4 ms·

Is a secondary sale good or bad? Why ask this question?

by econner 10y ago

hkmurakami 10y ago
Some scenarios: 1) If there has been one in the past, you may reasonably expect another one in the future. They may even reveal that they have secondary sales at regular intervals. This derisks your equity illiquidity somewhat. 2) If there was a secondary sale where only part of the "leadership" participated, then that's at least a yellow flag for management's attitudes towards its workforce.
- birken 10y ago
  haha I just get finished writing my response and see you wrote the same thing more concisely and before me :)
birken 10y ago
Generally good, but with one catch. I'd ask for 2 reasons: 1) Purely as a sign of disrespect to employees, I'd never work at a company where founders sold shares and employees never had the opportunity to. I think it is a very meaningful proxy of if the founders care about their employees or not. If founders want to have a policy prohibiting employees and themselves from selling shares, I'm perfectly fine with that (though I'd want to know that policy exists), but not founders get to sell and employees can't. 2) More importantly, a secondary share offering means that at some point in time the common shares were worth enough that somebody bought them. That is a good sign that at the time when the secondary sale was happening, the company was going well. If the secondary sales are ongoing it also gives you a realistic estimate of what the shares are worth right now. This is pretty rare but I think at least a few large "unicorn" companies have regularly scheduled secondary share sales.
zenlikethat 10y ago
Great if you can swing it but be forewarned, very few companies will allow this if they know what they are doing, apparently this caused nightmares leading to Facebook's IPO due to a bloated term sheet and very few companies will explicitly allow it if they want to eventually IPO. I wouldn't expect them to go along with it and it might be explicitly forbidden in your contract.

Is a secondary sale good or bad? Why ask this question?

by econner 10y ago

Is a secondary sale good or bad? Why ask this question?

Some scenarios: 1) If there has been one in the past, you may reasonably expect another one in the future. They may even reveal that they have secondary sales at regular intervals. This derisks your equity illiquidity somewhat. 2) If there was a secondary sale where only part of the "leadership" participated, then that's at least a yellow flag for management's attitudes towards its workforce.

birken 10y ago
haha I just get finished writing my response and see you wrote the same thing more concisely and before me :)

birken 10y ago

Generally good, but with one catch. I'd ask for 2 reasons: 1) Purely as a sign of disrespect to employees, I'd never work at a company where founders sold shares and employees never had the opportunity to. I think it is a very meaningful proxy of if the founders care about their employees or not. If founders want to have a policy prohibiting employees and themselves from selling shares, I'm perfectly fine with that (though I'd want to know that policy exists), but not founders get to sell and employees can't. 2) More importantly, a secondary share offering means that at some point in time the common shares were worth enough that somebody bought them. That is a good sign that at the time when the secondary sale was happening, the company was going well. If the secondary sales are ongoing it also gives you a realistic estimate of what the shares are worth right now. This is pretty rare but I think at least a few large "unicorn" companies have regularly scheduled secondary share sales.

zenlikethat 10y ago

Great if you can swing it but be forewarned, very few companies will allow this if they know what they are doing, apparently this caused nightmares leading to Facebook's IPO due to a bloated term sheet and very few companies will explicitly allow it if they want to eventually IPO. I wouldn't expect them to go along with it and it might be explicitly forbidden in your contract.