3 ms·

I think vesting would still at least help the problem. If I'm a startup employee with options that are not vested and I'm selling you futures on my yet-to-be-

by lsc 16y ago

I think vesting would still at least help the problem. If I'm a startup employee with options that are not vested and I'm selling you futures on my yet-to-be-vested stock, you're not only betting on the stock, you are betting that I'm going to stick around at the company and not quit or get fired before I vest. I don't think futures on un-vested stock options are going to be worth nearly as much as options on vested stock.

roel_v 16y ago
Of course, and although part of that risk (from the pov of the broker and the buyer) could be hedged contractually, there is still the risk of dilution etc. That's why I'm interested in learning more about the exact mechanics of this 'cashing out' - it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. I haven't seem many details of how these deals are structured show up, though. Probably because it would reduce the numbers that employees actually receive much smaller, making for much less interesting headlines.
- lsc 16y ago
  > part of that risk (from the pov of the broker and the buyer) could be hedged contractually everything I can think of here (e.g. not actually paying the seller anything until their shares vest) ends up leaving the seller (the employee with the stock options) with strong incentives to not get fired at a place where doing the minimum required work really ought to get you fired. So I guess that could reduce an employee's incentive to work hard by reducing the upside, but it certainly wouldn't eliminate it. And all those things also reduce the investors upside, too; I mean, sure, you've covered the downside, but I get fired and you don't get any of that facebook stock you wanted. Do the deal with two unvested employees, and maybe you end up with more facebook exposure than you can afford. > it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. yeah, especially if the shares are unvested.

by lsc 16y ago

roel_v 16y ago

Of course, and although part of that risk (from the pov of the broker and the buyer) could be hedged contractually, there is still the risk of dilution etc. That's why I'm interested in learning more about the exact mechanics of this 'cashing out' - it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. I haven't seem many details of how these deals are structured show up, though. Probably because it would reduce the numbers that employees actually receive much smaller, making for much less interesting headlines.

lsc 16y ago
> part of that risk (from the pov of the broker and the buyer) could be hedged contractually everything I can think of here (e.g. not actually paying the seller anything until their shares vest) ends up leaving the seller (the employee with the stock options) with strong incentives to not get fired at a place where doing the minimum required work really ought to get you fired. So I guess that could reduce an employee's incentive to work hard by reducing the upside, but it certainly wouldn't eliminate it. And all those things also reduce the investors upside, too; I mean, sure, you've covered the downside, but I get fired and you don't get any of that facebook stock you wanted. Do the deal with two unvested employees, and maybe you end up with more facebook exposure than you can afford. > it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. yeah, especially if the shares are unvested.