How is this not still on the front page? Is Carta a YC company?
Carta doing unsolicited tender offer outreach to their customers' investors
71–80 of 87 posts
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#72Earlier quoted context omitted.
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…
It's comical how much of modern startup compensation is gymnastics around taxes.
My understanding is that the most basic problem is if the startup gives you stock that's viewed as income and you will need to pay tax on an illiquid asset, and ISO/NSO/RSU/409a's are resulting from various elaborate schemes to give you stock-like upside tomorrow without having to pay taxes on an illiquid today.
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#73This is a good thing for employee-investors, right?
Yes I believe so. Founders will claim your interest is aligned with theirs to keep the cap table clean, but in my experience you can't determine the true market clearing price for your owned shares without marketing them outside the current set of investors.
Founders may not like it but it's kind of on the startup scene's current proclivity for keeping companies private for much longer than in the past and therefore restricting employee and investor liquidity. These services are responding to a market need. Carta may have broken their agreement with the startup but it is, in my opinion, generally a good thing to allow more price discovery for all investors.
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#74I'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…
Can you elaborate on your update tweet? I can’t believe that Carta is gaslighting you and victim blaming instead of saying they won’t do it again. Somewhat troubling that they say an employee potentially self-approved a “break-glass” procedure and in response, they’re “looking into it.”
https://twitter.com/karrisaarinen/status/1743824345334714587
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#75Earlier quoted context omitted.
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…
It's comical how much of modern startup compensation is gymnastics around taxes. My understanding is that the most basic problem is if the startup gives you stock that's viewed as income and you will need to pay tax on an illiquid asset, and ISO/NSO/RSU/409a's are resulting from various elaborate schemes to give you stock-like upside tomorrow without having to pay taxes on an illiquid today.
In some ways that's true. Taking your list in order:
1. ISOs do have special tax treatment, but it only comes into play if you exercise them and the shares have increased in value (and it gets complicated if they've increased so much that they trigger the alternative minimum tax). Good companies though will let you exercise as soon as you join, so there's no tax at all until you sell. ISOs do nothing in that case.
2. NSOs are basically just standard call options. Most companies still force you to exercise or abandon your options after leaving, but good companies will convert your ISOs to NSOs and give you 10 years from the original grant to exercise them.
3. Startups doling out RSUs use triggers instead of handing out the shares directly (a taxable event), which is absolutely a tax dance. You also need to read the fine print on these, because some companies are evil and set it up so that you lose the RSUs if you leave.
4. The 409A is just a process for valuing the company. Keeping the value of the common shares low can be useful for taxes when the company uses options (less likely to trigger the alternative minimum tax), but that's not really why we do it. When a company uses RSUs, on the other hand, pricier is often better. Which is the natural progression of things anyway. The earlier a company is, the bigger the delta between the common and preferred share prices. Later on they converge, and when the company goes public, the preferred shares actually convert to common.
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#76I guess we'll see what Carta has to say for themselves, but seems like it could be a continuation of the lack of organizational discipline they've demonstrated in recent times. This is a really bad look, and given Carta's inability to add significantly more value beyond basic cap table and employee equity management, I wonder if the days are numbered before other companies supplant them, such as Pulley.
I am surprised they didn't respond yet tbh, and this makes me think that it wasn't a simple oopsy.
Their CEO's response is truly something to behold
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#77I 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
Nooooo you can't do the same as the big boys! You're just a pleb >:(
Oh, these RSUs will totally make you rich one day, trust me bro :-)
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#78[deleted]
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#79[dead]
Re: Carta doing unsolicited tender offer outreach to their customers' investors
#80Can 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 cak…
What a great analogy. Thank you for taking the time to write this up.