The Vested Blog
Welcoming our Chief Legal Officer: Michael Delgado
The Vested Team is thrilled to welcome Michael Delgado as our Chief Legal Officer.
Michael comes to us having been instrumental in building Willing.com (acq. MetLife) as a cross functional leader - serving as their general counsel and product manager. Much like we’ve set out to do at Vested, Willing pushed forward change in an industry (estate planning) that wasn’t fundamentally aligned with the core constituents it professed to serve (consumers). Michael led a national effort to modernize state laws to increase access to estate planning. Prior to Willing, he practiced corporate law at Cravath, Swaine & Moore. He is a graduate of Harvard Law School.
At Vested, Michael will take charge of our efforts to build the most comprehensive legal and regulatory structure to help as many employees as possible. He will also help lead Vested’s broader business strategy and scaling of go-to-market efforts.
Secondary Share Pricing
When it comes to valuing their equity, public company employees have a lot more support than employees at private companies.
Most simply, public companies have a stock price. Think about all the analysts, industry experts, hedge funds, etc. that pore over the detailed data that a public company must disclose. All of that knowledge gets baked into a company’s stock price - it’s the market’s understanding of the future potential for a stock. Is it perfect? Not by a long shot, but it’s a lot better than most private company “indicators”. Employees can see if their company is getting hammered or soaring in the market, and get a much better read on their professional future (never mind the value of any stock awards).
Now, private companies will never release all the data that is required for public companies. But that doesn’t mean employees should be in the dark. Vested has sought to be a democratizing force - an asset for employees to better understand the murky “value” of private companies. When we launched, we offered a tool to allow employees to understand the equity “fairness” of their award. Thousands of employees have used this tool - further expanding our data set and allowing us to present even more accurate insight. Your usage is helping us improve, thus letting us help more employees.
But we want to do more. We want to help employees understand more than just their offer. And in aggregate, you employees know a lot. We’re assessing reams of data to provide greater context to a company’s momentum. Just by using Vested, you collectively contribute to greater transparency, and benefit from your peers’ contributions as well.
Perhaps the most important information you can know is your company’s share price.
While the price is not refreshed as frequently as a public company share, it can be updated more frequently than the price listed in your Carta or Shareworks account. Cap table management companies such as those are company tools - they track the capitalization table of the company. Sure, they tell you your strike price and the fair market value (FMV) of a share, but it’s well understood that FMV isn’t fair. How do you know what a share is worth? Easy - we work together.
For every company on our platform we use public data sets to understand the pricing of the last fundraising round. From that, we transform the price investors paid for a “preferred share” into a “common share”. Common shares trade at a discount to preferred, as preferred shares have greater rights and protections. This estimate of a common share, what we call a “Vestimate”, is our baseline value of a common share. However, since companies are always changing, the accuracy of our Vestimate fades with time. The Vestimate is a stake in the ground, a benchmark to help get in the right ballpark. We also provide two other prices to help you triangulate on what a “fair” price may be.
Every user of Vested can enter a sell price for their shares. You don’t need to be ready to sell today; you could put in a price that you hope your shares get to, a price that would compel you to sell, or a price that you think your shares are currently worth. It allows us to track sentiment and to show you the average price other shareholders have listed. Understanding the quantity and price of available shares allows you to not only understand how other potential sellers value their shares, but also how you should price your shares. Just left your role and have 90 days to use or lose your options? Maybe you price your shares on the low end of the supply curve. Under no pressure to sell and think your company is on a rocketship? Price high.
And finally, through our relationships with potential buyers of your shares, we will show you the price for any company that has active investor demand. This price provides insight into buy-side interest and how potential investors value a stake in your company.
Selling or not, these three different pricing points will help you triangulate on the value of your holdings. And that value is critical for understanding when to exercise, when to bounce, and of course, when to sell. When you start the sale process with us you get the benefit of independent advice and access to our network of buyers, making the process more simple - almost like Robinhood.
And selling is where we excel. We’re the only independent platform at scale that works just for the employee - never the company. We want you to sell if selling is right for you. We want you to hold your shares if that’s right for you. What we don’t want is unexercised “in the money” options that revert back to your company. It’s your compensation - capture it.
The Odds Aren’t in Your Favor
But Vested can help.
A safe assumption is that your odds of becoming a millionaire by working for a private tech company are not good. The best chances for equity upside go to the earliest employees, especially if the company isn’t destined for unicorn status.
Here’s how we see it:
Many employees are better off going to work for a public tech company where the salaries are generous, the equity is liquid, existential risk is minimal, and work/life balance is predictable. But money isn’t everything: working for a startup can offer more excitement, greater responsibility, more avenues for creativity, and faster opportunities for career growth.
Employees need to evaluate their compensation potential with clear eyes. Current trends have made it harder to obtain value from startup equity; as Steve Blank eloquently explains, stock options aren’t a good deal for employees anymore.
When considering a startup job, employees should be prepared for three things:
1. Understand if your equity award is fair
The equity grant is where you can unlock the most value from a startup job. But equity is specific to each company, making it hard to determine how many stock options you deserve. Even if a company tells you the percent ownership your grant represents (most won’t), how can you determine if that’s the right amount for your role and the current stage of the company?
