Ask HN: Should I sell equity in a past startup on the private market? | Hacker News Reader

Ask HN: Should I sell equity in a past startup on the private market?

9 pointsthrowaway_2mkt8 comments

Many years ago I worked for a start-up that showed some signs of success but merged with its only real competitor and laid-off many of the redundancies. I left the company around this time but exercised my stock options and now own a decent amount in this (still private) company formed from the merger.

I was notified recently that I can sell my equity on the private market. The offer included details of a share price, which would give me a decent payout (6 figures), but I’m wondering if this is a good deal. From crunchbase, the company has done one more round of funding since I left, and it appears they are gearing up for either an IPO or another funding round.

Should I sell? Or how could I better assess the terms of this deal?

I feel that if investors are willing to pay for my shares then they think these will be worth more soon. I don’t need the money right now. Thanks for any advice.

Six figures include a wide range from $100,000 to $999,999. If you are near upper range, you could sell 10-30% to take some money of the table. If you are at the lower range, either you can sell or keep everything. Without knowing anything more about company and valuations, it is difficult to be more specific.

Without knowing more about the company in question, you should sell and invest in SPY.

There aren’t many opportunities to liquidate. Take the one you get.

I had a friend who was approached to buy his private equity. In his case, the company was doing quite well and expected to IPO, so he felt it would be better to just wait for the liquidity event. Might be a similar situation for you, maybe work some old contacts and see what the trajectory of the company is.

Can you sell part of it? Does anyone besides OP know if that is definitely allowed or no?

If you had that money, would you invest it all on this company?

If the answer is "no", sell.

This assumes OP gets a fair price for their stock. Often that doesn't happen on private markets, especially if the company doesn't provide enough information to allow outsiders to make an informed decision

That's generally a good way of thinking about whether to hold an investment, but don't forget about capital gains taxes and state taxes. For example, if you expect to move residency from CA to WA in a year, that alone could be a big bump in your expected cash proceeds and a reason to hold on.

A single data point, but a company I held equity in went public 4 months after a liquidity event in which shareholders were allowed to participate. The IPO went at ~50% above the price of the private transaction. If I were you, I wouldn't sell all of my shares now, especially if you think there's a good chance the company will go public very soon. Selling some fraction makes sense, as others have said--take some money off the table, depending on how much of your total net worth is in this equity stake.

As you might have noticed, the tech sector is in very high demand by investors right now; I wouldn't at all be surprised if VCs and anyone within the company is rushing to IPO, and it doesn't surprise me that investors would want to buy some extra shares at pre-IPO prices. This can all come crumbling down, as some stipulate on HN and elsewhere. Just to mention it as an option: you could partially reduce the risk of holding all or fraction of your shares by shorting a small amount QQQ. If the IPO gets postponed/canceled, it will probably be correlated with the tech sector dropping, so you'll make a modest amount of money on that.

There are never any future guarantees of liquidity, so take this opportunity.

Reply on news.ycombinator.com