Forget about salaries, gym memberships, or free bagels. Given the enormous amounts of money venture capitalists and institutional investors are pouring into tech startups, equity can be the most valuable piece of compensation these companies can offer to woo talent.
Hence the popularity of the stock option, which allows employees to purchase shares of a startup at an attractive price before it goes public or gets purchased.
We’ve all heard stories of tech workers getting rich after cashing out their stock via an IPO or acquisition. The reality, however, can be much different as I personally discovered through my own adventures in the tech world.
Stock options can indeed be valuable but the market and mechanisms surrounding them are insanely complicated and opaque. Over the years, a cottage industry of VC-backed firms like SharesPost, Nasdaq Private Markets, Carta, and Forge Global have emerged to bring transparency and order to the private markets.
But judging from my own convoluted experience, they have a lot of work to do. And here's the irony: the shares I own are in SharesPost and Forge, the very companies that were supposed to make this stuff easier.
A proud moment: buying the shares
I joined SharesPost in 2018 as a writer. The company, whose motto was "illuminating the private markets," established a nice niche as a brokerage firm for employees in startups, especially unicorns, who wanted to sell their stock to certain investors. Among the unicorns in SharesPost's universe were Uber, Lyft, and Spotify, all of which eventually went public.
After a year, the company offered me a chance to purchase its shares at 62 cents a pop. I wound up spending $5,000 to buy 8,000 shares.
I wasn't really sure what those shares were actually worth because SharesPost didn't disclose its overall valuation, not even to its own employees. (Again, the irony.)
But I took it on faith that the company would do well. Buying stock wasn't just about money; it was also a chance to own a piece of something I was working hard to build.
Merger of rivals: how my shares got converted
I eventually left SharesPost and nearly forgot about the stock. In May 2020, the company announced that it was merging with rival Forge Global in a $160 million cash and stock deal.
SharesPost sent me a lot of legal documents that were hard to understand. But here's what I could make of it: my 8,000 shares of SharesPost stock would convert to Junior Preferred and Class AA common stock in Forge, each valued at $12.468 per share. But I had no idea how many of each I would get.
To make matters even more complicated, in addition to its core brokerage business, SharesPost had operated a kind of mutual fund for institutional investors made up of stock in a select group of unicorns. But Forge apparently didn't want this fund, so SharesPost decided to spin off this asset management business into a seperate startup called Collective Liquidity.
I was therefore also to receive stock in Collective Liquidity. The company offered to buy out my stake at 8 cents a share. But I declined because, again, I had no idea how many shares I owned or what they were even worth. The company has since raised $3 million in seed financing at a $10 million valuation. I still don’t know how many shares I own in it.
More mergers, more confusion
Over the next year or so, I sporadically tried to figure out what the hell I actually owned. But it all got even more confusing after another major transaction.
Forge Global decided to go public via an increasingly popular method called the Special Purpose Acquisition Vehicle. A SPAC is a publicly traded entity specifically designed to purchase a company and then take it public. For Forge, the process was a much quicker and cheaper way to go public than a traditional IPO.
In September 2021, Forge said it would merge with Motive Capital, a SPAC, and go public in a deal worth $2 billion.
Once again, I was inundated with complex legal documents. But I apparently would get 1,027 shares in the newly public Forge Global, with the option of selling 15 percent of that stake at $10 per share, which comes out to $1,540. I accepted that offer because such complicated deals are normally red flags – and who knows when I would ever see actual cash.
The upshot: I made some money (I think)
Forge Global completed the deal and went public on March 22 at $10.11 a share. Since then, the price has more than tripled to $37.64 per share as of the close of trading on March 30. So that means my remaining 873 shares are currently worth $32,859. The price is pretty volatile at the moment – I had to call up my editor after submitting an early draft of this piece because the price had jumped (good news for my wallet, but harder to capture a coherent snapshot in writing).
But that's not the end. After Forge went public, I was given a new brokerage account at Continental Stock Transfer & Trust, which shows I actually own 3,205 shares, worth $120,636 at $37.64 per share. The account had no other information, so I don't know why the discrepancy exists.
To make things even messier, SharesPost shareholders are suing Forge for not giving us warrants to buy more Forge stock.
So here's where I currently stand: I either own 873 shares of Forge worth nearly $33,000 or 3,205 shares of Forge worth about $121,000. Either way, that's a nice return on my initial investment of $5,000. I'm also supposed to receive a check for $1,540 for cashing out some of my Forge stock.
I also may or may not be able to buy more Forge stock at a discounted price depending on the outcome of the lawsuit over the warrants. And I own an unknown amount of shares in Collective Liquidity, which may or may not be worth anything.
I may not be one of the overnight millionaires many tech workers aspire to become, but my stock options in SharesPost did apparently pay off. Still, the path to this point should offer a cautionary tale that what comes next after you get your stock options is hardly clear and transparent.