Vested Blog

Helping employees maximize their equity value.

2019 Retrospective

04 December 2019

It’s been a busy few months at Vested - we’ve continued to grow our team (currently five strong) and add companies to the platform that employees have requested.

We’ve also worked with some of the major (and minor) players in the ecosystem who provide both loans to employees for exercising and buyers for pre-IPO shares. We’re incorporating some helpful user feedback and scaling our backend to cover even more companies. We have a lot to do, but do feel that we are starting to make an impact for employees.

Despite surveying different stakeholders (employees, founders, investors) before launching, we didn’t really know how Vested would be received. Since launch we’ve learned:

Employers either love us or hate us

We expected employees would appreciate a third party perspective, and we anticipated some companies wouldn’t love “an outsider” assessing their value, but we didn’t predict the more binary outcome we’ve observed in our small but growing sample size.

Some companies love us. These companies tend to be transparent with employees on all things equity, have market above market equity awards, and are focused on attracting and keeping top talent. Our third party objectivity validates their claims and helps answer questions that their HR/Finance/Legal teams can’t - they need to keep employees at “arm’s length” when it comes to providing exercise and financial advice. These companies want Vested as part of their recruiting and retention process.

Some companies hate us. We’ve heard directly from company founders and company general counsels - “take our companies off Vested”. Rationale has included - you’re sharing confidential private company data (we’re not), you can’t target employees at private companies (we can), and your data is wrong (we hope not). Of all the concerns, the third is the most concerning to us - we clearly want to have the most accurate valuation and share price numbers. And we work exceptionally hard to determine those numbers.

We start with a 409A valuation and waterfall analysis of the company. How do we get this? We build our own with the best in the business based on public data sets. As most folks know - 409A valuations, whether performed by a company or an outsider, all have questionable accuracy - or as Bill Gurley says “quite precise — remarkably inaccurate.” ( NY Times ).

We then reconcile last fundraising information, industry averages, and public filings to generate current and potential future value. Aside from that, if available, we fold in real time pricing demand from the market.

We may not always match exactly with the numbers that a company internally determines - but we’re close. Certainly close enough for a third party perspective that should help guide an employee / arm them with some data to have follow up conversations.

Fears of Transparency

Some founders (of both companies we cover as well as founders we surveyed) brought up another concern - that the transparency we’re providing prompts more questions / confusion internally and makes it harder to stay focused on building product / growing a company.

In the words of an American philosopher, Jocko Willink, “ Good ”. We applaud founders and companies that are transparent with employees, but if Vested is prompting more conversations with employees about their equity, frankly we think that’s a good thing. Companies rely on employees for their success and when the structure of equity compensation doesn’t change but underlying timelines for IPO/traditional liquidity do - there do need to be hard discussions between employers and employees. Decisions on equity can no longer be punted to a point where an employee might have a better read on company success or failure because employee tenure now rarely overlaps with IPO.

We don’t believe that every employee at every startup will become a millionaire. We also don’t want to facilitate short term trading of private company stock. We do believe that building a successful company is a team sport - and all members should have a basic understanding, and support, in determining how to make informed decisions when it comes to such an important topic. Aligned incentives and informed positions are hallmarks of engagement and required for ensuring employees have a long term, vested stake in the successful outcome of a company.

Equity is perhaps the highest potential value benefit for employees yet professional support is minimal

When if comes down to it, we’re not providing any more information than some employees already have access to because they know what to ask and where to look - both internally and externally. We’re democratizing who has access to shares outstanding, common stock value today/tomorrow, and where to look if they want to take out a loan or, if permitted, sell shares pre-IPO. We make good faith estimates, layer in our recommendation, and facilitate connections in a previously opaque ecosystem.

