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Comment by tempsy | Hacker News Reader

I feel bad for employees that have waited a decade to cash out.

No reason why Stripe couldn’t have gone public in 2020-2021 at a huge valuation but from past interviews it sounds like the decision to remain private was just a founder preference thing because “focus” or something. Now the IPO market is completely frozen and its valuation is likely cut in half from peak, at least.

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The second they go public it triggers a 6-12 months window after which all of their employees can cash out. This will, inexorably lead to an exodus of their most senior peeps, and when it happens, will probably be ground zero for the next gen of fintech startups.

Delaying going IPO this way, amongst other things, is about retention.

I don’t think this is correct. Then your theory is that every tech company that went public in last 2 years have experienced a brain drain that Stripe has not.

Lock up periods aren’t set in stone. They probably didn’t need to raise money and could have done a direct listing and let employees cash out immediately.

A "brain drain" doesn't just mean that people actually quit and leave. They can also dramatically ramp down the intensity because they are suddenly in a very comfortable financial position and the big risk they have been working so hard to avoid (losing their valuable equity for whatever reason) is off the table. It sucks, but that's the way it is for many people. It's hard to keep up the super high level of intensity after so long, especially when the downside case is mitigated by newfound financial independence.

There’s also no lack of buyers for stripe on secondary markets.

whether you can sell on secondary markets is restricted by the company. pretty sure Stripe has not let most employees sell on secondary markets. personally have not seen them solicited on Forge or EquityZen myself.

A fun question to ask when interviewing at a startup is to what extent they block or facilitate employee share sales/transfers. Also check with private markets to see what their experience with that company is.

How do they prevent you from selling on the secondary market? Would love to see that clause on their options agreement. Most companies have first right of refusal which gives them the option to buy them first.

There are a few clauses but the gist is pretty simple: approval of any transfer of option or underlying share must be approved by the board of directors + they may also exercise their right of first refusal.

Ahh I wasn't aware of that, thanks!

Most tech companies have four-year vesting periods. Lots of people at my current employer, which IPOed in 2020, are still vesting shares from pre-IPO stock grants. As a result, those people have a very strong financial incentive to stick around.

Stripe is a rarity in that it issues one-year equity grants, which would make it more susceptible to brain drain after an IPO compared to companies with longer vesting schedules.

To a certain extend yes you're right. But they've overextended. Realistically there won't be a fertile IPO market at their size/level of valuation in years now. So unless they up their salaries, it's doubtful some people who joined in hopes of cashing out after 1-2 years would be willing to wait an additional 4 or 5.

This is a problem that people are well aware of, it’s mitigated with stock refreshers. It’s not perfect but helps retention.

To some extent, but if you have been around since the early days it’s unlikely your golden handcuffs will be worth as much as your long-vested options.

For anyone that has been there anywhere near a decade, there's been opportunities to cash out partially, at very good valuations. You'll see that a vast majority of early employees have departed, and they didn't do that by giving away their early options, or getting crushed by AMT by exercising without liquidity.

While it might have been nicer to IPO by now, early employees are doing extremely well.

How generous were these cashouts? I've seen order of $1MM caps on early cashouts, but I have no idea if that's the norm or not.

sure that’s true of most unicorns. early employees are a tiny fraction of the workforce waiting to cash out.

The trend of companies taking huge late stage rounds was always going to blow up the public tech IPO market. Many companies get too used to free money and operating with little inspection. By the time they feel like they "have to go public" the growth rate has peaked and they haven't learned to operate with any level of financial scrutiny. Result is private market investors do great and all too frequently public markets bomb in 6-12 months or sooner.

Yup! This has been the trend for the last 10 years. Facebook was probably the last well run company to go public, probably because it grew during the pre-Zirp era.

Anyone who has been there for a decade had options and has already cashed out.

Folks who are getting screwed are the ones that joined in ~2017 when they started issuing RSUs instead of ISOs.

Why? I always thought RSUs were better than ISOs

RSUs typically expire if the company doesn't go public in X years

They’re double-trigger RSUs, to avoid tax liability pre-liquidity.

>its valuation is likely cut in half from peak, at least

So you wish they would have got to dump overpriced shares on the public to further enrich insiders?

It's not like Stripe engineers were earning minimum wage digging ditches for 10 years...

Is Stripe profitable? I heard some of its financing is from PE and bank funding, which tend to be less tolerant of money losing or low profit operations. If they are not profitable they will need more capital eventually or to lengthen their runway.

I don't believe that is public information but they always could be cash flow positive if they needed to be that's for sure.

that 15% number was probably picked for a reason. (to make them cash flow positive)

At this point in time I wonder if many people with senior level shares have found other alternatives to cash out. Secondary markets for instance.

There's a healthy secondary market for companies like Stripe. Employees there can sell a good amount of their stock already (and have likely been able to for years).

Pretty sure the company doesn’t let most employees sell. I have never seen Stripe shares offered on Forge or EquityZen.

They couldn’t IPO. Stripe is a bubble. They don’t want their financials under a microscope.

Genuine question, what’s the real value proposition of Stripe?

They do have a slick integration process for outside developers, but is that enough for to justify the financial values attached to them in the recent past?

As one of the earliest stripe customers, yes, that was the reason why we switched to them from Authorize.net.

Developer docs and easy API integration was, and is still, their "stickyness". But the eco-system of new products they've added have grown that moat to make it easy and cost-efficient to offload more and more of the financial and subscription stack onto Stripe. It's a virtuous cycle

What leads you to believe they're a bubble?

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