Allowing employees to make 83B elections on their options immediately after starting would help this situation a lot. Most companies don't "allow" you to do this. I've heard conflicting things on the subject. Some say the company has no say in the matter and it's purely in the IRS' court (exercise and notify IRS). Others say the company must allow you to do it.
Second, the bogeyman of "letting some strange interloper see our books" is a myth. Every company's share plan that has share restrictions, also does not confer disclosure rights to common shareholders. That is, you have no right to see the books if you're a common shareholder in these companies. It's not the same with public equities as it is with this new round of startups. It used to be that case that you exercised 1 share of stock upon hitting your cliff. That way you could see the books and see what's really going on. The powers that be (Hello YC) have instructed their companies to remove disclosure rights as a workaround.
The myth that "having lots of shareholders increases costs too much" is also just a myth. Any company with a valuation north of a few mil can afford a finance team (or person) to keep track of registered shareholders. There are services that do this for you. We're talking about companies worth billions of dollars, not the corner bakery worried about the cost of flour because any rise might drive them out of business.
It's not a matter of a company choosing to allow an 83(b) election. It's a personal tax election that you make by mailing a filing in to the IRS and you can do it without the company's involvement or permision.
The problem is that 83(b) elections just aren't applicable unless (i) you own stock, not options, and (ii) that stock is subject to vesting.
Longer explanation: When you buy something, if you are paying less than the fair market value for that thing, then the spread is taxable income to you. Typically this spread is calculated at the time of the sale, so if you're buying shares at $0.0001 per share and they are currently worth $0.0001 per share, you'd think there would be no problem. But the IRS says that if shares are subject to vesting then the spread is actually calculated at the time that the shares vest. So a common case would be that you buy shares now for $0.0001/share, next year you hit your cliff and a bunch of shares vest, and at that point the price has gone up to say $0.001/share, and you would then owe taxes on the difference between $0.0001 and $0.001 per share. The 83(b) election gets you out of this trouble by letting you say at the very beginning that you want to be taxed on all shares up front, so the spread is calculated on day one, and is 0, and there's no tax liability.
So if you own shares and they are subject to vesting, either by a purchase of restricted stock or an option exercise, then yeah, make an 83(b) election and you can do that with or without the company's permission. But if you just own an option that you haven't yet exercised then an 83(b) election just doesn't apply and it's not something the company chooses to allow or not allow.
> The myth that "having lots of shareholders increases costs too much" is also just a myth.
No, it isn't a myth. I used to work for a company which had to re-incorporate for various reasons, and had three shareholders too many; They managed to buy them out before the reincorporation, but it was a big problem (with lots of drama), and if an agreement wasn't reached, the company might have had to fold, and would definitely not have been as profitable, if it couldn't reincorporate.
IIRC, in the US it's 500 shareholders; We were subject to laws in several countries, the minimum of which had 40 shareholders trigger these problems. Regardless, it is not a myth -- having lots of shareholders has weird and unexpected costs.
Just to clarify on this subject: the 83(b) election applies to stock options where early exercise is involved. Not all companies permit early exercise.
you're right on the disclosure issue and cost issue - but I've always been more concerned with voting rights, which a strange interloper would certainly have. Especially in the context of M&A, the risk of a rogue common shareholder can be significant. I don't think it's a show stopper, but it is an issue.
I think that if you held a secret poll of founders of these companies, the majority of them would say they don't want this to change. Retention is really hard, and this is an incredibly powerful retention device at a fast growing company.
As an employee though, you can always vote with your feet. When considering a job at a startup, you should go over the stock option plan and ask hard questions. Remember... the founders (generally) don't have stock options. So sometimes founders at small startups don't even know the implications of the stock option plan they've created, and might be open to changing it if it means the difference between hiring you and not hiring you.
And for the larger companies that have thought about it, you can always pick the ones with more employee friendly plans. The higher the initial value of the company when joining, the harder it is to exercise options if you can't sell the stock immediately (because you have both a high exercise price and taxes on gains). So this can be a non-trivial difference between compensation offers at bigger companies.
