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.
You advice was great up until this bit, at which point you are completely wrong.
The best time to sell shares is on an up round. There will be people who didn’t get in who want to. It’s perfectly common that they’re underallocated to a company that you’re overallocated. That’s not a fire sale it’s just a deal that make sense.
Do you have any names or links?
- EB Exchange
- Emerson Equity
- ESO Fund
Ex: When a round is already oversubscribed yet they still want to do someone a favor, such as for a stronger advisory relationship, they may be willing to sell your common as part of the round on your behalf.
Apologies, but it leaves reader with the main question unanswered - how?
Finding the investor to buy, and getting the company to go along are the harder tasks, and the OP covers those.
Any restricted option holder however might benefit from insights and potentials that could of been provided by secondary marketplaces.
OP is extraordinarily lucky that his company allowed a stock transfer, with extraordinary being too weak of a word to describe his circumstance.
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.
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.)
Post-IPO the shares are prob deposited in Computershare and as a shareholder you can transfer it to anyone you want.
Kind of like saying "anyone can buy a car without having a job or savings" — it's true, but those deals aren't comparable to those that can buy a car with cash.
Appears to be a reasonable option if you have a large amount of options and prefer the cash now vs later.
> All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of.
EDIT: These transactions require no agreement from your company in order to execute.
Most stock options have short expirations (10 year is still very uncommon). There is no "now vs. later" choice, it's a "now or never choice"
All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of.
That kind of deal is in the 1% of deals they make. Almost all require option holders either repay loans or take on significant risk.
I know this stuff sounds great on paper, in practice it is another world. Not to mention the absurdity of giving away half or more of your gains to a private equity firm from options you earned, just because the company has made a weird rule.
And they're right, it is fairly risk free. The investors understand (and sign a lot of paperwork indicating that) they understand it's extremely high risk and will possibly end up that (a) the shares will be worth nothing or (b) the company may never, ever offer a liquidity event. In the event that they do, the shares or derived value thereof transfer to the lender/investor. In the event that they don't, the instrument performs exactly like a loan/promissory note backed by the equity the shareholder owns with no vehicle for enforcing repayment beyond derived value from the shares.
Though I'm not sure what's stopping you from just making up a contract that says I agree to sell you X shares for price $Y in the event that they become publicly transferrable and then selling that contract.
I think options agreements usually contain language that say you're not allowed to do that, so maybe the risk is if you were to get caught doing that they could cancel all your options.
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.
What did you mean by "changing the attractiveness of the shares" ?