It was once a rare practice, but employees are now finding more ways to unload vested shares in their startups along the way.
While employers have typically tried to control these sales, a new marketplace called Equidate is opening up that will let employees sell equity with or without the startup’s consent (although Equidate would prefer to collaborate with employers).
Over the past decade, many companies like Facebook have elected to wait longer before going public. That meant that longtime employees wound up with their wealth mostly tied up in the stock of their companies with few options to diversify their holdings. At the same time, certain investors wanted access to a growing pool of pre-IPO tech companies.
So companies like New York-based SecondMarket cropped up. They have helped facilitate employee share sales for privately-held companies like SurveyMonkey, which raised about $800 million in January of last year.
Equidate’s critique of SecondMarket’s model is that if you are an employee that wants to sell shares, you have to do it through your company.
Two of Equidate’s co-founders, Sohail Prasad and Samvit Ramadurgam, saw that their friends in high-growth tech companies felt stuck financially. “It’s difficult if you want to sell shares as an individual,” said Prasad, who was previously a product manager at Zynga and an early employee at Chartboost. (But these restrictions also exist because as secondary sales have become more popular, companies have also wanted control. They want to manage the flow of private information of their financial performance and they want to know who their shareholders are.)
So what Equidate has done is that they’ve created contracts tied to the value of an employee’s shares, which have to be vested and owned by them. (Employees can’t participate if they just have options or if they have restricted stock units.)
“It’s similar to a collateralized loan. No shares are trading hands,” Prasad said. Prasad said that an Equidate contract allows an investor to buy rights to the economic upside of a share, while avoiding the legal hoops a company has to go through when it’s adding extra shareholders to its cap table.
Gil Silberman, Equidate’s other co-founder, created the contracts after working as a lawyer with companies like LinkedIn, Craigslist and OpenTable. A fourth team member, Andrea Lamari, works alongside Gil Silberman in a business development role.
They’re launching with four companies on the market including Dropbox, BitTorrent, Chartboost and Buzzfeed. They would like to bring more Series B stage companies or so onto the platform, which means they’d sit in between early-stage solutions like Funders Club and then big late-stage rounds.
For now, Equidate will only allow accredited investors, who either have a net worth of more than $1 million or make at least $200,000 a year, to participate.
The four-person company hasn’t shared any details on how much it has raised to date or who its investors are.