Former BuzzFeed employees missed their big payday | Hacker News Reader

Former BuzzFeed employees missed their big payday

newyorker.com

92 pointsjrochkind166 comments

Is this article about people not understanding lockouts and conversions between classes of shares?

"As it turned out, for many former employees, it was all too good to be true. This past Monday, as BuzzFeed went public, many of them learned something alarming: they weren’t able to trade the stock that they had waited years to exercise. They watched in dismay as the share price dropped eleven per cent on the first day of trading; as of Friday’s close, most were still unable to trade, and BuzzFeed stock was valued at $6.07, having dropped nearly forty per cent in the first week of trading. Hopes of windfalls, large and small, were dashed. Some former employees are now asking whether they were cut out of trading owing to incompetence, or deliberately misled."

The only problem here is people that accepted equity compensation and without understanding how it works. This article describes how it's worked for decades.

There doesn't seem to be a lockup period, and the conversion seems incompetently delayed. There's no reason given why it should not have been possible for them to dump shares if they wanted.

When I read "Missed their big payday" I assume they've been screwed out of their shares via convertible shares or liquidation preferences.

They didn't get to sell the top on the post-SPAC debut. Their Bs are being converted to As, but it's not as fast as they want. They are missing their maximal payday (assuming BZFD shares don't recover) but there is nothing here about them not getting their shares and being about to sell.

The strike price is now higher than the sale price for most employees and former employees so practically they cannot sell.

Uh, could you not harvest the capital loss against gains elsewhere?

I think their point is that they should have a loss in the first place.

If you have options with a strike of $8 and a market price of $6, you could exercise your option at $8, sell at $6, and bank a capital loss to use against gains elsewhere.

Or, wildly better, you could hold the options unexercised, and use that $2 per share for whatever you want, including paying capital gains taxes on other gains.

Burning up options on 100 shares to generate $200 in losses (and actually losing $200 of cash in the process!) to offset gains that will result in $30-60 worth of tax liability makes no sense.

It honestly comes off as short sighted from the equity holder perspective. FB also dropped on it's first trading day but look at it now. Most of these people would be better off hodling for a few years.

Very possibly saved them in fact, not likely they would have sold at the exact moment it peaked

Buzzfeed is not facebook and expecting a rebound is like waiting for a blockbuster revival.

These employee shareholders are all whales for this given stock so if they all sell at once not one of them would get the same price. They'd all tank it for each other. They are far better off waiting for a random Tuesday 2 years from now so that the market can absorb it.

As far as buzzfeed not being Facebook so what? Stocks these days are more marketing than anything else.

I haven’t done the research, but Facebook is generally exceptional. I would expect that on average shareholders of companies that drop on IPO would be better off selling at the open and diversifying than holding for any period of time. I’m even more confident this is true of SPACs.

Now, a hypothesis, what if it was delayed on purpose to enable class A holders to offload their shares fir more gain? What if they feighned incompetence?

It would not be the furst time employees loose to corporate shenanigans

> Is this article about people not understanding lockouts and conversions between classes of shares?

Taking this question at face value -- if that is the case, it's at least a teaching moment for folks who are in the industry but aren't as financially literate as you seem to expect them to be.

Everyone knew that these people were eager to sell their shares, and they were asking questions in the weeks leading up to the IPO and assured they would get clear instructions before the IPO. But then when they actually tried to sell their shares they were informed that they had the wrong class of shares. Doesn't it seem reasonable to inform them of this at least a couple of days before the IPO? It would have been even better to give them step-by-step instructions on how to convert their shares before the IPO.

I think this case might be slightly different than the standard lockup issues. For example this quote:

> BuzzFeed sent an e-mail to former employees reiterating the need to print and sign the e-mail in order to make the stock conversion. “For context, only yesterday did we learn that holders of Class B shares would have to take additional steps to convert their shares to Class A,” it read.

I’ve never heard a company say they were ignorant of how their share lockup would work.

Anyway, this should be a lesson to everyone: don’t expect your company to tell you how to cash out after an IPO. You need to get your own advisers to analyze the legal and tax situation.

I agree with your last point. The problem here is the transfer agent didn’t get anyone who wasn’t automatically converted enough notice to even do a transfer before the stock went public. They also didn’t include the paperwork needed to transfer stuff. So even if you did everything right, you would still be screwed because the email that some employees got with incomplete information, didn’t arrive until Friday night, ahead of a Monday morning IPO.

No. The company they used to transfer shares from class b to class a severely screwed up, didn’t get people correct paperwork and then didn’t complete the conversions in time to sell for the normal employees. Executives, of course, got their stock immediately.

