Some Start-Ups Set Terms for Employees to Cash Out

Katie Benner reported in today’s New York Times that, “Technology start-ups have long wrestled with a conundrum of how to reward their employees. Many of their workers are compensated with lucrative piles of a start-up’s stock, but cannot cash it in because the shares do not trade publicly.

“So private companies such as Pinterest and SpaceX are increasingly arriving at the same solution: They are giving employees some controlled opportunities to sell their start-up shares — but in return, workers now must agree to more explicit restrictions on what they can and cannot do with their remaining stock.”

Ms. Benner explained that, “The move illustrates how Silicon Valley start-ups are honing their approaches to employee shares. The young companies often give out stock to attract workers, who see the shares as a potentially rich payday when the start-up eventually goes public or gets sold. But as more Silicon Valley start-ups have delayed an initial public offering or sale, the companies have felt increasing pressure to return cash to employees.

“Some tech workers have found ways to sidestep rules against selling their private company shares because plenty of third parties, who are desperate to own stock of high-valued start-ups like Uber and Airbnb, will buy the shares in transactions on the side. But the start-ups typically loathe such sales because the deals can create a dispersed and jumbled shareholder base, which can lead to liabilities like shareholder lawsuits.

All of this has led to highly valued tech start-ups reaching a compromise by letting employees cash out with restrictions.”

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