So while we’re glad some founders do take transparency seriously - we think most companies could do a bit better. There isn’t a “one size fits all” approach to how to structure equity programs. But we do know the current “standard” implementation is broken - and it needs to be fixed. Otherwise, employees will continue to suffer, companies will lose a powerful retention benefit, and the entire ecosystem suffers - talent will move to where there is transparency.

(Read Sam’s whole post, here)

Companies/founders/CEOs will always be in the best position to speak to internal company metrics. We don’t want to get in the way of that. It’s just that employee equity isn’t just an internal issue. The underlying historical structure of equity compensation is fading in relevance (anytime close to 80% of people aren’t doing something you need to question effectiveness), external market forces impact value, and fundamentally, internal company personnel can’t make financial recommendations to employees and employees are looking for advice.

In closing, we’ve had a great year - building, learning, and adapting. We couldn’t be more grateful for the feedback we’ve received and look forward to growing the team even more and scaling our approach to assist even more employees in 2020. As always, if interested - drop us a line - we’d love to hear from you!

Employees Deserve Better

16 August 2019

Today we’re excited to announce Vested completed a $1.2M round of financing to grow our team and bring our first product to market.

Working for a private company can be amazing. Having the opportunity to contribute to a tightly-knit team, help build a new product or service, and the ability to professionally grow are all powerful benefits.

Financial returns are also a powerful motivator. Often the cash position of an early stage, private company dictates more modest salaries. The hope is, employees will receive meaningful equity awards that, in time and with company successes, will bear the fruits of the employees’ labor and be worth far more than the cash differential between a private and public company salary.

That’s the dream. There’s a problem though - and it’s not the success/failure ratio of startups (we can’t help that) – it’s that equity isn’t simple; it’s really hard to understand it’s value, how to manage it, and (hopefully) how to monetize it. But no one really talks about this. Sure - there are plenty of blog posts and tax calculators out there – but we don’t think that’s solving the problem (and it doesn’t seem to be putting a dent in the 76% of employees who never exercise options).

Employees need something more, and deserve something better.

1. Employees need to be able to compare opportunities.

Once a person finds a compelling private company to join, often times the full monetary value of the compensation package is hard to discern. Early stage, private companies are notoriously hard to value. While the employee is passionate about the product and the role, passion doesn’t fund a 401K or 529 plan. How does one compare offers or baseline a negotiation? Often companies further complicate the problem by not revealing the total shares outstanding. That’ll change.

2. Employees need ongoing advice.

Once hired, equity awards tend to be forgotten; employees frequently defer consideration of equity until IPO or M&A time. The truth is, equity awards need to be managed actively, and a monthly email saying you’ve vested shares doesn’t qualify. Companies may point employees to generic “tax advisors” who advise on “what’s best for you”. Beyond advice to “exercise early and often”, outside advisors cost money and have access to less information than the employee. That doesn’t make for great advice. Employees deserve tailored advice, without unnecessarily financial and legal complexity. Need capital to help finance an option exercise? Let us help with that. Companies are staying private longer than ever (50 unicorns are older than 10 years…), and guess what? Capital wants in - investors want exposure.

3. Employees want to monetize.

Ideally your company is acquired or IPOs at a great valuation during your employment. However, the average tenure at a startup is right around two years, while time to M&A is averaging 6 years and time to IPO at 12 years. Odds are against seeing that event during employment. An employee who has exercised responsibly is still able to capitalize on their equity though; close to 50% of companies will allow secondary stock sales pre-IPO, and a majority of those companies will allow a sale through a company structured program. The bad news is up to 78% of these sales are left to the employee to structure; most don’t know where to start. Let Vested guide you - don’t let market professionals low ball your value.

If it sounds like we’re focused on the employee, you’re right. But guess what? This helps the company too. It’s not rocket science - do good by your employees, build a stronger company.

We’ve led teams and helped build companies. We’ve had these conversations countless times. We wish equity was more simple, but it’s not, so we’re going to help fix this problem in a scalable, accessible, and friendly way. Then we’ll move on to public company equity.