I think what's challenging in the current environment is that the most vested employees came on to a set of implicit promises made in the early stages of the company about long-term exit strategies. A decade ago the idea of a unicorn was unheard of so the equity grants seemed to have a closer date of execution than it was in reality.
Would you (or anyone else so inclined) mind just spelling out a list of these "hard questions" in a reply here? I, for example, actually didn't know about the 83b stuff.
I worked at a company for about five years. It became a unicorn while I worked there and I saw the value of my initial grant increase tremendously (something like 35x) over the years. I was significantly in debt and very nearly out of savings when I started there, so early exercise, while available, was not affordable to me. By the time I had money to exercise my shares, the potential AMT liability plus lack of liquidity made it unrealistic to do so. If I left, I'd lose it all. I ended up feeling held hostage by loss aversion. It was not good for my mental health. Feeling stuck can make an otherwise awesome job terrible.
I was very lucky - when I left I was able to just barely cover exercising everything by liquidating my non-retirement investments and savings, then sell enough on the secondary market (which took many nerve wracking months) to cover the AMT bill, pay myself back and set aside enough to pay the tax bills for selling shares.
Very much "Silicon Valley Problems", and I don't expect much, if any, sympathy - especially since I had a good outcome. I'd just like to see the AMT rules changed to make it easier on employees who don't have the luxury of liquidity.
Cash is very cheap right now, and has been for several years. Is it difficult or expensive to obtain loans to cover these expenses against the shares themselves?
Another glaring issue that the article doesn't mention is option lifetime. Most options have a lifetime of 7 years from grant. Companies are delaying going public longer and longer. There's a very real chance that early employees can't sell shares, don't have the money to exercise their shares, and will watch their options expire from old age because the company thinks it's cooler to be private. This is a very real scenario; one that I'm about to face.
At most private companies, stock options aren't worth the paper they're written on. Unless of course the company sells, in which case they're worth slightly more than the paper they're written on. And besides that, to exercise them you usually have to pay a pretty hefty sum. I generally don't consider equity as a part of my compensation package when I work for a private company.
This trend also makes startups just less attractive as destinations for employees. My experience is that startups that have started to scale still don't have as much compensation as larger more mature companies.
Employees join for a number of reasons but stock compensation is one of them. This compensation has always been risky and hard to value but it is now becoming risky, hard to value and even if the company succeeds the compensation won't be realized for a very long time.
The honest reality of unicorn'hood is also that your post-IPO performance is almost assured to be flattish (on average) with potential for swings in either direction of course. So when you look at the delta between your strike price and your actual potential future IPO price -- that is really probably the net of the win you can hope to achieve... and often it's not as good as you'd hope.
I think the idea is that if you're an employee with a bunch of vested options, those options capture a big chunk of the real upside of the company. IPO buyers might get modest returns, but the reason for that is the amount of value baked into those internal shares.
Stock distribution and stock rules are traditionally skewed towards the investors and upper management; the technical team traditionally gets short shrift and is subject to constraints and limitations which favor the other folks.
Stock grants and stock options are very different. Founders shares usually get treated very differently.
Going public has significant downsides and substantial on-going costs (for example, reporting), but it is one of the few ways value can be taken out of a company by shareholders. I wish there were another way.
Missing from the article: the fact that employees are discouraged from seeking buyers because there is an unspoken implication that this means the employee is "losing faith" or "believes less" in the company, or is getting ready to leave.
If the party line is: "hey, we are going to be a billion dollar company!" and then one employee says "hey, I want to sell at this $100M valuation", even if the $100M is a solid upside from the employees strike price the next natural question for the founder is: "hey, why would you sell at this valuation if we all know we are going to unicorn?"
Lots of people are reasonable and could understand many good reasons to sell at that point, but in high-growth culture those are not always appreciated. Sure, employee can/should suck it up, but it still makes it more challenging.
Generally, I think this is why company's should more regularly organize secondaries, it removes this dynamic to a certain extent.
It's getting easier with companies like sharespost.com but securities regulation generally discourage the sale of private company stock in any "open" (aka. public) way - this is ostensibly to protect buyers of stock from investing in risky assets that they know little about and for which there is little public information.
