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Former Uber Employees Have Gone Into Debt To Hang Onto Shares They Can't Sell (qz.com)
An anonymous reader quotes a report from Quartz: Uber employees are lining up to sell their stock to Japanese technology giant SoftBank, which will buy up to 17% of outstanding shares for $33 each. The price represents a 30% discount to Uber's last valuation, of nearly $70 billion, but for current and former employees, the SoftBank tender offer is a rare chance to convert paper wealth into actual cash. To qualify for the tender offer, participants must have at least 10,000 Uber shares and be "accredited investors," an SEC designation (pdf) for wealthy individuals. Current Uber employees can't sell more than half of their stake; there are no restrictions on former employees. The deal is on the table until Dec. 28, and could fall through if there aren't enough shares on offer for SoftBank and a small consortium of other investors to purchase at least a 14% stake in the company.
Working at a successful startup is often viewed as a quick path to prosperity, but the reality is more complicated. Startups tend to offer equity packages, typically in the form of stock options, to compensate for below-market salaries. But as companies like Uber have stayed private longer, most employees haven't been able to get rich from those shares. Quite the opposite, some former Uber employees have gone into debt to hang onto shares they still can't sell.
Working at a successful startup is often viewed as a quick path to prosperity, but the reality is more complicated. Startups tend to offer equity packages, typically in the form of stock options, to compensate for below-market salaries. But as companies like Uber have stayed private longer, most employees haven't been able to get rich from those shares. Quite the opposite, some former Uber employees have gone into debt to hang onto shares they still can't sell.
When you get stock options, you get X shares at Y strike price, with Z vesting period.
Lets say you get 10,000 shares, at a strike price of $10 a share, with a 4 year vesting period.
Let's assume you worked there 4 years, so all of the shares are vested. If you want to "exercise" the shares, you have 2 options:
1) Buy the options with cash ($10 per share x 10,000 shares = $100,000).
2) If the company is publicly traded, you can also do a "same-day-sale". If the public price is higher than your strike price (lets say $20), you "buy" the shares at $10, then sell them on the open market at $20, and you pocket the difference, so you would make $100,000 (minus taxes).
Once you leave a company, all un-exercised options are forfeited after a time (90 days for example). For a private stock, you cannot sell them on the open market, so you only have the first option to buy them with cash. You now own all of those shares, but you cannot sell them publicly, so you have to hold onto them hoping that the company goes IPO, or an investor wants to buy them, like SoftBank.