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Jun 14, 2022
If you’ve ever worked at a startup where you were offered equity as part of your compensation package, you have probably experienced that it’s one thing to receive or earn equity and something else entirely to realize its value. Many employees who earn equity don’t get the chance to take advantage of it because – without an IPO or company buyout – trading startup equity can be extremely difficult. Is there an easier way to realize your equity without an IPO?
Realizing Your Equity
Typically, there are three ways to realize private company stock options before an IPO: find a buyer and act as your own broker; accept a “tender offer” in which the company you work for buys back your shares; or sell the shares you own on a secondary market. Let’s review the benefits and limitations of each:
From acting as your own broker to filing all the corresponding paperwork, the process of trading startup equity without an IPO or company buyout can be daunting. Even when companies do IPO, investors face the potential of losing value on earned stock options. For instance, when BuzzFeed IPO’d, employee shareholders were unable to realize their stock options because of issues with their non-digital transfer agent, forcing them to watch helplessly as their shares dropped in value. This could have been avoided by using digital transfer agents and end-to-end securities management solutions like Securitize. Secondary markets can put you on a pathway to realizing your startup equity without the administrative headache. Now, you can manage your own stock options and realize them too.
If your startup already issues equity and is exploring secondary markets, sharing this article with your Chief Financial Officer can help make your stock options more realizable.