You Got To Be In It To Win It

avc.com

48 points·cwan··7 comments

The idea of the repurchase being at the current fair value (perhaps via the most recent 409a analysis) strikes me as being fair:

- the employee was in it to win it and would be able to walk away with the amount of win that accrued while they worked at the firm

- the company retrieves the wayward stock to keep the cap table clean

The tricky issue is which valuation to use in lieu of a secondary market.

That approach appears to provide an incentive for employees to leave so they can liquidate their holdings.

True. So the employee has to believe that those options will be worth more in the future if they stay. That seems like an entirely appropriate challenge for the company.

Not sure how legally feasible this is...

Suppose the (ex-)employee sells the company an option on his options.

If he exercises prematurely, the company sits on its option and the employee can't flip the shares onto the secondary market. When the company exercises, the employee is compelled to exercise to cover his position. Figuring out the strike price on the options could be tricky, but it removes the incentive to quit and force the company to scoop the shares.

that is the reason why it wouldn't work, since the company would provide a ready market for stock that nobody else might buy (not to mention that you have to use company cash)

also 'fair market value' is difficult for a private stock

He defined FMV as 409a valuation, which we all know is a number pulled out of thin air where value > last financing valuation < infinity.

Not reasonable for most companies on a great trajectory to repurchase at current fair market value. And consider that options for employees are substantially discounted, thus the delta there between what the employee paid and what the employer would pay to recoup is too great.

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