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The result of this small cottage industry is that employers will be tightening up their shareholder agreements and their stock transfer restriction clauses.

by davidu 12y ago

ryandrake 12y ago
Or, they will react to the high demand from employees that wish to be able to liquidate their equity. This could cause companies to get more creative/competitive with their compensation. One of the great advantages to working for a company that's freely traded is that you can sell your equity as soon as it vests.
npkarnik 12y ago
In some cases maybe, but hopefully most founders who obtain some personal liquidity in later rounds are not sadistic/hypocritical enough to deny their employees the same opportunity. But you're right, one potential large risk is a Chris Sacca -like situation, where one investor/investment group uses many anonymous buying agents to acquire a huge stake in a takeout/IPO candidate, via secondary liquidity. That can mess up a final outcome for whoever thought they had control over the cap table.
- corford 12y ago
  Based on a comment further up, my understanding is people buying on the secondary markets are not actually buying the shares. They're just offering $X to an employee now in return for being entitled to the full sale price of that employee's shares ($Y) immediately after IPO. $Y could be higher or lower than $X (that's the agents risk) but at no time does the agent actually own the shares.
  - gyardley 12y ago
    People buying on secondary markets often directly buy shares. They only resort to derivatives when they're unable to buy directly due to stock restrictions.
    - corford 12y ago
      Aren't most pre-IPO shares restricted though (company has ROFR, company board can block sale of shares to a third party they don't like etc.)?
      - gyardley 12y ago
        Yes, but the type of restriction matters. Sometimes it's just a ROFR at the same price, and that alone isn't enough to deter either buyers or sellers from directly buying and selling.

The result of this small cottage industry is that employers will be tightening up their shareholder agreements and their stock transfer restriction clauses.

by davidu 12y ago

The result of this small cottage industry is that employers will be tightening up their shareholder agreements and their stock transfer restriction clauses.

ryandrake 12y ago

Or, they will react to the high demand from employees that wish to be able to liquidate their equity. This could cause companies to get more creative/competitive with their compensation. One of the great advantages to working for a company that's freely traded is that you can sell your equity as soon as it vests.

npkarnik 12y ago

In some cases maybe, but hopefully most founders who obtain some personal liquidity in later rounds are not sadistic/hypocritical enough to deny their employees the same opportunity. But you're right, one potential large risk is a Chris Sacca -like situation, where one investor/investment group uses many anonymous buying agents to acquire a huge stake in a takeout/IPO candidate, via secondary liquidity. That can mess up a final outcome for whoever thought they had control over the cap table.

corford 12y ago
Based on a comment further up, my understanding is people buying on the secondary markets are not actually buying the shares. They're just offering $X to an employee now in return for being entitled to the full sale price of that employee's shares ($Y) immediately after IPO. $Y could be higher or lower than $X (that's the agents risk) but at no time does the agent actually own the shares.
- gyardley 12y ago
  People buying on secondary markets often directly buy shares. They only resort to derivatives when they're unable to buy directly due to stock restrictions.
  - corford 12y ago
    Aren't most pre-IPO shares restricted though (company has ROFR, company board can block sale of shares to a third party they don't like etc.)?
    - gyardley 12y ago
      Yes, but the type of restriction matters. Sometimes it's just a ROFR at the same price, and that alone isn't enough to deter either buyers or sellers from directly buying and selling.