6 ms·

You don't need a public market to sell your shares. The company itself could buy back the shares, or an other employee could buy them from you. Actually, I thi

You don't need a public market to sell your shares. The company itself could buy back the shares, or an other employee could buy them from you. Actually, I think most C level officers in a startup would be quite happy to buy lower level employees shares. Of course this would have to be possible considering the shareholder agreement, but I don't see any reason it would not.

3gjg3j3g3h3h3 6y ago
Stack Overflow prohibited employees from selling shares privately, while also setting an expiry date on the options that has forced some of the company's longest-serving employees to choose between surrendering their equity, or paying a ton to exercise options that they may never be able to sell.
- worker767424 6y ago
  Startup options have been like this forever. Maybe you could theoretically sell, but no one did, and marketplaces like Forge and Equityzen didn't exist.
  - hkmurakami 6y ago
    Startups used to IPO or fail much faster
    - marc__1 6y ago
      The time from founding to IPO is a stat that is widely misrepresented by well-educated people who may not have had the time to check the numbers. See for instance the graph Company Age (Years) shared by Meritech. There are 8 companies in the cohort that are 20+ years, only 1 (Salesforce) that IPOed with less than 10 years. In fact, from the entire comps (20+ public SaaS), only Salesforce IPOed at year 5. https://www.meritechcapital.com/public-comparables/enterprise#OperatingMetrics https://www.meritechcapital.com/public-comparables/enterpris...
      - hkmurakami 6y ago
        Looked at the graph you're referring to. This looks like it's a very narrow set of companies. We should be looking back farther, and wider. Recall that, for example, Netscape IPO'ed after 18 months and Amazon IPO'ed after 3 years. For better or for worse, 90's companies generally IPO'ed much quicker than the SaaS cohorts mentioned in the data you linked to. Back then, 10+ year timespans until IPO were rare.
        paul_milovanov 6y ago
        Well, that's the point. 2020 is not 1990-2000. Time to IPO has increased dramatically.
        marc__1 6y ago
        The graph shows 50 companies (they don't do a good job at scaling the site, but the data is there). Netscale and Amazon are only anecdotes and pure exceptions of the dot.com era. The set of companies that went burst during this period because of bad management is composed of at least 15 publicly traded companies. If your compensation included shares of any of these quick IPOs (AOL, Yahoo, pets.com, Global Crossing, etc.) your shares would have ultimately be zero as well (compounding interest is what makes you wealthy with these long-term horizon packages and you wouldn't have sold all your shares at ipo).
        hkmurakami 6y ago
        Yes those 50 companies are very recent in SV history. Hence we need to look back farther to see the change, because our standards were set many decades ago. And whether a company goes bust post IPO isn't really the issue here since liquidity is what we're discussing.
    - pmiller2 6y ago
      Yeah, that’s literally where the 4 year cliff came from. If you joined on day 1 and stayed the whole 4 years, you could expect to make something off the equity. Alternatively, the company would go under before year 4, and you’d be free to move on.
- towawaythiscar 6y ago
  Can confirm. Exercised some with a large tax hit, based on some hand wavy assertions about liquidity in the future. Now I'm stuck with it, with no liquidity in sight. And I'm sure it's been significantly diluted by this point. Live and learn I guess.
- Rapzid 6y ago
  SO also pays pretty shit so that sounds like a super bitter pill to swallow.
worker767424 6y ago
> I think most C level officers in a startup would be quite happy to buy lower level employees shares. When I left my last job at a series d startup, it was small enough that the CEO had a meeting with people leaving and thanked them for their work, so the CEO knew me by name. I later emailed the CEO about connecting me with buyers. Silence. I also talked to a few companies who lend you money to buy your shares, and one of the private markets. They at least said there wasn't interest. The company was doing ok and wasn't a sinking ship, but with zero interest from anyone, my options were effectively underwater, and I let them expire. If you're thinking about exercising, reach out to some of those companies who either lend you money or run a marketplace. They're better at due diligence than you, and if there's no interest, you can assume the options are worthless. Even better, talk to one of these companies before signing at a startup. Tell them you're thinking about signing with X, I might want to sell some shares in a few years, but what's the interest look like now?
- jupp0r 6y ago
  That’s wonderful advice because it alleviates some of the knowledge asymmetry you’re at the pointy end of in that situation.
- maerF0x0 6y ago
  > CEO about connecting me with buyers. Silence. Why would the CEO introduce more supply to the market when that would undermine their ability to generate more runway? Every $ an investor spends on existing shares is $ less they can spend on newly crafted ones for raises...
  - worker767424 6y ago
    You're technically right, but there's something to be said for doing right by your employees, and word gets around.
sokoloff 6y ago
If I were a C-level in a startup, I’d shy away from buying lower level employee shares as I wouldn’t want the frustration, jealousy, or other negative feelings if the company achieves a strong IPO or other exit. If the company fails to achieve a good exit, I don’t need any more exposure. It’s almost a lose-lose.
- Galanwe 6y ago
  Honestly that's a red flag for the company itself if senior management is not willing to buy more shares whenever possible. Reducing your exposure in the company is an employee mindset, not an entrepreneur one. One of the very first question potential clients ask us, is "how much is the management committed?", and by that they mean, how much of their own money did they have invested in the company.
  - hkmurakami 6y ago
    Senior Management may not have the liquidity. The institutionals passing on their ROFR would smell bad, but may still happen due to their Capital constraints.
  - m00x 6y ago
    A lot of companies want employees to own a part of the pie so they'll feel personally engaged in the future of the company. I don't think it's a red flag at all. Most companies will set away 5-10% of their stock value to be owned by employees. The only reason they'd buy it back from you is to give it to others.
  - sk5t 6y ago
    This seems like a really odd take to me. Senior management at a startup with illiquid shares is going to buy those employees' options with what? Do you imagine the CEO digging into the ol' pocket for $200k to cover an early employee's appreciated equity? Much more of a red flag if the CEO has that kind of cash sitting around from taking something off the table early.

