Firms setting terms for workers to cash out of startup shares

In July, the San Francisco company offered employees an opportunity to sell a percentage of their Airbnb stock as part of a deal that let investors buy those shares, according to two sources who spoke on the condition of anonymity.

Some tech workers have found ways to sidestep rules against selling their private company shares because plenty of third parties, who are desperate to own stock of high-valued startups such as Uber and Airbnb, will buy the shares in transactions on the side.

[...] the startups typically loathe such sales because the deals can create a dispersed and jumbled shareholder base, which can lead to liabilities like shareholder lawsuits.

“These deals will hopefully help employees get liquidity while giving companies some control over the Wild West market that has developed for employee shares,” said Rich Wong, a venture capitalist at Accel Partners, who has followed the issue.

In the first half of this year, Nasdaq Private Market, a firm that facilitates private share transactions, helped 11 closely held companies offer employees opportunities to sell their stock, up almost 20 percent from the first half of 2015.

“We’ve seen more clarification of what’s prohibited,” Bill Siegel, head of Nasdaq Private Market, said of tech startups and employee share sales.

In 2015, Pinterest, the online scrapbooking company in San Francisco, gave its workers a chance to cash out some of their stock — if they agreed to more explicit restrictions on selling, lending or giving others the option to buy the stock, according to documents reviewed by the New York Times.

SpaceX, a space company founded by Elon Musk, also added language several years ago that said any violation of its employee stock sale rules could result in the worker forfeiting the rest of his or her shares, according to a document reviewed by the Times.

[...] the new language lists specific transfer situations — including transfers “pursuant to domestic relations orders or made for estate or tax planning purpose to one or more ‘family members’” — as being forbidden.

For startup employees, the more explicit language for stock prohibitions can create downsides, said Mary Russell, a Palo Alto lawyer who works with startup workers to evaluate their equity compensation.

Russell said it is not unusual for a client to say their private company stock is worth $3 million, but that they need to come up with $1 million to pay for the shares and cover the tax bill.