Buyers are generally hesitant because they want to get financial info and other private data to make an analytic investment decision. Given that VC-style investment are more normalized now and they aren't as based on fundamentals, investors are definitely more willing to invest without private financials BUT really large asset managers (who spend 99% of their funds on public stocks with their expansive disclosures) will not tolerate this, limiting the market. Besides, they are getting common stock, which sucks compared to the other investors who get preferred stock.
Companies don't usually want this to happen because they don't want a shareholder (who has voting and other legal rights) that they don't know or trust, and who is not aligned with them in the way that employees and VC are (supposed to be..ha).
The solution growing in popularity tries to deal with all of these by having a company organize a secondary offering, like what pinterest does (palantir does it too, twilio recently did, so do a bunch of companies). Usually this means the company knows the buyer (sometimes an existing investor) and basically gives them the info they would give a VC, except the investors buys employee shares rather than new stock - sometimes this will be asked for an investor when they are doing a preferred stock deal, and the investor will agree as an additional "company favorable" term. Important to note here too, that USUALLY the biggest sellers in these deals are the founders, so while it's a very nice thing for them to do for their employees, there's some healthy self-interest there as well =)
Most companies have a Right of first refusal clause embedded in the options agreement effectively limiting selling shares of private companies even after exercising options.
If they are RSU's , I am assuming they can't be sold at all in the private markets ?
Can anyone with prior experience elablorate on these ?
Ultimately, I think that the interests of employees will not make a company decide to go public, unless it's already borderline.
To solve this, it seems like a more likely path is longer exercise windows, more liquidity in the markets for stock and/or options. If we're talking about "unicorns" like AirBnB, Uber and such, I imagine there is a demand so if a way for buyers and sellers to come together existed, it could work.
There are some advantages companies would be forgoing, but it's not like going public just to let employees cash out.
> This is why companies with skyrocketing valuations are particularly dangerous for employees. Shelling out tens or hundreds of thousands of dollars is hard enough for most. You can imagine needing to pay millions of dollars to acquire your options when you don’t have it.
Huh? The exercise price for options is established when employees are granted stock options, which almost always occurs at the beginning of employment. Employees can calculate the total cost of exercise based on the information contained in the Notice of Stock Option Grant. You can and should ask for this information before you join a company.
If you are granted 100,000 options with an exercise price of $0.20, you know that the total cost of exercise (assuming full vesting) will be $20,000. The company's valuation could increase fifty-fold and it wouldn't affect the cost of exercise.
Companies with skyrocketing valuations can be precarious for employees who join late, but here too employees can calculate everything up front and they should take into concern liquidity risk when evaluating what their options are really worth.
Capital gains taxes. When the "fair market value" of the company increases away from your strike price, when you exercise your options you have to pay tax on the difference between your strike price and the fair market value. And it will be a short term capital gain so it isn't cheap. If those .20 options of your have a fair market value of 5.00 now, you will owe tax on 4.80 of capital gains. 4.80 * 100,000 is 480,000.00 and a tax rate of about 40% on that means you will owe $192,000.00 in taxes to exercises $20,000.00 in options. So you will need around $210,000.00 to get out.
And even after that you're holding a non-liquid asset which could be diluted to nothing or the company could simply fail and you can't dump the stock.
The company's valuation increases fifty-fold. Now you decide to exercise your stock options, and you pay $20,000. You have just paid $20,000 for stock that is now worth $1,000,000.
The IRS now expects you to pay tax on your $980,000 in income. However, your stock is not liquid, so you can't sell it. This is why you can need "millions" to acquire your options.
