How to conduct a secondary stock offering that benefits employees, companies and investors alike
Secondary stock sales that allow employees at successful private companies to turn some of their equity into cash are growing in popularity. But liquidity programs—which are designed to strengthen the lure of employee stock options and other equity incentives at a time when startups are staying private longer—can be messy. They can trigger unwanted tax, legal and regulatory consequences for both companies and their workers. When done right, however, aligned liquidity programs can benefit everyone involved.
Founders Circle has handled scores of successful aligned liquidity programs. We believe they’re the best way for pre-IPO companies to relieve pressure on management and boards, while rewarding hard-working employees so everyone can focus on what matters most: the success of the companies and their people.
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Why?
- Startups are staying private longer
- Employees can’t access their accumulated equity
- Financial pressures become distractions that can affect retention
- Aligned liquidy programs offer the best solution
When?
- Companies doing employee tender offers are 11.5-years-old on average
- They have $144M in revenue, 90% growth rates and 60% margins
- They have 510 employees and a valuation of $2.3B
How?
- Identify the right buyers and eligibility requirements for sellers
- Understand legal, regulatory and tax implications for all parties
- Offer necessary disclosures and communicate benefits
An increasingly popular tool
From 2014 to Q1 of 2017, 111 companies conducted employee tender offers on the Nasdaq Private Market worth a combined $3.6 billion. On average, deal size was $41.5 million and 109 sellers participated in each offering.
