Here's How Hot Startups Help Employees Cash Out Before An IPO

Atish Davda EquityzenAtish Davda/LinkedInAtish Davda, co-founder, Equityzen

If you work for a hot startup and you have an equity stake, it’s just money on paper until the company goes public or gets acquired.

But what if you’re an employee with a growing family and you need to buy a bigger house now, not after an IPO? Or you want to angel invest? Or you want to spend your money in another way?

Today, more startups are trying a new thing to help employees: buying their shares from them, or in some cases, helping them sell shares to other investors.

Square is said to be raising a round of financing that would give it the cash to buy employee shares, Jessica Lessin at The Information reports. When it raises that round, it wants the company to be valued at $US5 billion.

Square isn’t alone. At SecondMarket, a popular private market exchange, the number of transactions between owners of shares in private companies and investors is on the rise, Lessin reports.

Then there’s EquityZen, a startup launched earlier this year specifically devoted to helping employees sell their shares. It’s still in beta but says it already has nearly $US12 million of equity shares available for purchase on its platform.

We asked Atish Davda, c0-founder of EquityZen to tell us more about the trend of employees cashing out:

Business Insider: Are private companies now encouraging employees to sell their shares back to the company before an IPO?

Atish Davda: More and more progressive companies are more upfront with their employees about what their shares are worth, when and how they will materialise into cash.

BI: How unusual is it for companies to raise money to buy employees’ shares, such as what Square is reportedly doing?

AD: $US5 billion is what Square is saying they’re worth. They’ll likely raise a small amount, say, $US30 million to pay out early employees.

BI: Is that one of the bigger pre-IPO share buyback programs you’ve ever heard of in tech? If not, who’s bigger?

AD: Palantir has been doing this for a while. A gaming company called Kabam raised a $US38 million offering a couple years back.

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