There is an interesting development coming from Silicon Valley regarding allowing staff to cash out some of their options.
The lack of visible IPOs, the need for cash, feeling of insecurity are possible drivers. However this is an age old problem for all private companies whether they are start ups or not. How do you keep staff incentivized with shares/options if they have no liquidity or visible value. Most shareholder agreements require companies to buy back shares from exiting employees. Where does the cash come from? A family business has a dispute between two brothers and one wants to leave – do you really have to sell the company to resolve the issue, because the balance sheet can’t fund the shareholders exit.
A few organizations are looking to fill this gap of buying up private company shares: Industry Ventures of San Francisco, Millenium Technology Ventures of New York and an on-line exchange called Second-Market Inc.
I say good luck. The private company market desparately needs some type of mechanism like this to keep the great people on the bus happy, and those leaving the bus a fair reward for their effort todate.
WSJ article link here