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Carta doing unsolicited tender offer outreach to their customers' investors

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Re: Carta doing unsolicited tender offer outreach to their customers' investors

#51

Post by enra »

FreakLegion wrote: post #48
candiddevmike wrote: post #31

Earlier quoted context omitted.

What's wrong about folks selling shares they own? Maybe it's bad for the founders, but there's always a good chance these employees may not see a real liquidity event.

It's generally bad for the company as a whole. Liquidity erodes the 409A discount[1], which then makes other grants (either future or existing, one way or another) less valuable. This is a pretty classic case of local vs. global optima, like in the prisoner's dilemma. If you're interested in startups, I'd look for founders who 1) give you the maximum exercise window (10 years with ISO->NSO conversion if you leave), 2…

This one of main points too.

We also do or plan to do these all 3 items.

We haven’t done a coordinated secondary (tender offer) yet since our team is relatively small and people haven’t been with the company that long that there would be that many shares to offer. Usually most people don’t want to sell or sell that much.

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#52

Post by nezaj »

k8svet wrote: post #39

I work for a startup and I don't even understand half the comments in this thread I'd be very greatful for a few hours of content I can listen to or read that would explain what's at play. I feel so miserably ignorant and lost. :/

YC and Startup School have some excellent videos with Kirsty Nathoo discussing basic startup mechanics, finances, accounting, and fundraising rounds.

You may find this one especially helpful https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#53

Post by enra »

k8svet wrote: post #39

I work for a startup and I don't even understand half the comments in this thread I'd be very greatful for a few hours of content I can listen to or read that would explain what's at play. I feel so miserably ignorant and lost. :/

Don't feel bad. The issue here is the relationship with the company & Carta and overall corporate concerns, not much about employee equity.

Briefly:

- In a startup you're granted options. Contract that allows you to buy certain amount of company shares at a specific price (”strike price”, also known as “exercise price”), which is usually the fair market price at the time when your options are granted. Options do not give you ownership of stock, instead they provide you rights to purchase stock at a favorable price.

- Fair market price is the price of the stock based on the company’s current valuation (set by an outside evaluator). Early stage companies the fair market valuation 20-30% of the valuation investors pay.

- Exercising your options means purchasing all or some of your shares and becoming a shareholder in the company. For example, if your strike price is $1.50 and you exercise your option for 1,000 shares, your exercise will cost $1,500 (1,000 x $1.50) plus any potential taxes, and you will be a holder of 1,000 shares. Now if in the future the company IPOs with a stock price of $100 you can sell those shares and get $100k or gain $98.5 per share.

- Exercise window is the time you can buy your options. Commonly in US startups required you to purchase the shares within 90 days of you leaving the company or you lose it. More employee friendly startups have extended exercise windows that let you keep the options for 7 or 10 years.

- Early exercise. Employee friendly startups allow early exercise for your options to avoid paying taxes along the way. Say you join the company when the strike price is $1.50. You exercise the shares at $1.50 now you own the shares and since there was no gain, you don't have to pay taxes at that time. If you don't early exercise then, but wait until the next funding round when the strike price is now $4.50, your now have to pay tax on the gain of $3. In both cases in the end if you one day sell the stock for $100 you still pay the same amount of taxes (gain from $1.50 to $100 or from $1.5 to $4.5 + $4.5 to $100). It just lets you to avoid taxes until you have actual liquidity and also lets you to pay long term gains, sometimes get it even tax free if your company and holding is QSBS eligible.

Some guides that we share with our employees:

https://medium.com/swlh/understanding-startup-stock-options-...

https://www.holloway.com/g/equity-compensation

https://blog.alexmaccaw.com/an-engineers-guide-to-stock-opti...

https://www.wealthfront.com/blog/equity-ipo-guide

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#54

Post by heads »

im3w1l wrote: post #9

Can someone explain this in simple language?

Imagine you are planning a wedding and you use party.com as an easy way to manage the guest list. Maybe you give your friend two seats — him and a plus one — the Smith family four seats, and your diving club pals a whole table. Also, you’ve invited surprise guest auntie Beyoncé.

These are all people with whom you have entrusted important rights such as dressing nicely, staying relatively sober, and not poking the cake. Additionally, the wedding venue has a fire safety limit of 150 people. Any more than this and the authorities shut you down for abusing the privileges they give to small weddings.

Well now imagine that party.com has been emailing your neighbours and mortal enemies the Joneses saying the Smiths have two seats they want to sell and that Beyoncé is going to be there. They also help the diving sell half their table to what turn out to be classical music supremacists who show up protesting Beyoncé’s pop music. One of them also gets drunk and pokes the cake. Thanks a bunch party.com.