It's the AMT issue. In your example, if the company's valuation increased by 50X, the spread between the FMV and the exercise price would be $1,000,000, so you would have to pay taxes on AMT income of $980,000 - assuming AMT is 20%, that's almost $200k. It sucks =)
Of course IF you are lucky enough to have $20K sitting around, enough faith in your company the day you get your options AND your company lets you early exercise, then you can avoid this. Unfortunately, for most folks those conditions are not all met =(
The article doesn't state this well, but the additional cost comes from AMT. If you exercise your options you pay AMT on the face value of a share of common stock at time of exercise minus the exercise price (the spread). This is true regardless of whether or not those options are liquid at the time. For a unicorn, the stock has most certainly increased in value over time, which means the exercise price is a fraction (possibly a very low fraction) of the current value, and you'll be writing the IRS a much larger check than you write the company.
The only escape from this problem is an 83(b) election, which I've heard many companies say they don't allow (IANAL and am not sure what the circumstances are here). It's also the case that with an 83(b) election you are putting real money, potentially a significant amount of real money, into the company's bank account with no expectation of when that investment will become liquid. So this also has risks, but at least the AMT is on the spread, which is $0 in this case.
Sure, $20,000 for the shares but what about the taxes you'd owe on the shares? If the value increases 50-fold, does the IRS not see that as 1,000,000 - 20,000 = $980,000 of taxable income?
Well that's what you get for taking stocks in a private company I guess. I never do it because it's just dumb. Unless you want to be tied to that company for ever don't do that. But who knows, I don't live in the same world as you people.
That's one factor, and one that the investment community likes to play up. I'm not really sure this applies in the unicorn case, though, since the amount of money that they're raising in the "private IPOs" they do dwarfs the reporting costs of being a public company.
The biggest factor, in my opinion of course, is that some large private investors realized that they could capture most of the upside in an IPO before the IPO actually happened. The first real example of this is DST and Facebook. This has obvious advantages for the private investor -- they get access to a source of high quality risk for their portfolio. It also has obvious advantages for the company -- they get access to capital without having to manage to Wall St's expectations (and that's no minor thing).
Facebook was sort of the proto-unicorn, and it spawned imitators. Those imitators were not just startups, it also spawned imitators on the investment side. Suddenly a source of relatively easy money -- the initial IPO allocation in "sure thing" companies -- weren't available to the usual suspects, and those funds have naturally followed the leaders into the D, E, and F rounds of the new breed of unicorns. These deals are even accessible to relative small fry now -- private bankers will routinely shop around access to these funding rounds to people with assets "only" in the 10's of millions. Sometimes they're shopping a theoretical deal that they want to present to the company in question, and sometimes they're shopping AirBnB.
At any rate, many of the gains you used to be able to get in companies like Amazon or Google are now going to people able to get access to these pre-IPO deals. Financing private companies is very different now than it was 5 years ago.
Unicorns, do not exist. by the time they get to this size, scale, they are 'just' corporations, or a vaporcorp. The free market operates on the principal of a products value is whatever the market is willing to pay for it. Going public or being acquired provides a value. Everything else as far as valuations, even for a profitable company that has been around 50 years are just estimates.
Unicorns and Valuations are like Schrödinger's cat... until you open the box they are neither dead or alive, not worth 10Billion or Zer0
"That might sound harsh, but put yourself in the CEOs’ shoes: It’s often in a company’s best interest to be able to reclaim equity if an exiting employee can’t afford to purchase his or her shares within 90 days of leaving."
I'm sure it would be in a company's best interest to chain their people to desks too. We don't allow that, for obvious reasons.
I was hoping that this would be about the term "unicorn", which can't go away too soon. It reflects the juvenility of the Valley, that people are too creepy-humble amount money to say "a billion dollars" (teehee!) and have to hide behind a mythical creature. It also allows VCs to hide the fact that all they really care about is money (and I don't begrudge them for that per se, but for the dishnesty around it) by making a billion dollars sound like something other than what it is. (It reminds me of "change the world" nonsense, because you'd literally have to change the world to make unicorns exist.) If what you care about is making a lot of money and nothing else, then just admit it. There's plenty of company on Wall Street for that sort of person.
Seriously, fuck this "unicorn" shit and fuck that whole culture of juvenilty that comes out of the polar vortex of immaturity called Silly Con Valley.
While it's no doubt annoying for those involved, I find myself unable to sympathize much with the woes and travails of those poor stock-holding employees of private firms with skyrocketing valuations.