FTA:

> On the night of December 7th, after two days of trading, BuzzFeed sent an e-mail to former employees reiterating the need to print and sign the e-mail in order to make the stock conversion. “For context, only yesterday did we learn that holders of Class B shares would have to take additional steps to convert their shares to Class A,” it read. “We wish this information had been provided in Continental’s initial Letters of Transmittal.” (Continental did not respond to a request for comment.)

You could argue that employees should have perhaps taken more of an effort to get stuff together, but even then, if the company claims it didn’t know that information and if the transfer agent didn’t include the information (and by all accounts, hasn’t been reachable by phone or email all week) — not to mention the fact that they gave shareholder the incomplete information on a Friday night, meaning you couldn’t reach a person to get the conversion started before the public offering went live anyway), I’m not going to blame employees here, because even the most diligent shareholder would be screwed.

Again, executives/investors had their shares automatically converted (and I bet that former execs who had a significant amount of shares also got converted in advance, tho I have no proof of that). Some of them have lockup periods, and I understand that legally, you can’t just convert someone's shares automatically. But that doesn’t change the fact that even in the best case scenario, rank and file employees who put in a lot of blood equity into a company got severely screwed because the people hired to do the conversion didn’t do it well enough and their company/former company, didn’t care enough to ensure it was done the right way.

Sounds like BuzzFeed was (at least) negligent in giving employees a path to convert their stock. And in fact I would argue that giving some folks "automatic" conversion, and then making "manual" conversion impossible smacks of something worse. Namely, fraud. Of course, it's always hard to press a fraud case since, by definition, you probably don't have money to pay a lawyer's retainer!

We need a way to flag HN comments as having written by people who (sorry to pick on you, you're certainly not the only person who's done this) have not read the post. Having half the discussion page being taken up by someone who is responding to the headline is sort of not great, I would submit, because it draws attention away from better comment threads. Some comments we can, in good faith, assume the reader misunderstood; but this article clearly wasn't about lockup, as the fourth paragraph begins to explain:

> Former BuzzFeed employees have described a rushed process, one that potentially allowed more room for human error than a traditional I.P.O. They were first contacted about the steps needed to convert their BuzzFeed equity into tradable stock the week of Thanksgiving, two weeks before the company went public...

Back in the Slashdot days, these comments would be moderated as Irrelevant.

I was a /.er and a metamod, I think you are giving their moderation too much credit.

I agree with you about the article and my comment, to an extent. I was confused reading the New Yorker article and by the headline. I noted this in a different comment, but I'd assumed "missed their payday" had to mean there was no possibility of a payday. It actually took me a few times reading the article to figure out "missed their payday" meant "missed the opening day pop". Also, to be fair to myself, even though I didn't just talk about lockups, but "lockouts and conversions between classes of shares".

I went through a similar experience with another company, but not a SPAC liquidity event. In my case it was worse because I was subject to a lockup. In that respect, I think that the former BuzzFeed employees here actually were treated pretty well. I couldn't sell for months. I am sorry they are unhappy with the process and the transfer agent, Continental. It sounds like it really was more rushed and had more room for error than a traditional IPO, being a SPAC transaction. A lot of times companies will reach the public markets via SPACs because they just aren't that attractive of investments or have other problems that making traditional IPOs not viable. It is just not that sympathetic of a situation to me, and the complaint seems cynical. The former employees had already exercised their shares. Assuming no restrictive bylaws they could have sold on a pre-IPO site like Sharespost or Equityzen. But they either were stuck with unsellable shares or were waiting out a better deal. They are getting their shares - they just missed selling at the top, thus far.

The article could be accurately titled "Former BuzzFeed employees have delays with transfer agent, cannot sell in first trading day". Ideally that shouldn't happen but it's less dramatic.

> "Some former employees are now asking whether they were cut out of trading owing to incompetence, or deliberately misled."

The saying goes - never attribute to malice what can be explained by mere incompetence - but let me try.

Having fewer people selling their stock on opening days puts less pressure on the stock price and would make price drop smaller. Clear incentive to screw up former employees who are "spent fuel".

The word no one wants to say, but I'll say it: honor. It's sort of like what that SCOTUS judge said about pornography: you know it when you see it.

It seems pretty clear that the BuzzFeed execs are not honorable people, and they hired some financial people who are also not honorable.

An honorable executive would think,

"I have these employees' fortunes in my hands. They're depending on me. I need to do everything I can to live up to my responsibility to them.

Do they really understand Class A and Class B shares? I have to make sure they do.

If somehow I let them down anyway, I must humbly apologize."

.. and be grateful that in the US you usually don't have to commit suicide.

Obviously the transfer agent bears the lion's share of blame here, but 'lack of printer' feels a bit helpless. It's hard to imagine that a scan of a wet signature on a printed email would be more valid than print-to-PDF and 'Add Signature' in Preview in one's own hand, or that the transfer agent would even be able to verify. One could even go the extra mile with ImageMagick[0] if they were so inclined.

