Ask HN: Why can't employees sell vested equity during later fundraising rounds? | Hacker News Reader

Ask HN: Why can't employees sell vested equity during later fundraising rounds?

3 pointsparpfish4 comments

I've always thought that it's unfortunate that employee equity can only be liquidated once you reach one of the 'big' exit events (i.e., exit or IPO) -- especially because this is tech and it can take YEARS to reach one of those events but most hires only stick around for a couple years.

But I had a thought this morning:

When a startup does a fund-raising round, why don't employees get a chance to sell some of their vested equity to the new investors?

I'm guessing that the employee shares are probably of a less-desirable class regarding voting rights, but it feels like somebody holding a pile a pre-A equity shares would still be valuable to an investor hopping in on a C-round.

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It depends and it is different for every company.

Most of the time, employees are almost always in last place when a fundraising round happens, unless the board of directors agrees to employees selling first, which happens in tender offers which themselves are rare.

> When a startup does a fund-raising round, why don't employees get a chance to sell some of their vested equity to the new investors?

Every fundraising round terms are different which we will never know about. Some may not allow employees to sell at all until acquire or IPO.

Even if any of those liquidity events get triggered, when preferential shares are involved, an investor can sell before employees anyway. They can still sell on the private markets, or if they can't find any buyers they have their shares available on 'crowdfunding' sites to unaccredited retail investors (which is always a bad sign) and have them buy it.

The terms are stacked against employees and are just as valuable as a lottery ticket.

This is referred to as a tender offer. If you’re asking why it’s not more common, that’s a question for management and the board of the subject entity.

I bet that management would argue that it would hurt employee retention and/or it would signal that folks that aren’t “true believers” in the company

People are going to leave anyway for better opportunities, to work on new work, etc. Average tenure is what, 3-4 years? And vested shares are vested. Shouldn’t be hard if you’re a solid org to find someone institutional to perform the tender if the company itself isn’t going to buy the shares back out of cash flow and earnings. If you can’t find anyone to provide liquidity, that’s a different issue.

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