[HN Gopher] A new kind of equity program
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A new kind of equity program
Author : conroy
Score : 38 points
Date : 2022-03-18 20:44 UTC (2 hours ago)
(HTM) web link (www.getcruise.com)
(TXT) w3m dump (www.getcruise.com)
| trhway wrote:
| >Fortunately, we have figured out how to do that at Cruise.
|
| i think SAS and the likes have been doing it that way for
| decades. I guess there is a reason why that isn't that popularly
| known :) Though giving current market swings one can see how even
| public FAANG and the rest may also want to adopt something like
| this instead of dealing with backfills/etc.
|
| Also, Google tried to do an extreme version of it for Google
| X/Waymo (16x artificial appreciation in 3 years) and it
| noticeably dented their financials at the time.
| dlevine wrote:
| This is interesting. I'm curious how this will be functionally
| different from using Carta to allow secondary sales.
|
| Namely, I wonder who the "others" (other than GM) are. In
| addition to this being attractive for employees, is it also a way
| for additional institutional investors to take an equity stake in
| Cruise?
| a13n wrote:
| It's nice to offer liquidity to employees before an
| acquisition/IPO event, but the "equity value" section sounds a
| lot like a 409a valuation which is typically a conservative
| valuation of the company in my experience. I'm not convinced
| employees will get a very good deal on their shares by selling
| early rather than waiting for an IPO. It's therefore not
| surprising that the parent company (GM) is so willing to commit
| to purchasing these shares, because it seems they're basically
| getting a discounted buy-back.
| adoxyz wrote:
| Which I think is fair. Having liquidity for employees of
| private companies is important and something that is very
| lacking currently. Right now it seems like your options are
| risk joining a Series A/B/C/etc company and potentially have to
| wait 5-7+ years while being fully illiquid the whole time and
| hoping they IPO or get acquired otherwise all your equity is
| useless. Or join a public company that typically has a 1 year
| cliff and then quarterly vests of RSU's that are much more
| liquid.
|
| I'm seeing a lot of early stage startups offer much higher base
| salaries to compete with the big tech companies that can give
| out RSU's and this skew in the long run I feel hurts employees
| more than companies. So I think this levels the playing field a
| little bit.
| dmitriid wrote:
| > The world has become a bit more complicated lately. Private
| companies are waiting to go public for longer
|
| There's probably a reason for that: most "innovative startups",
| especially in the US, are like Cruise: they lose up to a billion
| dollars a year with no consequences at all. Some, lik Cruise,
| have nothing to show for it in terms of either product or long
| term plans to become even slightly profitable.
|
| So they wait for longer to see two things happen one after
| another:
|
| First, hopefully have enough unlimited inverstor money to corner
| a market or a niche.
|
| Seond, go for an IPO as "the innovative market leader" (aka the
| one with deeper investor pokets than competition that is doing
| literaly the same).
|
| ---
|
| In case of Cruise, they are losing 200-300 million dollars per
| quarter. Trying to compete in the same space as Uber (loses up to
| a billion dollars a year) and Lyft (up to 1.7 billion dollars a
| year).
|
| _Edit:_ And Waymo, which is a part of Google 's "other bets",
| and those bets are losing billions, too.
| a1pulley wrote:
| SpaceX has been doing this for years, albeit at a lower cadence.
| There are predictable pros and cons: lack of confidence in the
| "independently derived" price--it's easier to trust the market--
| but shares imbued with some nonzero real value.
| mdavis6890 wrote:
| I think this misses it a little bit. While it certainly is a
| problem to have a large $ value on stock that you can't sell yet,
| it is a nice problem to have.
|
| The real risk with joining a startup is that it might very likely
| NEVER be worth much at all. Whereas at a mature or public
| company, you can have some confidence that at least your stock is
| worth something today.
|
| Of faang gives me $100k in stock, that's real money I can put in
| my pocket. When a startup offers me 100k shares, it's likely that
| having a chance to sell them doesn't matter, because they aren't
| worth selling. Of course, it can certainly go the other way and
| make me rich too. Hence the risk.
| TimPC wrote:
| It's not always a nice problem to have. Before a change in tax
| policy under Trump it was possible to have taxes due on some of
| the gains the stock had made before you were able to sell it.
| At least with this type of liquidity program you could cash in
| enough options to pay the taxman rather than forfeit all your
| options to avoid taxes.
| xmly wrote:
| It is difficult for the valuation. It might not be worth the
| cost, especially considering that large amount of shares are held
| by early investors and founder.
| tareqak wrote:
| From the post: "The access to capital and the ability for
| shareholders to sell on an open market are certainly attractive,
| but the benefits of an IPO come at a great cost -- distraction --
| that is often overlooked."
|
| Could someone please summarize for me the costs / distractions of
| an IPO that a private company has to undergo?
| spoonjim wrote:
| Public companies have huge reporting requirements that require
| much greater audit/visibility into business activities and are
| also scrutinized much more closely in the press.
| axg11 wrote:
| At the very least I'm glad more private companies are exploring
| ways to provide their employees with liquidity.
|
| Issues I can foresee:
|
| - Price, as determined by a third party, is going to be BS. There
| is a reason we use markets for price determination. They're not
| perfect but markets are the most efficient mechanism we have.
|
| - Fewer employees with huge returns. This may or may not be a
| problem depending on your perspective. This type of system
| incentivises employees to lock in gains and sell their shares
| when they see reasonably growth. That's also a lost opportunity
| for the future if the share price continues to grow. If you see a
| 10x increase in the price, you're likely to sell. The share price
| could continue to grow by another 100x and you would mostly miss
| out in that case. In the most optimistic case for private
| companies, the lack of liquidity is a _good_ thing. You can only
| sell your shares at IPO when there has been more than 1000x
| return since seed stage.
|
| I can see this being a huge positive for hiring though. If I was
| considering multiple AV companies for roles, this would be a huge
| plus point for Cruise.
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