In real life, shareholders can do unhelpful things or act with downright hostility so you need people you know and who you trust to behave themselves.

The SEC also give you an exemption from having to register with them (and publish your accounts) but only if you have fewer than 500 shareholders. If a big shareholder splits their holding and sells to a bunch of random people then they risk pushing you over that limit.

Carta / party.com are abusing their position by marketing your shares / wedding invitations behind your back.

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#55

Post by ccorcos »

FreakLegion wrote: post #48
candiddevmike wrote: post #31

Earlier quoted context omitted.

What's wrong about folks selling shares they own? Maybe it's bad for the founders, but there's always a good chance these employees may not see a real liquidity event.

It's generally bad for the company as a whole. Liquidity erodes the 409A discount[1], which then makes other grants (either future or existing, one way or another) less valuable. This is a pretty classic case of local vs. global optima, like in the prisoner's dilemma. If you're interested in startups, I'd look for founders who 1) give you the maximum exercise window (10 years with ISO->NSO conversion if you leave), 2…

The 409a discount is the problem here, honestly. Maybe we should lobby the government to change the laws. Because it sucks for employees that the Y Combinator stock option agreement template includes a non-transferability clause. It’s unfair that employees have don’t have the same access to liquidity that founders get.

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#56

Post by nocoiner »

enra wrote: post #43

I'm OP on the tweet. To clarify on some points why I think this is wrong: Private companies generally don't want or allow secondary transactions. Every good company wants to manage their cap table and who is on it. Every shareholder has some level of rights and sometimes you need their signatures on things. A problematic shareholder can cause a lot of problems that are time consuming to the company. Companies do offe…

Do you have transfer restrictions and/or a ROFR in your org docs?

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#57

Post by FreakLegion »

ccorcos wrote: post #55
FreakLegion wrote: post #48

Earlier quoted context omitted.

It's generally bad for the company as a whole. Liquidity erodes the 409A discount[1], which then makes other grants (either future or existing, one way or another) less valuable. This is a pretty classic case of local vs. global optima, like in the prisoner's dilemma. If you're interested in startups, I'd look for founders who 1) give you the maximum exercise window (10 years with ISO->NSO conversion if you leave), 2…

The 409a discount is the problem here, honestly. Maybe we should lobby the government to change the laws. Because it sucks for employees that the Y Combinator stock option agreement template includes a non-transferability clause. It’s unfair that employees have don’t have the same access to liquidity that founders get.

Employees should have the same access to liquidity that founders get, but that's orthogonal to the 409A. The reason we want to keep the 409A low is so that when the company is valued at, say $100m, the common shares are much lower, say, $20m (even though they make up a majority of the company's shares!). Now when we hire that amazing person and offer them 1% of the company, their options have a strike price of $200k but already an expected value of $1m+.

Really the games we play with 409A valuations are a reason for founders to limit their own liquidity, too. Outside of a few famous examples like Google and Facebook, founders and employees have the same common shares, and it's in both their interests to keep the common share price low while building the company. If founders are selling shares and not inviting employees to participate, it isn't because of the 409A. Those founders are just assholes.

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#58

Post by zerothOffset »

I would read the Terms of Service. What’s wrong with someone getting liquidity? VC sell their stakes to other VCs all the time why shouldn’t other investors or even tenured employees.

Liqudity programs like tender offers are price controlled not market controlled and companies are first to tout their RSU values in compensation packages esp when they are overvalued

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#59

Post by zerothOffset »

gurchik wrote: post #24

Relevant tweet further down: https://nitter.net/karrisaarinen/status/1743407369512743094 > Buy price was exactly our series b share price. The angel investor in this case was a family member whose investment was never published and hardly online. Yet he was contacted directly to the email he used with Carta As said before, it is not impossible that the buy price was determined using public information. However, he is…

Agree the price is available on multiple platforms Forge, Hiive etc. Can’t the company just opt out?

Re: Carta doing unsolicited tender offer outreach to their customers' investors

#60

Post by zerothOffset »

enra wrote: post #43

I'm OP on the tweet. To clarify on some points why I think this is wrong: Private companies generally don't want or allow secondary transactions. Every good company wants to manage their cap table and who is on it. Every shareholder has some level of rights and sometimes you need their signatures on things. A problematic shareholder can cause a lot of problems that are time consuming to the company. Companies do offe…

Thanks. Looks like some eager sales person. Info on price is available on multiple platforms. In fact some of your investors could be buyers.

I am a Carta user and my investors did not get any if these emails (I checked). My customer success person at said carta markets new products/service so maybe just opt out of emails/do not contact.

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