Vested’s equity fairness calculator is now broadly available. Find your company, enter a job title and option award – we’ll tell you if we think it’s fair based on our view of the industry. We posted about how that works and why it’s important yesterday.
2. Keep track of how your company is doing.
Your future value is directly tied to the value of your company. Don’t miss the forest for the trees, stay objective about how your company is growing and be prepared to make your own exit. Vested tracks the valuation, fundraising, and potential exit scenarios for a growing list of companies.
3. Look for opportunities to take money off the table.
Some outcomes you have no influence over: your company may go public, get acquired, or go out of business. Each scenario will dictate what happens to your stock options. But some scenarios are up to you:
Your company may offer you a chance to sell shares back to the company, or to new investors (structured secondary).
You may have the opportunity to sell pre-IPO on one of 20+ marketplaces or to one of the 12M+ accredited investors in the US (unstructured secondary).
There may be interest from investors to give you risk-free financing to exercise your options (they get a take of the eventual upside, but you owe nothing if your company goes under).
It can be a lot to keep track of, but Vested can help with each step. We’ve expanded both our fairness calculator, and our stock option finance/sell tool to a larger pool of companies.
If you’re interested in financing the exercise of stock options, or selling them, add your equity details on Vested and let us know. We’ll match you with opportunities as we find them. Of course, your data remains anonymous to our partners, until you request that we connect you.
Find your company now to get started.
Our equity fairness calculator
If you’re wondering what a fair salary is, there’s a whole world of information available. You can slice it up by geography, seniority, company, job title, and any number of things. Equality, fairness, and transparency have all been hot topics when thinking about salary.
What about stock options?
If you’re working for a private tech company, especially an early-stage startup, your equity grant could potentially become the most valuable part of your compensation. But how do you know if it’s fair? 50,000 shares might be a lot at one company, and almost nothing at another. Most companies won’t share the information you need to make an informed choice.
We’re happy to share that our Fairness Calculator is now widely available for private companies. Simply search for the company you’re interested in, enter your job title and options grant, and get a quick look into how it compares.
Try it now at vested.co
So how does it work?
Having conferred with equity compensation consultants, scoured publicly accessible databases, and received survey data from private company employees, we’ve assembled what we believe to be the most accurate and comprehensive equity award database for US employees at privately held technology companies. We intend to be the source of record for equity fairness, and to ensure employees can make the most informed decisions possible
We start with the option award, translating this into a percent of shares outstanding so we can compare your offer to others. We leverage our data to create a current projection of fully diluted shares at your company. With this percentage we can then compare it against median values based on comparables - similar job titles at similar companies who are at a similar stage.
Of course an equity award is only one component in a compensation package. Some companies prefer to give a higher salary, or rely on additional option grants to create compelling offers. Whatever the compensation mix, we hope our fairness calculator will help in your decision making.
Vested is now a Registered Investment Adviser
We’re proud to report that Vested is now officially a Registered Investment Adviser (RIA).
What does that mean? It formalizes our commitment to you, the employee. We started Vested because we felt that employees had lost their advocate. As an RIA, we must act as a fiduciary: you, our customer, always come first. We must unconditionally put your best interests ahead of ours.
It’s a critical distinction that aligns Vested entirely with the employee. Your company may claim to have your best interests at heart, and third party providers of pre-IPO liquidity or loans may present their offerings as unbiased, but neither are legally obligated to act in your best interest. We are. And we seek to impartially present you with all available options.
Our goal is to help you make informed equity decisions. As such, we ask for details about your equity compensation that you wouldn’t necessarily be inclined to freely share. Our team is experienced in building scalable, secure, financial applications within regulated institutions, and we follow stringent data privacy and security best practices. Our mission is to be your trusted adviser. We work for you.
What our Lawyers Reminded Us to Say:
Registration as an RIA does not imply a certain level of skill or training – it’s an alignment of incentives, promise to disclose conflicts of interests, and agreement to follow data privacy and security best practices.
Yesterday, Visa announced their intent to acquire fintech company Plaid for $5.3 billion. While an exciting development in its own right (huge kudos to the Plaid team), at Vested we took a special interest in this story as the first major exit of a company that we profiled.
Vested provides a number of tools to candidates, employees, and shareholders of private companies looking to better understand the value of their equity. Our Exit Scenario models provide a range and likely scenarios for a private company getting acquired or having an IPO. Plaid employees utilizing Vested would have estimates for:
- Company valuation range at exit
- Price of a common share
- The value of their equity holdings
- Several probability weighted exit scenarios
These data points can be useful for anyone thinking about career moves, financial decisions, tax planning, and the like. So how did our model perform with Plaid? In short, excellent:
We anticipated an exit (acquisition or IPO) in the range of $5B to $7B for Plaid. Of our three most likely outcomes, we expected it to fall somewhere between $5B and $6B.
These are still early days for Vested. While we’re just starting to scale the number of companies we profile, we are excited and encouraged by these results; remember we don’t get any data from the company - we build solutions solely to empower the employee.
We hope the Plaid employees and candidates using Vested found this tool useful, and we look forward to helping more employees make the most of their valuable equity.
Tom & Matt
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
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.