Cry me a river, basically. If this is a serious issue that needs to be addressed, it's at most inside baseball not worth the rest of us worrying about.
> I find myself unable to sympathize much with the woes and travails of those poor stock-holding employees of private firms with skyrocketing valuations.
Stock-Option-Holding and often financially restricted from exercising.
[+] [-] scurvy|10 years ago|reply
Second, the bogeyman of "letting some strange interloper see our books" is a myth. Every company's share plan that has share restrictions, also does not confer disclosure rights to common shareholders. That is, you have no right to see the books if you're a common shareholder in these companies. It's not the same with public equities as it is with this new round of startups. It used to be that case that you exercised 1 share of stock upon hitting your cliff. That way you could see the books and see what's really going on. The powers that be (Hello YC) have instructed their companies to remove disclosure rights as a workaround.
The myth that "having lots of shareholders increases costs too much" is also just a myth. Any company with a valuation north of a few mil can afford a finance team (or person) to keep track of registered shareholders. There are services that do this for you. We're talking about companies worth billions of dollars, not the corner bakery worried about the cost of flour because any rise might drive them out of business.
[+] [-] jalonso510|10 years ago|reply
The problem is that 83(b) elections just aren't applicable unless (i) you own stock, not options, and (ii) that stock is subject to vesting.
Longer explanation: When you buy something, if you are paying less than the fair market value for that thing, then the spread is taxable income to you. Typically this spread is calculated at the time of the sale, so if you're buying shares at $0.0001 per share and they are currently worth $0.0001 per share, you'd think there would be no problem. But the IRS says that if shares are subject to vesting then the spread is actually calculated at the time that the shares vest. So a common case would be that you buy shares now for $0.0001/share, next year you hit your cliff and a bunch of shares vest, and at that point the price has gone up to say $0.001/share, and you would then owe taxes on the difference between $0.0001 and $0.001 per share. The 83(b) election gets you out of this trouble by letting you say at the very beginning that you want to be taxed on all shares up front, so the spread is calculated on day one, and is 0, and there's no tax liability.
So if you own shares and they are subject to vesting, either by a purchase of restricted stock or an option exercise, then yeah, make an 83(b) election and you can do that with or without the company's permission. But if you just own an option that you haven't yet exercised then an 83(b) election just doesn't apply and it's not something the company chooses to allow or not allow.
[+] [-] beagle3|10 years ago|reply
No, it isn't a myth. I used to work for a company which had to re-incorporate for various reasons, and had three shareholders too many; They managed to buy them out before the reincorporation, but it was a big problem (with lots of drama), and if an agreement wasn't reached, the company might have had to fold, and would definitely not have been as profitable, if it couldn't reincorporate.
IIRC, in the US it's 500 shareholders; We were subject to laws in several countries, the minimum of which had 40 shareholders trigger these problems. Regardless, it is not a myth -- having lots of shareholders has weird and unexpected costs.
[+] [-] 7Figures2Commas|10 years ago|reply
[+] [-] joshjkim|10 years ago|reply
[+] [-] enum_write2|10 years ago|reply
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[+] [-] birken|10 years ago|reply
As an employee though, you can always vote with your feet. When considering a job at a startup, you should go over the stock option plan and ask hard questions. Remember... the founders (generally) don't have stock options. So sometimes founders at small startups don't even know the implications of the stock option plan they've created, and might be open to changing it if it means the difference between hiring you and not hiring you.
And for the larger companies that have thought about it, you can always pick the ones with more employee friendly plans. The higher the initial value of the company when joining, the harder it is to exercise options if you can't sell the stock immediately (because you have both a high exercise price and taxes on gains). So this can be a non-trivial difference between compensation offers at bigger companies.
[+] [-] iaw|10 years ago|reply
[+] [-] angersock|10 years ago|reply
[+] [-] ryan-c|10 years ago|reply
I was very lucky - when I left I was able to just barely cover exercising everything by liquidating my non-retirement investments and savings, then sell enough on the secondary market (which took many nerve wracking months) to cover the AMT bill, pay myself back and set aside enough to pay the tax bills for selling shares.
