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Because there's no one they can sell their shares to. With a public company, you can sell your shares on the stock market.
by j_baker 11y ago
Because there's no one they can sell their shares to. With a public company, you can sell your shares on the stock market.
- zkhalique 11y agoPerhaps they should be able to sell their shares back to the company? The company would be responsible for raising more money and have some allocation for share buyback.
- exelius 11y agoWho would determine the price of common shares without a liquid market?
- tptacek 11y agoOther employees, the management team, and the board.
- apalmer 11y agowhich is exactly the problem.
- exelius 11y agoYep, all of those people stand to gain from setting as low a price as possible given that a liquidity event will reset the share price anyway. Not to mention that any buybacks would hit your run rate, because run rates are about operating cash flows and not valuation numbers (and buybacks are just a way to convert operating cash into equity).
- wglb 11y agoAnd often with consultation with outside valuation consultants.
- zkhalique 11y agoWho determines them when you raise money from investors? That's the market that should determine the value of the shares obviously. The last price fetched on that market. Whether its liquidity is high or low, it's still a viable market, even if it's not the public stock market.
- jstelly 11y agoThe same people/method the company is using to determine the strike price of any new options they are issuing?
- tptacek 11y agoA few very good companies do make this possible, but it takes effort to set up and is not the default.
- scurvy 11y agoSome well-run startups make arrangements for this when raising a round. The VC will agree to buy into the round at X dollars per share. They'll also agree to buy up to Y dollars worth of stock from employees who want to sell. VC gets more ownership of the company, and the company doesn't have to give up more ownership. It's overall a good situation. I know that Cloudflare and a few other companies offer this.