3gjg3j3g3h3h3 6y ago

Stack Overflow prohibited employees from selling shares privately, while also setting an expiry date on the options that has forced some of the company's longest-serving employees to choose between surrendering their equity, or paying a ton to exercise options that they may never be able to sell.

worker767424 6y ago
Startup options have been like this forever. Maybe you could theoretically sell, but no one did, and marketplaces like Forge and Equityzen didn't exist.
- hkmurakami 6y ago
  Startups used to IPO or fail much faster
  - marc__1 6y ago
    The time from founding to IPO is a stat that is widely misrepresented by well-educated people who may not have had the time to check the numbers. See for instance the graph Company Age (Years) shared by Meritech. There are 8 companies in the cohort that are 20+ years, only 1 (Salesforce) that IPOed with less than 10 years. In fact, from the entire comps (20+ public SaaS), only Salesforce IPOed at year 5. https://www.meritechcapital.com/public-comparables/enterprise#OperatingMetrics https://www.meritechcapital.com/public-comparables/enterpris...
    - hkmurakami 6y ago
      Looked at the graph you're referring to. This looks like it's a very narrow set of companies. We should be looking back farther, and wider. Recall that, for example, Netscape IPO'ed after 18 months and Amazon IPO'ed after 3 years. For better or for worse, 90's companies generally IPO'ed much quicker than the SaaS cohorts mentioned in the data you linked to. Back then, 10+ year timespans until IPO were rare.
      - paul_milovanov 6y ago
        Well, that's the point. 2020 is not 1990-2000. Time to IPO has increased dramatically.
      - marc__1 6y ago
        The graph shows 50 companies (they don't do a good job at scaling the site, but the data is there). Netscale and Amazon are only anecdotes and pure exceptions of the dot.com era. The set of companies that went burst during this period because of bad management is composed of at least 15 publicly traded companies. If your compensation included shares of any of these quick IPOs (AOL, Yahoo, pets.com, Global Crossing, etc.) your shares would have ultimately be zero as well (compounding interest is what makes you wealthy with these long-term horizon packages and you wouldn't have sold all your shares at ipo).
        hkmurakami 6y ago
        Yes those 50 companies are very recent in SV history. Hence we need to look back farther to see the change, because our standards were set many decades ago. And whether a company goes bust post IPO isn't really the issue here since liquidity is what we're discussing.
  - pmiller2 6y ago
    Yeah, that’s literally where the 4 year cliff came from. If you joined on day 1 and stayed the whole 4 years, you could expect to make something off the equity. Alternatively, the company would go under before year 4, and you’d be free to move on.
towawaythiscar 6y ago
Can confirm. Exercised some with a large tax hit, based on some hand wavy assertions about liquidity in the future. Now I'm stuck with it, with no liquidity in sight. And I'm sure it's been significantly diluted by this point. Live and learn I guess.
Rapzid 6y ago
SO also pays pretty shit so that sounds like a super bitter pill to swallow.

