[philipn]

This is really interesting, because in many cases these employees go many, many without being able to sell any of their stock. One thing stuck out to me, though:

"Terms of the deal call for Mr. Ballenegger to pay back the money if Chartboost goes public or is sold"

So if the company is acquired for less than the valuation made when he established the transaction with the derivative seller, he'd be up shit creek, no?

[SeoxyS]

Hey - I'm "Mr. Ballenegger." (Coincidentally, that reporter found me through an HN comment where I explained how secondaries worked.)

Derivatives like this are typically structured as a sale of the economic interest, not a loan. In this scenario, if the company sells or IPOs, the terms call for me to liquidate my position as soon as possible and transfer the proceeds to the buyer. If the sale is not a positive outcome for the investor, I have no liability.

I think this could probably have been worded much better in the article.

[btilly]

Probably no.

The idea behind a deal like this is you get money now based on the valuation, and then when you're in a position to sell, you pay back on the valuation then. Which money you presumably have because you sell the actual stock you receive.

However there are a lot of ways this can go south. For a realistic instance Chartboost goes public, he gets hit with AMT taxes, and then finds out that as an insider he's not allowed to actually sell the stock for 6 months. He now has to cover both the current valuation and a tax burden he never knew about, but has no actual money.

I could multiply scenarios here. But the lesson is don't do this unless you have good legal advice. And the Wall St guy just wants to do the deal, carefully protecting the person providing shares is not a priority.