Management teams of high growth companies, who’ve been operating for 7+ years, often find themselves wanting to offer their employees partial liquidity on their vested common stock as both a reward for the milestones achieved and as a retention mechanism for the milestones that lie ahead. But facilitating employee liquidity programs via secondary stock sales can be tricky when seeking to align the sellers’ needs and interests, the company, and the preferred investors. If not structured correctly, they can trigger unwanted tax, legal, 409A, and regulatory consequences for both companies and their workers.
However, when done right, they reenergize all parties to double down on the company and to continue patiently building the business into an enduring franchise.
Founders Circle has handled scores of successful employee liquidity programs across a wide range of use cases and structures. The commonality across these programs has been as follows: