First, there are almost certainly restrictions on Facebook employee stock. I don't know what they are, because I don't work at Facebook, but the boilerplate employee stock contract restricts sale entirely (or gives the company first refusal on sales at a minimal static valuation); anything employees are allowed to do with Facebook stock constitutes something Facebook went out of its way to allow.
Secondly, my point isn't about Facebook. I'm responding to Alain, who indicates that this is the start of a worryingly anti-startup-employee trend. But it isn't. Virtually the entire marketplace of startup employees works for companies with far more restrictive policies. You simply cannot normally sell your (private company) employee stock. The companies you're hearing about that do allow it are --- not too much of an exaggeration --- epsilon from IPO already.
I'll rephrase my statement that it's "anti-employees".
If you go by currently admitted practices, then it's completely fine. But if you raise your standards to figuring out what the future should look like, I'm hoping that 10 years from now, people will wonder why such restrictions were ever in place. Because really, why, at a fundamental level, can't an employee who has vested some shares, not sell them?
If I told you that you couldn't spend the cash salary I'm giving you, you'd think I'm crazy. So, if the employee has earned the stock, why is it restricted? I understand the nitty-gritty SEC issues, but fundamentally... why not?
Even if the SEC registration rules were thoroughly relaxed --- which they won't be any time soon, and which we could spend a thoroughly engaging several hours debating (plus side: rational market for startups, downside: hedge funds gone wild), it wouldn't matter.
That's because we're talking about closely held private companies. There is more to being a private company than simply not having public shares; in particular, private companies are typically very careful about who they permit to hold equity, because:
* Company shareholders can more easily sue the company
* Shareholders may be entitled to information the company doesn't want to disclose (the big one being: revenue)
* Shareholders may have enough control rights to foul up investment and M&A activities, which competitors and bad actors might want to exploit.
I'm sure there are other reasons too.
Long story short: even if there were no SEC regulations, it doesn't seem likely that everyone's employee stock would suddenly become transferable. Employee stock isn't transferable because companies don't want it to be; they use options to express "incentive interest in a future liquidity event of the company", not to distribute ownership of the company to the broader market.
Closely held companies have a simple remedy to all of those - they force you to litigate to exercise your rights. The company invariably has the resources to bury an employee.
That may be so, but it's orthogonal to the issue at hand. Employees aren't prevented from selling their shares only because of stupid SEC regulations, but also because most companies don't want their equity resold.
Envision any legal future you want, and companies will still find a way to express that employees should share the upside of an acquisition, but cannot distribute company equity to outsiders.
Can I just say, real quick: for all I know, there's a trend in the valley right now towards giving employees unrestricted common stock on exercise of their options. I think this is crazy --- unrestricted stock once allowed me to imperil a deal at a prior employer --- but who knows? All I can say is that every startup I've worked at or known people working at, employee stock was heavily restricted.
Forgive me for stating the obvious, but if companies only issue stock that isn't transferable, why not simply issue options? Issuing non-transferable stock seems like two things that accomplish the same goal, namely: to express "incentive interest in a future liquidity event of the company".
They do issue options. However, for tax reasons (and I'm sure other reasons), employee stock options have to expire within a set number of months after termination.
I don't think right of first refusal ever applies to vested stock. Assuming you have stock, not options. Once its vested, its yours. The amount of abuse that management can do to your vested stock is balanced by that right of ownership.
Google [employee "stock option" "first refusal"] for a bewildering variety of contract terms that express this requirement. The share is indeed yours, but it's subject to whatever terms you agreed to in your employee stock contract, and to whatever terms are in the company legal documents.
I'm talking about the (common?) stock you receive after executing (and presumably paying for) your vested stock options. I really don't think we're talking at cross purposes. Does your employer allow you, contractually (employment or company bylaws or whatever), to resell your shares?
Absolutely agreed on most parts of second point - the mentioned companies are quite far from being start-ups for quite some time now. But not quite IPO-ready either, didn't FB delay it's own for at least couple of years?
I would even argue so far that when a start-up starts participating in those secondary markets it's not a start-up anymore. Your stock can be had by almost anyone (with at least $1000000 that is) without much due diligence etc.
First, there are almost certainly restrictions on Facebook employee stock. I don't know what they are, because I don't work at Facebook, but the boilerplate employee stock contract restricts sale entirely (or gives the company first refusal on sales at a minimal static valuation); anything employees are allowed to do with Facebook stock constitutes something Facebook went out of its way to allow.
Secondly, my point isn't about Facebook. I'm responding to Alain, who indicates that this is the start of a worryingly anti-startup-employee trend. But it isn't. Virtually the entire marketplace of startup employees works for companies with far more restrictive policies. You simply cannot normally sell your (private company) employee stock. The companies you're hearing about that do allow it are --- not too much of an exaggeration --- epsilon from IPO already.