wyman

That's definitely true - so basically, the buyer is more averse to buying especially considering they are essentially investing in the dark, going off of public news or hearsay? For some of the most-fundraised private companies e.g. Uber, Airbnb, Stripe etc. I figure many would be satisfied with the last private round valuation or a small discount, and the loss/market inefficiency here (5-10%) would still allow most deals to work. However, as a seller, your pitch, especially for less-well-known companies, would be much more difficult.

For a new grad several years ago comparing offers between say Uber, Airbnb, Stripe, Google, and Facebook, the mid-stage private companies like Uber/Airbnb/Stripe are likely paying $100K, while Google/Facebook offer barely more at $120K or so.

However, the Google/FB overs likely include RSUs valued at $400K that vest over 4 years, while the private companies offer options (at the time) "worth" (at current company valuation) ~$300-400K, with incredibly low strike prices since the 409a can be much lower than the preferred valuation. It really depends on how well the company has down, but since the last 3 years those private companies have doubled to 8x in value (see Uber), and thus the Uber employee's shares would be worth $2.4M-$3.2M. Google also appreciated (+50%) making the RSUs worth $600K, but still has not appreciated as much. Of course, this is just one example, picking the most successful companies, but it is illustrative of the general principle: if 20-30% of the time you can get on a rocketship, you can be +EV but with higher variance.

Strongly agree.

I also don't understand why the company acts as if the employee has no cash liquidity once those 90 days start ticking - can't the employee sell their stock on the secondary market? Companies like EquityZen, or 137 Ventures can do this entirely without company involvement in the form of transferring shares, by doing a derivative forward contract, or a loan for instance. That way, the employee wouldn't need to lose all their options, only sell enough to pay for the AMT and legal fees.

Sure, companies have worded in hidden and possibly completely unenforceable share restrictions on transfers, loans, or anything remotely involving equity. But until we have a court case and a TechCrunch headline of Company suing Employee over Secondary Transaction, how does one know if these are enforceable or not?

And practically speaking, how will the company find out if you made a deal with your rich uncle? With an angel investor? With a group of angels? With these companies? What is the practical difference?

https://gist.github.com/jdmaturen/5830b83c1425c4767f7e1bd4c9...

Absolutely agree. ISOs should also be taxed on liquidity as well, instead of an AMT on exercise. There was a group, ReformAMT.org, opened in the wake of the 2000 tech crash, where many employees ended up owing massive amounts of AMT on now-devalued stock.

However, it seems that the employers' and investors' interests are against the employees' here - the investors want what few employee shares are lost to be returned so they are diluted less, employers want holden handcuffs to reduce mobility, and only the much-weaker at lobbying employees want more freedom/mobility.

Where are all these secondary market companies "arbing" it out on employee stock option liquidity? The market should be HUGE, both for locked-in employees, and for buyers who want a small discount on hot startups.

This would totally solve the 90-day exercise period problem for the employees, without requiring company goodwill.

Some companies like ESOFund, 137 Ventures, EquityZen can do deals without company involvement, with a non-recourse loan with limited upside/downside, or a forward contract with cash delivered today, and the certificate held as collateral until IPO, when it is transferred.

There are increasingly share restrictions (which some consider unenforceable) on sales/transfers, loans, etc. First-hand knowledge online is scarce and lawyers give unclear answers due to the novelty of these deals. Can the company find out? Intervene? Sue? Are they likely to? Do we need a public case and TechCrunch headline in order to find out what the outcome is? How different is self-financing vs. a rich relative vs. angel vs. a marketplace investor?

Ask HN thread: https://news.ycombinator.com/item?id=12034716

Edit: It seems like I misunderstood, and the investors are investing in the company itself, not buying employee shares on the secondary market. The major point still stands though.