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Comment by arjie | Hacker News Reader

This presents a question I've had for a while. Suppose I want a small number of units (say the 15000 he has here) in a company that's pre-IPO, is there a standardized agreement for me to buy it from him?

While his past employer probably has right of first refusal on the units, wouldn't he still come out ahead if I wanted to pay him, say, $10000 for the 15000 units?

Could they have legally pre-emptively blocked the sale? Are there standard agreements where I could take ownership of the value behind those units without having full ownership or voting rights?

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Disclosure: I work at EquityZen, a marketplace for pre-IPO shares

Every company has different transfer restrictions on their shares/options. Yes they could legally block the sale if their by-laws or the share grant agreement allows it. We have somewhat standardized agreements for transferring shares at EquityZen, and we get company approval for all deals.

Usually companies have a clause where they have the first right to buy the stock options back before you offer them for sale to anyone else. Employee stock options are sort of intended to be NODROP, and if they want to make shares available on like second market, they need to create a pool of shares specifically for that.

And when they exercise that right, they'd be able to buy them back at the strike price?

No, they would buy it back at the price that the buyer had offered. In your example, $10000 for the 15000 units.

Oh, so secondary markets are still beneficial to participate in if permitted. So this guy should participate if he can. But you work with the original company, etc., I suppose. Makes sense.

I would be curious about the legality of working around that restriction - like, what if the option holder creates a contract with someone who wants to buy the options, where they agree to hold onto them and then give them to the buyer once they are allowed to in return for a lump sum payment up front. Or, perhaps, they set up an agreement where they are given a lump sum payment up front, and agree to pay the buyer an amount equal to the current value of the stock once it becomes publicly available.

I've looked into exactly this arrangement before. I couldn't find anything definitive, but I imagine that the second buyer will be in a very risky situation should the shareholder decide to break the contract down the road.

beware: https://www.sec.gov/news/pressrelease/2016-257.html

That seems to just be a regulatory operation they didn't fulfill. They were supposed to register the swaps and they didn't.

Is that accurate or was there something nefarious going on?

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