Very much "Silicon Valley Problems", and I don't expect much, if any, sympathy - especially since I had a good outcome. I'd just like to see the AMT rules changed to make it easier on employees who don't have the luxury of liquidity.
[+] [-] robotresearcher|10 years ago|reply
[+] [-] mune_write4|10 years ago|reply
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[+] [-] scurvy|10 years ago|reply
[+] [-] s73v3r|10 years ago|reply
[+] [-] j_baker|10 years ago|reply
[+] [-] tpiddy|10 years ago|reply
Employees join for a number of reasons but stock compensation is one of them. This compensation has always been risky and hard to value but it is now becoming risky, hard to value and even if the company succeeds the compensation won't be realized for a very long time.
[+] [-] redwood|10 years ago|reply
[+] [-] tptacek|10 years ago|reply
[+] [-] drallison|10 years ago|reply
Going public has significant downsides and substantial on-going costs (for example, reporting), but it is one of the few ways value can be taken out of a company by shareholders. I wish there were another way.
[+] [-] BrainInAJar|10 years ago|reply
[+] [-] joshjkim|10 years ago|reply
If the party line is: "hey, we are going to be a billion dollar company!" and then one employee says "hey, I want to sell at this $100M valuation", even if the $100M is a solid upside from the employees strike price the next natural question for the founder is: "hey, why would you sell at this valuation if we all know we are going to unicorn?"
Lots of people are reasonable and could understand many good reasons to sell at that point, but in high-growth culture those are not always appreciated. Sure, employee can/should suck it up, but it still makes it more challenging.
Generally, I think this is why company's should more regularly organize secondaries, it removes this dynamic to a certain extent.
[+] [-] s73v3r|10 years ago|reply
Because I want to buy a house with a fire pole.
[+] [-] enum_write3|10 years ago|reply
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[+] [-] chrisco255|10 years ago|reply
[+] [-] joshjkim|10 years ago|reply
Buyers are generally hesitant because they want to get financial info and other private data to make an analytic investment decision. Given that VC-style investment are more normalized now and they aren't as based on fundamentals, investors are definitely more willing to invest without private financials BUT really large asset managers (who spend 99% of their funds on public stocks with their expansive disclosures) will not tolerate this, limiting the market. Besides, they are getting common stock, which sucks compared to the other investors who get preferred stock.
Companies don't usually want this to happen because they don't want a shareholder (who has voting and other legal rights) that they don't know or trust, and who is not aligned with them in the way that employees and VC are (supposed to be..ha).
The solution growing in popularity tries to deal with all of these by having a company organize a secondary offering, like what pinterest does (palantir does it too, twilio recently did, so do a bunch of companies). Usually this means the company knows the buyer (sometimes an existing investor) and basically gives them the info they would give a VC, except the investors buys employee shares rather than new stock - sometimes this will be asked for an investor when they are doing a preferred stock deal, and the investor will agree as an additional "company favorable" term. Important to note here too, that USUALLY the biggest sellers in these deals are the founders, so while it's a very nice thing for them to do for their employees, there's some healthy self-interest there as well =)
[+] [-] j_baker|10 years ago|reply
[+] [-] hatred|10 years ago|reply
If they are RSU's , I am assuming they can't be sold at all in the private markets ?
Can anyone with prior experience elablorate on these ?
[+] [-] s73v3r|10 years ago|reply
[+] [-] netcan|10 years ago|reply
To solve this, it seems like a more likely path is longer exercise windows, more liquidity in the markets for stock and/or options. If we're talking about "unicorns" like AirBnB, Uber and such, I imagine there is a demand so if a way for buyers and sellers to come together existed, it could work.
There are some advantages companies would be forgoing, but it's not like going public just to let employees cash out.
[+] [-] 7Figures2Commas|10 years ago|reply
Huh? The exercise price for options is established when employees are granted stock options, which almost always occurs at the beginning of employment. Employees can calculate the total cost of exercise based on the information contained in the Notice of Stock Option Grant. You can and should ask for this information before you join a company.
