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Right, this is restricting the sale to only qualified investors which essentially means any employee can force a new investment round (what will we call them? e

Right, this is restricting the sale to only qualified investors which essentially means any employee can force a new investment round (what will we call them? employee rounds? mini rounds?) where all proceeds go directly to the employee. My hunch is founders will find a way to block such sales not only to avoid the surprises in new valuations but also the headache of managing that.

ChuckMcM 11y ago
When I read it, it felt more like it was putting structure around for what already existed in the form of Second Market (which NASDAQ recently bought). Second Market was where FB employees were selling their stock before FB went public, and caused the stock valuation to settle on what would essentially be the public offering price. Given the different share rights of preferred and common stock in a pre-IPO company, selling common shares does not look anything at all like an "investment round" in the typical sense. It does however impact the 409a valuation and could cause new employees to get a higher strike price on their options when they join.
- djb_hackernews 11y ago
  To be honest I didn't read the legislation. The interesting thing about FB and SecondMarket is FB agreed to allow that and probably approved each and every sale. Since this system already works I can only imagine the legislation will make it either compulsory or painful to avoid. The other interesting thing is the FB/SecondMarket situation did actually look like an investment round in the way that it set a share price and valuation. From what I remember SecondMarket set up weekly auctions for FB shares right up until the IPO and guess what the IPO did? Closed at the open. There is no way to tell but I bet if the SecondMarket sales hadn't happened it would have done what most hot tech IPOs do, set an artificially low IPO price and cash in on the pop.

ChuckMcM 11y ago

When I read it, it felt more like it was putting structure around for what already existed in the form of Second Market (which NASDAQ recently bought). Second Market was where FB employees were selling their stock before FB went public, and caused the stock valuation to settle on what would essentially be the public offering price. Given the different share rights of preferred and common stock in a pre-IPO company, selling common shares does not look anything at all like an "investment round" in the typical sense. It does however impact the 409a valuation and could cause new employees to get a higher strike price on their options when they join.

djb_hackernews 11y ago
To be honest I didn't read the legislation. The interesting thing about FB and SecondMarket is FB agreed to allow that and probably approved each and every sale. Since this system already works I can only imagine the legislation will make it either compulsory or painful to avoid. The other interesting thing is the FB/SecondMarket situation did actually look like an investment round in the way that it set a share price and valuation. From what I remember SecondMarket set up weekly auctions for FB shares right up until the IPO and guess what the IPO did? Closed at the open. There is no way to tell but I bet if the SecondMarket sales hadn't happened it would have done what most hot tech IPOs do, set an artificially low IPO price and cash in on the pop.