worker767424 6y ago

> I think most C level officers in a startup would be quite happy to buy lower level employees shares. When I left my last job at a series d startup, it was small enough that the CEO had a meeting with people leaving and thanked them for their work, so the CEO knew me by name. I later emailed the CEO about connecting me with buyers. Silence. I also talked to a few companies who lend you money to buy your shares, and one of the private markets. They at least said there wasn't interest. The company was doing ok and wasn't a sinking ship, but with zero interest from anyone, my options were effectively underwater, and I let them expire. If you're thinking about exercising, reach out to some of those companies who either lend you money or run a marketplace. They're better at due diligence than you, and if there's no interest, you can assume the options are worthless. Even better, talk to one of these companies before signing at a startup. Tell them you're thinking about signing with X, I might want to sell some shares in a few years, but what's the interest look like now?

jupp0r 6y ago
That’s wonderful advice because it alleviates some of the knowledge asymmetry you’re at the pointy end of in that situation.
maerF0x0 6y ago
> CEO about connecting me with buyers. Silence. Why would the CEO introduce more supply to the market when that would undermine their ability to generate more runway? Every $ an investor spends on existing shares is $ less they can spend on newly crafted ones for raises...
- worker767424 6y ago
  You're technically right, but there's something to be said for doing right by your employees, and word gets around.

sokoloff 6y ago

If I were a C-level in a startup, I’d shy away from buying lower level employee shares as I wouldn’t want the frustration, jealousy, or other negative feelings if the company achieves a strong IPO or other exit. If the company fails to achieve a good exit, I don’t need any more exposure. It’s almost a lose-lose.

Galanwe 6y ago
Honestly that's a red flag for the company itself if senior management is not willing to buy more shares whenever possible. Reducing your exposure in the company is an employee mindset, not an entrepreneur one. One of the very first question potential clients ask us, is "how much is the management committed?", and by that they mean, how much of their own money did they have invested in the company.
- hkmurakami 6y ago
  Senior Management may not have the liquidity. The institutionals passing on their ROFR would smell bad, but may still happen due to their Capital constraints.
- m00x 6y ago
  A lot of companies want employees to own a part of the pie so they'll feel personally engaged in the future of the company. I don't think it's a red flag at all. Most companies will set away 5-10% of their stock value to be owned by employees. The only reason they'd buy it back from you is to give it to others.
- sk5t 6y ago
  This seems like a really odd take to me. Senior management at a startup with illiquid shares is going to buy those employees' options with what? Do you imagine the CEO digging into the ol' pocket for $200k to cover an early employee's appreciated equity? Much more of a red flag if the CEO has that kind of cash sitting around from taking something off the table early.