| There are a few other secondary solutions, including mine (full disclosure: co-founder of EquityZen here). Ultimately the company (the issuer of the options) holds the cards on these transactions. For a robust secondary private market, you need to: - keep the company aware of the transactions, and understand their transaction process (right of first refusal, board approval, other transfer restrictions) - provide that the buyer has been vetted and is an appropriate entrant on the company's Cap Table - ensure that you are non encroaching on the company's own plans to provide systematic liquidity to their employees - keep an audit trail of the transaction process to ensure no leakage of sensitive (or non-public) information We're headed in the right direction. Pinterest deserves credit on a few different fronts: 1) Allowing employees to extend their window to exercise their options once they leave the company
2) Providing liquidity to their employees I'm curious to hear from any hiring managers on this thread: do you think that offering liquidity/financing solutions for exercising options/helps attract better talent? |
Let's be perfectly frank and talk about the facts here:
1) There is zero cost to the company to allowing 83b elections. All it does is remove the possibility of golden handcuffs (which are very effective when a new unicorn is minted every week).
2) There is no more "500 shareholder rule" after the JOBS act. It removed that. There is no penalty for having lots of shareholders -- especially when most stock transferred has no voting rights and no disclosure rights. Facebook "paid the price" for having lots of shareholders but in reality they did not. GS's investor vehicle took care of that. Facebook was not "forced" to go public. They went public at an incredibly old age as far as growth companies go.
3) There's an almost non-zero cost to have another company (like SecondMarket) handle share registration and transfers. It's not a huge overhead. Consider it your Nerf ammunition cost for the quarter.
4) The state of current stock option agreements is not to help you the employee. It's for the benefit of the company. Option agreements in the 80's and 90's did grow out of an altruistic "hey we're all in this together" theme. Today, it's "hey I have to give you these things because everyone else does, but if it were up to me, you would get bupkis and free meals."
Full disclosure, I work at a YC funded, non-unicorn. My shares (on paper) are worth a fair amount of money, and I need several $100k to buy the shares and pay taxes. I feel like I'm in a not-uncommon state. I know my options are technically worth zero right now since I can't sell them for anything (that is the definition of worth), but I know my wife will divorce me if I quit and walk away from them.
I've heard that Uber is supposedly the worst at this. There's no timeline specified in the option agreement. You must offer them right of first refusal, but there's no mention of timeliness. They can (and do) choose to ignore every share transfer that comes up in a board meeting (unless you're in the elite inner circle and are allowed to sell shares).
tl;dr Don't even consider a position at a company whose option agreement won't let you early exercise and won't let you freely transfer shares.