity is so low, these secondary offerings result in ridiculous valuations on a very small amount of shares, but that really hurts the ability of the company to offer low strike prices on options to attract talent.
It actually sounds kind of like a convertible bond that you might have in an early stage VC round, except that instead of the company issuing shares when the conversion happens, it's the founder/employee "converting" from their already issued shares. The convertible bonds can trade just like well, like other bonds trade.
Given that they haven't even managed to acquire "equidate.com" (currently goes to an all comic sans site for "Equine Event Dates & Places") we have to assume this is a pretty early stage / MVP type of company.
Ultimately this comments thread could really use some input from a knowledgable VC or lawyer...
Earlier quoted context omitted.
There are a number of reasons for it, one they can constrain what employees do, but they can't constrain what 3rd parties do. Investors are bound by their term sheets, employees by their employment agreements, and these people who hold stock and are 'unbound' might cause trouble. (not that they will its just that if they do the company has a limited number of ways to respond)
They can't cause any trouble until the employee shares have been delivered, which would be at the same point that the employee could unload the stock via other means; until that point, all they have is a contract with the employee.
I can see two practical problems with this, and am curious about how they deal with them: - The investors will not be entitled to the same information as stockholders, which will limit their ability to properly value the shares. This, in turn, should increase their risk perception and lower the price they offer. - Even if the contract between the investor and the employee is sound, the employee could fail to deliver…
He second problem is just a special case, one risk.