Today at @sacrainc we launched The Startup Liquidity Database🚀

Why are we doing this?

Because equity compensation without liquidity is only paper wealth.

Check it out and read the thread below for context👇
https://sacra.com/startup-employee-liquidity/
We built this database so employees at startups would have a better understanding of their ability to sell their stock in private markets.

Generally, information on startup equity compensation is opaque, and employees don't know which questions to ask. https://twitter.com/dunkhippo33/status/1359957613975228416
Time-to-liquidity for avg. startups is 7-10 years, so if employees want to diversify their net worth or pay for life events like a first home, elder care, or childbirth, they usually can't.

Their best bet is usually a mispriced tender offer https://twitter.com/janerikasplund/status/1357406725779898373
There are 3 massive structural issues when it comes to employees selling their stock:

1. stock option exercise
2. ROFRs (rights of first refusal)
3. stock transfer restrictions

The odds are stacked against employees to make money on their equity.
When you exercise your options, you're making a directional bet on the success of the company, laying out cash to buy the stock, & typically also paying taxes on the spread between your strike price & the fair market value at the time of exercise.

All of this before you sell...
There are ways to make this process more tax-efficient, like offering early exercise and less cash-burdensome like extending exercise windows, but in the eyes of Uncle Sam, stock options lose their tax benefits 90 days after you leave a company. https://twitter.com/Kellblog/status/1165366932582928385
But let's say you do buy the stock. And you want to sell it to an interested 3rd party (could be an investor, a friend, someone you meet through a marketplace)

Companies can still block the sale of your stock by exercising their Rights of First Refusal (ROFR).
ROFRs are good for companies and bad for employees in this case in that they give the company and its investors the last look to buy the stock in an offer. Companies want to control who is on their cap table, and also control the supply of their stock, making it scarce.
The company not only has asymmetrical information that the employee can't see but in general, talking to your current or ex-employer about selling your stock is taboo and can be very awkward/uncomfortable. https://twitter.com/HarveyMultani/status/1213593761613266944
Beyond ROFRs, the other way companies can block sales is by implementing Stock Transfer Restrictions. Ironically, these companies are usually later-stage, and if they were trading in public markets would have instant liquidity and far more transparency. https://twitter.com/andrewparker/status/1286393160952774656
However, hope is on the way for employees. Many companies are now opting to offer recurring liquidity as an employee benefit while continuing to stay private.

The goal of our database is to highlight those companies and allow employees to make informed career decisions.
Firms like @MVPvc, @BracketCapital, 137ventures, @Forge_Global, @EquityZen, @IndustryVC,
@invicta_growth and Equiam have been steadily unlocking liquidity for pre-IPO companies for years now.
And as @scottbelsky puts it, "When you launch a marketplace that is demonstrably better for both buyers and sellers, the thing being sold also becomes optimized."

AngelList and Carta are doing just that for companies across multiple stages of growth. https://twitter.com/scottbelsky/status/1357149398875127820
At the early-stage end of the spectrum, @harryhurst and @pipe are leading the way by planing to offer recurring liquidity for startup employees. This is an asymmetrical employee benefit relative to the rest of the early-stage fintech job market.
And at the late-stage end of the market, Carta's new CartaX platform is what @pmarca calls a "third configuration — beyond the false binary of simply private or public." Carta was the first company to launch on CartaX last month. https://twitter.com/pmarca/status/1357428452073242624
Our hope is that other companies will join this trend of unlocking "paper wealth" for employees by pairing equity compensation with liquidity.

You can find the database, as well as links to contribute to it (for employees and employers) here:
https://sacra.com/startup-employee-liquidity/
You can follow @talktoconor.
Tip: mention @twtextapp on a Twitter thread with the keyword “unroll” to get a link to it.

Latest Threads Unrolled:
Those who think consciousness raising & movement building are disconnected, or even a distraction from electoral politics have not paid attention to the history of social change.In this thread, we
Read more
The 2020s will be known as the Remote Work decadeA few predictions of what is likely to emerge[ a thread ] Third Space: Office and Working from Home will
Read more
1/29: Have you ever had a concept explained to you that helps frame complex issues you’ve been wrestling with and opens your eyes to new possibilities? A concept that I
Read more
By continuing to use the site, you are consenting to the use of cookies as explained in our Cookie Policy to improve your experience.