If you are granted 100,000 options with an exercise price of $0.20, you know that the total cost of exercise (assuming full vesting) will be $20,000. The company's valuation could increase fifty-fold and it wouldn't affect the cost of exercise.
Companies with skyrocketing valuations can be precarious for employees who join late, but here too employees can calculate everything up front and they should take into concern liquidity risk when evaluating what their options are really worth.
[+] [-] nemo44x|10 years ago|reply
And even after that you're holding a non-liquid asset which could be diluted to nothing or the company could simply fail and you can't dump the stock.
[+] [-] nathan_f77|10 years ago|reply
The IRS now expects you to pay tax on your $980,000 in income. However, your stock is not liquid, so you can't sell it. This is why you can need "millions" to acquire your options.
[+] [-] joshjkim|10 years ago|reply
Of course IF you are lucky enough to have $20K sitting around, enough faith in your company the day you get your options AND your company lets you early exercise, then you can avoid this. Unfortunately, for most folks those conditions are not all met =(
[+] [-] sulam|10 years ago|reply
The only escape from this problem is an 83(b) election, which I've heard many companies say they don't allow (IANAL and am not sure what the circumstances are here). It's also the case that with an 83(b) election you are putting real money, potentially a significant amount of real money, into the company's bank account with no expectation of when that investment will become liquid. So this also has risks, but at least the AMT is on the spread, which is $0 in this case.
[+] [-] tfe|10 years ago|reply
[+] [-] scurvy|10 years ago|reply
[+] [-] rhc2104|10 years ago|reply
[+] [-] s73v3r|10 years ago|reply
And even just thinking about the stock price, $20,000 can be a lot of money to spend on something you can't sell.
[+] [-] Arzh|10 years ago|reply
[+] [-] tigger_please|10 years ago|reply
[+] [-] api|10 years ago|reply
[+] [-] sulam|10 years ago|reply
The biggest factor, in my opinion of course, is that some large private investors realized that they could capture most of the upside in an IPO before the IPO actually happened. The first real example of this is DST and Facebook. This has obvious advantages for the private investor -- they get access to a source of high quality risk for their portfolio. It also has obvious advantages for the company -- they get access to capital without having to manage to Wall St's expectations (and that's no minor thing).
Facebook was sort of the proto-unicorn, and it spawned imitators. Those imitators were not just startups, it also spawned imitators on the investment side. Suddenly a source of relatively easy money -- the initial IPO allocation in "sure thing" companies -- weren't available to the usual suspects, and those funds have naturally followed the leaders into the D, E, and F rounds of the new breed of unicorns. These deals are even accessible to relative small fry now -- private bankers will routinely shop around access to these funding rounds to people with assets "only" in the 10's of millions. Sometimes they're shopping a theoretical deal that they want to present to the company in question, and sometimes they're shopping AirBnB.
At any rate, many of the gains you used to be able to get in companies like Amazon or Google are now going to people able to get access to these pre-IPO deals. Financing private companies is very different now than it was 5 years ago.
[+] [-] apalmer|10 years ago|reply
Unicorns and Valuations are like Schrödinger's cat... until you open the box they are neither dead or alive, not worth 10Billion or Zer0
[+] [-] chrisco255|10 years ago|reply
[+] [-] s73v3r|10 years ago|reply
I'm sure it would be in a company's best interest to chain their people to desks too. We don't allow that, for obvious reasons.
[+] [-] michaelochurch|10 years ago|reply
Seriously, fuck this "unicorn" shit and fuck that whole culture of juvenilty that comes out of the polar vortex of immaturity called Silly Con Valley.
Speaking of unicorns, if you want something to hate for the next few minutes, watch this video: https://www.youtube.com/watch?v=bMJIBxtDUHc .
[+] [-] ajross|10 years ago|reply
Cry me a river, basically. If this is a serious issue that needs to be addressed, it's at most inside baseball not worth the rest of us worrying about.
[+] [-] justizin|10 years ago|reply
Stock-Option-Holding and often financially restricted from exercising.
[+] [-] nathan_f77|10 years ago|reply