Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
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Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#2Walk 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.
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#3> 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't they eventually get wise and start to forbid sales of derivatives as well?
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#4Walk 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.
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#5Walk 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.
Imagine your net worth consists of 100k cash, and a lottery ticket which, by your reckoning, has 15% chance of being worth 1m, and an 85% chance of being worth zero. Imagine further that you won't know the outcome until 3-5 years from now.
Let's forget the time value of money for a moment. The expected value (mean value under all possible future scenarios) is 15% x 1m, i.e. 150k. This is more than half your net worth.
Wouldn't you give an investor a discount if he agrees to buy half of the lottery ticket? It would get rid of the 85% chance that you lose over half your net worth through an outcome over which you have only limited influence.
Also, you can buy stuff with cash. Today.
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#6> 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…
Companies may not care as much about the derivatives. This doesn't add shareholders so it wouldn't trigger a reporting requirement. It does change the employee's incentives but so does a restrictive contract.
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#7> 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.
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#8Walk 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.
A couple of other commenters have basically mentioned risk hedging -- that is, the concept that you might think that your company is a good one that has better-than-usual chances to monetize, but recognize that even good companies fail. They're right, and that's one reason.
The other reason is liquidity. Sometimes you want money now, not in a few years. Maybe you need to buy a house, or you want to start your own business (and thus not have a salary income for the next two years or more), or you or your spouse are pregnant, or you just decided you have to have a new Model S.
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#9Walk 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.
Imagine your net worth consists of 100k cash, and a lottery ticket which, by your reckoning, has 15% chance of being worth 1m, and an 85% chance of being worth zero. Imagine further that you won't know the outcome until 3-5 years from now. Let's forget the time value of money for a moment. The expected value (mean value under all possible future scenarios) is 15% x 1m, i.e. 150k. This is more than half your net worth…
I see. That makes sense. Well put. Are you on the team?
Re: Equidate Launches A Secondary Market For Early Startup Employees To Sell Shares
#10Walk 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.
Everyone?