http://www.businessinsider.com/jet-insiders-referral-program...
<< (if I offer you $1 for x% of your company, is the company now necessarily worth $1/x?) >>
Great point. Secondary market transactions have to be included in the 409(a) valuation analysis and this caused a lot of problems for companies like Facebook who had active secondary markets (with rising prices) even as they tried to keep option strike prices low to recruit new employees. I am not an expert but I think the short answer is that if you buy $1 worth of stock then it can be ignored as a non-material transaction but if you buy $1 million then it has to be scrutinized along with all similar transactions which would be collectively factored into the formula for ''fair market value''.
Another minor point - when calculating return in this case, you have to adjust for the fact that this guy ''invested'' $18k but wasn't able to count that money towards his basis in the stock or realize long-term capital gains treatment the way a typical angel investor would have. This means he will likely pay an extra 20% in Federal taxes, which lowers his LTCG-adjusted psuedo-angel-investment return a bit further.
I always hear stories about early stage employees getting the short end of the stick during acquisitions. Could there be a chance that this acquisition ends up not in his favor and he is out $18k?
There was a subsequent 350m round in November so that means dilution for everyone.
So that, coupled with liquidity preferences for the venture investors, could mean he didn't get much.
He likely does have cash as well as shares in Walmart from this deal, but I doubt he made "millions" from this, and it is entirely possible he is close to breakeven (just as possible that he has a six figure amount). But we don't have any transparency from this.
This is the kind of gambling the society puts you on a pedestal for, so don't worry too much about the bet. Its a "good" one.
The surprising part is that Jet.com's legal department let this fly.
Stock is certainly a security. Stock options are just call options of a security, and also a security. Obviously there is some (future, conditional) value implied since it's a reward.
It doesn't really matter whether you are trading stock for dollars, or work, or fb likes, or whatever--it's still a general solicitation because they are being traded for something.
Caveat: I'm not a lawyer but I have been involved in startups in the space for many years.
There is precedent of an almost identical enforcement action by the SEC, but my google fu is failing me.
But, I would think a line of defense would be that participants knew they wouldn't necessarily get anything for participating and presumably agreed to that in contest terms. At that point, the contest is just a giveaway -- and you can, in fact, give away stock.