Obligatory IANAL, this is not legal advice, and it's probably at least technically wrong.

[0]: https://tex.stackexchange.com/questions/94523/simulate-a-sca...

The printer quote is just a touch of gallows humor.

Millenials, I mean "people without printers" (to be inclusive), can all go to Fedex or a public library and print it out and scan it there. You can also take a picture with your smartphone, I've seen lawyers be more anal about the signature than about the scanning part.

14 Reasons You Can't Cash Out the Stock You Wanted To. #7 Will Shock You!

This actually made me laugh out loud.

Given how abysmal the "reporting" BuzzFeed does and it's disgusting and unabashed bias, I frankly couldn't be happier with this outcome. Since the stock has gone down another 40%, it only has another 60% to go as far as I'm concerned.

Seems to me the real issue here is only 6% of the money pledged to the SPAC stuck around. Presumably the market wasn’t keen on the listing or the valuation.

Or am I misunderstanding how SPAC’s work? My understanding is people commit hoping the deal turns out good and can walk if they don’t like the deal. Presumably they don’t like the deal.

From reading Matt Levine's Money Stuff column, my impression is that SPACs used to retain most of their value, but more recently it's very common for most SPAC holders to walk. The SPAC is still useful because the merger typically comes with a PIPE (Private Investment in Public Equity) deal.

Seems like they could have just sold their shares short (assuming they had a brokerage account set up to do that), and then once they finally were able to trade the shares, they could have reconciled.

https://www.investopedia.com/terms/s/sellagainstthebox.asp

You often can't short IPOs, at least as retail.

Not at retail. No.

Every employee agreement I've ever signed has prohibited me from shorting my company's stock, and for good reason.

The article (or its title at least) is about former employees.

Other comments explain this isn't possible, but even if it were... it's unreasonable to expect random writers to have deep knowledge of how the stock market and SPACs work in order to make money off their shares.

Can you do a short call if you own Class B shares?

I recall in the days after the web-bust that there were numerous employees that were stuck owing huge tax bills because of the price their stock vetted at and were unable to do so because the prices had tanked.

I am really unable to recall any instance in which average employees were able to benefit from an IPO.

Also, I think that Class B stocks are like getting an associate producer credit on am movie. It looks nice but has no inherent value.

Now you can: me.

I had some Class B stock for a while, so I got 10x the useless votes. Actually, one of my coworkers was the only one with class A stocks, and Deleware corporation rules require some elections to win in each class, so his votes weren't useless; as opposed to everyone outside of the founders and investors.

Is this only a case of indifference/incompetence? Or did someone benefit by delaying the conversion for employee stockholders?

execs and investors directly benefit, price would have tankex even faster in employees were selling too

I really, really hate it when companies do this. Equity is one of the few levers startups have to attract talent. Equity already gets dismissed as being a “lottery ticket” but if people think “even if I win, I’ll just get screwed out of it based on a technicality” they will become completely worthless to aid team building.

If startups wanted to convince employees their equity was valuable, they easily could simply by adding protections to avoid many of the bad scenarios. For examples, there’s no good reason why employees shouldnt get preferred shares. The whole reason common vs preferred share distinction exists is so that the founders can’t just immediately sell the company for a bad deal and cheat the investors but employees don’t have that option. They’re told they are not given preferred shares because they’re not risking money the breath after they’re told they should turn down public liquid RSUs at a big company for startup equity instead.

Startup equity is very unfortunately broken by design. It’s a malicious feature, not a bug.

It’s a shame because many people myself included would pick the smaller company gamble over the big company if the terms were at least fair. But too many naive engineers accept awful financial instruments designed by VCs to screw employees and poison the well for everyone.

If you have a choice between public stock and common ISOs you should pick public stock 99.9999% of the time.

> Some former employees were eager to sell because they had a sense that all was not well with the deal...

No one gets acquired by a SPAC unless there's an issue with an IPO. Remember WeWork? SPAC.

Eh, that is not the exactly the nature of the SPAC universe at all. I've seen newly formed startups become the target companies of SPACs, it has nothing to do with IPO and everything to do with collecting capital. Honestly the publicly traded aspect is a mere byproduct of a SPAC. The existence of employee-shareholders along for the ride is mere happenstance.

LOL:

“And obviously all of us are millennials and none of us have printers,” one former employee said.

I'm pretty sure you can still go to a FedEx office and use a public printer. (That's only if they won't accept an electronically-signed PDF.)

I don't know how SPACs work, but in a traditional IPO, you have a 6-month lockup to keep everyone from cashing out on IPO day. As the end of lockup approaches, the price plummets since the market knows there'll be a lot more shares around.

