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Comment by hash872 | Hacker News Reader

Can I ask two dumb questions though? If DataRobot is doing so poorly- why did investors want to purchase the executives' shares? Presumably they are sophisticated investors and had a look at the company books, etc.

So let's say they liked what they say, and it made sense for them to purchase a certain amount of DataRobot shares. If that's the case- why not let the employees sell to the investors too? If there's a pool of investors who are willing to purchase X number of shares at Y value, presumably either they or other investors would like to purchase 3X number of shares.... Wouldn't this be win-win, the employees can sell if they like, and the investors can buy if they'd like? Why not allow that too?

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Executives are incentivised to liquidate as soon as possible because unrealised gains in a startup are very risky. Executives are disincentivised from allowing employees to liquidate because the illiquid nature of the stock is a large part of what keeps the employees working at the company.

This happened in 2021, anyone will buy anything when the market is doing well. DataRobot is doing badly by 2022 standards, by 2021 standards it was a great investment simply by virtue of being an investment — it’s hard to overstate how absolutely batshit the private market was in 20/21.

Because this was a decision made by the executive team to cash out their own shares? If they let employees sell, then the executives could sell fewer shares. Isn’t that obvious?

It may have been smarter to do this.

In general letting any earlier equity holders into a round effectively reduces the amount of cash you end up with, so there is no reason to do it except keeping those equity holders happy. It’s also a bit harder to manage with a bunch of smaller blocks, but you can pool this easily enough.

It’s always going to be a balance, but it might have been better to allow anyone to include a small percent of vested stock in the round (to the same total amount ) rather than just let execs cash out.

This is a real "why did the scorpion sting me?" sort of question

Employees can sell to the investor. I don’t think investors want to manage 100+ stock sales including sending in tax forms etc. There are active secondary market to sell shares in private companies.

>There are active secondary market to sell shares in private companies.

Some startups make is harder by having a clause of first refusal for selling stock.

First right refusal just gives the company/current investors first dibs at any potential stock sale.

Some have no secondary sale clauses too. Depending where you are they may not be enforceable. Or you any have got RSU’s that aren’t saleable the way anyhow.

For very small/early startups, there may not be an effective secondary market at all, let alone permission to participate in a raise.

Sure and that means investors are much less likely to buy the stock. They go through all the effort and then if it's a good deal someone else buys it instead. Some secondary markets will outright refuse to deal with shares that have such clauses.

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