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Could you expand on be "huge issues" caused by secondary sales? I'm having trouble thinking of any. The most common criticism I've heard is that secondary sales

• kogir 13y ago
  A good example would be 409A valuations[1], which set the price at which options can be granted. Sale of employee stock on a secondary market can dramatically raise the price at which the company has to grant future options, making it harder to hire, and hurting future employees. While this might be ok in open markets with real competition, it's possible (and in fact common) for common stock in trending companies to be overvalued on secondary markets. [1] http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_409A http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_4...
• andrewfong 13y ago
  I can't speak for Sam, but two other issues in addition to tax and valuation are explicitly mentioned in the term sheet: (1) Public reporting: Once the market for secondary sales gets to a certain point, the company is essentially public. As such, it has to register with the SEC and publicly disclose a whole bunch of information it'd rather not. This used to be triggered by having over 500 shareholders, although I believe the number has recently changed. (2) Competitors: Stockholders have certain statutory information rights. Although you can limit those rights contractually, as a general matter, you don't want your competitors owning shares.