So do SPACs drop for the same reason -- market anticipating all the employees selling?

> And obviously all of us are millennials and none of us have printers,” one former employee said.

If only there was a way to buy things online and have them delivered to you. Perhaps they should have asked their coworker

https://www.buzzfeed.com/emilyshwake/target-practical-produc...

I know you're just joking, but the link on that page is broken and the item in question doesn't seem to be for sale anymore anywhere. Plus, it would have taken at least a few days to ship from Target.

I don't think the printer comment was meant to be taken as a serious excuse, but rather an offhanded frustrated comment.

> I don't think the printer comment was meant to be taken as a serious excuse

Never say anything to a reporter that you don't want them to print (or if you do, first make them agree that it's off the record).

The lockup for employees/former employees was different here. Executives had the 6 month lockup. Former employees who bought options were not supposed to be subject to any lockup. And current employees had no lockup, I believe until the end of the year, and then a lockup would be in place until the first quarter results or something (not sure how how many weeks they have to sell before they can’t ahead of an earnings drop, but I read that in other coverage of this mess).

The issue isn’t about lockup, it’s about share conversion and the fact that the company hired to do it didn’t get anyone the right information — some people didn’t get information at all — and once employees did get the correct information, printer or not, they can’t get in touch with the company, can’t get questions answered, and even if they’ve submitted paperwork, still don’t have the ability to sell their shares five days in.

I agree the printer excuse is dumb. You can find a printer for something worth potentially thousands of dollars. But the core complaints are valid. And this isn’t about lockup. It’s about poorly done share conversions.

To be completely fair, the printer comment seemed to be tongue in cheek. I’m sure if this really were a blocker, they would have easily solved it with a quick trip to FedEx office, as mentioned.

Applying Hanson's razor to this would be sort of strange due to the fact that this involved real money and people didn't understand or had extremely onerous ways to do what they wanted.

There was a big issue with PS3's having the OtherOS functionality being removed which resulted in a class action lawsuit and it was ruled in favor of the owners (who I was one of them). The lawyers made it so difficult to actually retrieve any money from the members to the point that the Judge ruled that the lawyers who represented the people in the class action didn't get any of the money they were promised and I'm fine that it cost Sony and lawyers because I was probably only going to get probably less than $20 and practically it would discourage Sony in the future to remove features from their products.

the printer excuse is pretty dumb indeed. Unless it's a 400-page email or the net value you'll get from the stock is so low that it's not even worth the printing fee (which is $.5 per page(?) in FedEx).

>6-month lockup to keep everyone from cashing out on IPO day

This is a bit off-topic, but something I've always wondered. What if the lockup period was staggered per-employee across those 6 months? i.e. say you have a 180-day lockup, and 900 employees. On day 1, the 5 longest-tenured employees can sell. On day 2, the next 5, etc, and on day 180, the last 5. This avoids the IPO crash on day 1, and also avoids a crash 6 months later. Would something this be feasible?

This is fantastical. The reason it's not done is because there are well established ways to do it that work other than this.

> also avoids a crash 6 months later

Does this actually happen? And if it does, surely some hedge funds are trying to cash in on this, shorting in the days leading up to it, then covering as insiders sell.

I can tell you from personal experience that yes, it does. Or at least it did, when our IPO happened, around 2000.

I don't know how hedge funds played it. Shorting is always dangerous when you don't know who out there might buy on the dips.

> I'm pretty sure you can still go to a FedEx office and use a public printer.

Or go out and buy one. $100 is 0.1% of your $100k (or more) payday. And overnight the signed docs. This isn't something you want to cheap-out on.

I smell a lawsuit...

Because employees couldn't crash the price themselves as they panic sell to get out of this dog-shit deal?

Good luck with that one.

Reminds me of the great article by Matt Levine on how Good employees suffered from the not-so-good acquisition by BlackBerry:

https://www.bloomberg.com/opinion/articles/2015-12-23/good-t...

Archived: https://archive.ph/JQCAJ

tl;dr Employees are mad that they couldn't crash the stock price themselves, as the stock price crashed. Early days of trading will be irrelevant in a few weeks.

I don't see the problem. If they have stock and it's worth crap then <shrug> oh well. Maybe they should hang on a bit longer until it's actually worth something? Or not. Stocks go up. Stocks go down. Stocks stay the same.

ESOP and fundraising for startups are such good fits for cryptocurrency that few acknowledge.

Having to trust your employer to treat you ethically when the time comes is such a terrible bet. I've been fucked on more than one occasion during acquisitions, since then I do not accept ESOP at all.

Conversely I have been doing a lot of consulting on web3 projects lately and it is such a breath of fresh air to have actual transparency and liquidity of my compensation.

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