[extragood]

It happens.

I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.

I more recently interviewed with a pre-series A company and they said that they'd include me in a liquidity event when I brought up compensation.

[dmurray]

Doing this by tenure seems like a fairer way to distribute the liquidity. The founders still get preferential access to it, but because they really have taken more risk (bigger stake for a longer time period), not just because they have a better individual negotiating position.

[hackerlight]

> The founders still get preferential access to it, but because they really have taken more risk

It's not related to risk, at least not directly. It's related to the supply of entrepreneurship as a factor of production. Entrepreneurship is scarce, so founders have leverage in any bargaining situation against early employees, who are more numerous and therefore less valuable and less powerful. If 10x the number of people tried to become founders, then founders would hold less leverage and the equity terms would become more "fair" because they'd have no choice but to give generous terms if they wished to hire people.

[kelnos]

Your comment is somewhat buried downthread, but I think this is a super valuable insight. Ultimately it's not about fairness, it's about who has negotiating power, and about what contract terms founders and investors can get away with and still have a pool of employee talent competent enough for their needs.

But this isn't a static situation. For example, the article author points out that his startup doesn't reduce the options-expiration clock to 90 days after leaving the company, and I've read of similar cases in the past 5 years or so. I wouldn't say this practice is common now, but I feel like this was unheard of around, say, 2010.

After the company I worked at went public in 2016, they did another public offering 2 or 3 months later, before the 6-month lockup period ended. Nonetheless, they allowed employees to participate and sell up to 10% of their shares in this offering. I feel like this sort of thing is more common these days, and absolutely wasn't 20 years ago.

Established still-private companies like Stripe, and even newer ones like OpenAI, have given employees the opportunity to sell some of their equity to new investors during funding rounds, giving them some pre-IPO/pre-exit liquidity. There are certainly other examples of this in recent years. That surely was rare in the past.

I'm not sure what's driving these changes. Employees have been gaining more negotiating power somehow. Maybe that's a function of labor supply. Maybe that's a function of employees being better educated now about corporate finance and the things that are possible but historically not offered. Not sure.

[KingMob]

Tenure/cliffs/etc should already take care of that by gating access to shares/options/etc in the first place. No need to add an extra tenure complication to liquidity as well.

[anonymousDan]

How would you negotiate that in practice? Would it be reasonable to ask for it to be in your contract? How would you suggest wording it roughly? Sorry I'm inexperienced with this kind of thing and have no idea how I would go about negotiating for it.

[kelnos]

I think for the most part you can't negotiate for this sort of thing, because most companies are not going to work up a one-off, custom equity comp agreement. Not just for you, someone they've just finished interviewing, seem to have some enthusiasm about, but ultimately they have only a vague idea of how you're going to perform or how long you're going to stick around. Either the company offers it, or they don't.

I think more companies offering it is maybe driven by feedback loops around recruiting (prospective employees asking for more and varied opportunities for compensation, and rejecting offers that don't include them). And also perhaps by employees just simply becoming educated about and talking about this stuff, with the sometimes-tacit understanding that they're going to be looking elsewhere for other employment opportunities if their employers don't give them more than just salary bumps and occasional equity grant refreshes.

[anonymousDan]

Great, thanks for the response. That seems like a realistic perspective on what is achievable in most cases. I guess it's good to have it in mind as something to raise on the offchance it might be something a particular company is willing to be flexible on.

[chollida1]

> I was offered the option to liquidate up to 20% of my vested shares at my last company's Series A. It was restricted by tenure though (3 years), so it wasn't available to everyone. In retrospect, I should have liquidated the full amount, but it was a new concept to me at the time and I was more conservative with the amount.f

Oh wow, how many companies have a series A after 3 years? How did your company survive without any raises for 3 years and what made your company finally decide to raise money after going 3 year without doing so?

[extragood]

That policy was actually one of the major reasons I liked that company and stuck with them for so long. Their goal early on was to avoid raising money if at all possible, and they managed that for a long time by mostly being cash-flow positive/profitable. The trade off is slower, but sustainable growth.

We hit an inflection point in the early pandemic where money was cheap and we had a ton of new customers coming in, so we were able to secure very favorable terms for the Series A and used that money to expand the business. Things continued to go in the right direction for the next ~2 years and we ended up doing a Series B round, and that in retrospect was a mistake. We over-hired in 2022 and couldn't back that up with increased business. And because we had given up so much control to investors in the previous rounds, we were unable to return to the sustainable-growth strategy that had worked for us in the past, and had to adopt faster growth strategies, none of which panned out and ultimately hurt the company and led to many rounds of lay-offs.

[Chilko]

> by mostly being cash-flow positive/profitable. The trade off is slower, but sustainable growth.

As someone that is outside of the tech industry, the fact that this is seen as an abnormal approach seems quite ridiculous.

[kelnos]

As someone inside the tech industry, I absolutely agree.

The problem is that new startups often don't have options here. Unless you're in a market where VCs are shy about funding new companies, if you don't take the VC cash and go into high-growth mode, someone else will, and they'll end up out-competing you, at least in the short term. (Long enough that you won't be able to remain solvent, at least.) So you either fail, or take the money and often get into a situation of doing not-particularly-sustainable things.