
How I sold my stock options - hannaysteve
https://segah.me/post/secret-to-equity-options-in-private-tech-companies/
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dotBen
Couple of thoughts as a founder and investor:

1) The company is disincentivized to help you sell your stock/options because
it will create a new valuation of common stock. Companies use the lure of a
low 409a to attract employees, especially savvy executives, with equity
packages. Doing anything to set a higher future strike price is not in their
interest.

2) Your NDA almost certainly prohibits you from communicating anything
meaningful about the financial success and any future roadmap to possible
investors. The company isn't required to open their books to a potential new
purchaser and the limited data you can get via Delaware company shareholder
rights almost certainly can't be communicated either.

3) It is illegal to market your shares to non-accredited investors.

4) Remember you are selling common, investors are almost always buying
preferred with liquidation preferences and other rights attached. The
valuation you can ever achieve is limited pre-exit _(where all shares usually
achieve the same valuation)_.

 _Things you can do:_

1) The best time to sell like this is during the next round of fundraising. If
you are on good terms with the company and probably have already left the
company, you may be able to tack on your common shares in a sidenote to one of
the investors.

2) Approach existing shareholders (including the founders) as they are best
placed to buy your shares. Remember though they probably have board material
access and will have more informational rights and access than you do. They
will try to price down the shares below their true value.

3) Some specialist secondary VC firms exist who will either buy shares or
offer you a personal warrant on the shares. You probably need to be holding
$1MM+ of equity for this to be worthwhile.

Overall: this is really a firesale approach. If the company is doing well,
existing investors will buy at a huge discount and if the company is not doing
well/unclear you almost certainly won't be able to sell.

It's almost certainly never worth trying to sell pre-exit.

~~~
Kiro
> Some specialist secondary VC firms exist

Do you have any names or links?

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gghootch
Another one is [http://www.secfi.com](http://www.secfi.com)

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gesman
Generic “obvious wisdom” type of article rather then specific actionable
steps.

Apologies, but it leaves reader with the main question unanswered - how?

~~~
garmaine
There's a procedure in your restricted stock contract. Follow it.

Finding the investor to buy, and getting the company to go along are the
harder tasks, and the OP covers those.

~~~
gesman
Luckily I don't have any right now that requires seeking of alternative
venues.

Any restricted option holder however might benefit from insights and
potentials that could of been provided by secondary marketplaces.

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compsciphd
don't many option plans say that shares are non transferable until a liquidity
event unless company decides they should be transferable (ala what uber did
recently).

~~~
kneath
Yes. This is SOP for law firms authoring stock option agreements after
Facebook IPO'd.

OP is extraordinarily lucky that his company allowed a stock transfer, with
extraordinary being too weak of a word to describe his circumstance.

~~~
toomuchtodo
It is possible to use a specialized finance vehicle in order to create a
synthetic liquidity event for non-transferable exercised options; it is, in
effect, a non-recourse promissory note.

~~~
BigJono
Just when I thought I was getting the hang of how equity works... I didn't
understand a word of that (other than non-transferable exercised options).

~~~
toomuchtodo
Apologies, I overcomplicated it.

Someone lends you money to exercise your options, you pay them back (at IPO or
acquisition) as well as additional compensation for their risk of your shares
being worthless.

~~~
JumpCrisscross
> _Someone lends you money to exercise your options, you pay them back (at IPO
> or acquisition)_

There is a lot of uncertainty about whether these loan-and-pretend or forward
structures violate the spirit of one’s stock option contract, which can and
has resulted in forfeiture, and if it involves creating an off-exchange
securities swap, illegal since Dodd Frank for non-qualified participants. It
was receiving regulatory attention before cryptos distracted everyone. (One
firm even got jammed by the SEC early on for structuring illegal swaps.)

~~~
lasgsf
How would that invalidate the option contract? As far as the company is aware
the option was exercised under the employee name and stays that way
indefinitely till an IPO event.

Post-IPO the shares are prob deposited in Computershare and as a shareholder
you can transfer it to anyone you want.

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thisisit
Maybe I missed it but there doesn't seem to be much info on the selling price.
Did it sell on the valuation implied by the last funding round or was it lower
to "solve the risk problem for the investors?".

~~~
hatred
Usually the common stocks goes at a discount of around close to 15-20percent
when compared to preferred for good deals. If the company is not doing well,
the discount would be higher proportionally.

~~~
sulam
My experience is that common can be one-third of preferred. I'm sure that
spread varies, but it's wider than you're describing.

~~~
acjohnson55
Out of pure curiosity, what perspective would give one this experience? I
guessing working at a VC fund?

~~~
sulam
Founding and working for multiple startups, including some that were fairly
successful and therefore attracted multiple rounds of funding. I can't claim
to have as much data as a VC would have, but I certainly have seen wider
spreads personally, so I can attest that they exist.

~~~
acjohnson55
Got it. Thanks for sharing!

I wish there were a better clearing house for this sort of collective
experience. I guess HN serves that purpose, to an extent, but it's hardly
organized.

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purplezooey
What about those places like EquityZen, anybody done that?

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acjohnson55
Having just read about Equity Zen following your comment, I'd also be
interested to know what people think about them. Their FAQ lays out a pretty
compelling case for their value prop to all parties, so I'm curious if there
are any strong arguments against them, especially from a company's
perspective.

~~~
lasgsf
I can put my spin as a buyer on it. Overall it's pretty good although fee are
high. The other thing is they do specialize in forward contracts which kinda
suck but only option to buy shares of companies that do not allow transfer
right now.

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nstj
Seems to be some conflation of the concept of equity and options on equity in
the article?

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buzzdenver
Were you able to sell your options, or exercise them and sell those shares ?
If the latter, can you give us a hint how the price compared to the last round
your company raised ?

What did you mean by "changing the attractiveness of the shares" ?

