Do you plan to use your initial capital as collateral? Good luck – TechCrunch

it’s the classic startup employee dream. He has worked hard for years, finally turned his company capital into something big and now he is finally ready to get paid.

Financial institutions struggle to screen start-up employees, as private company capital is traditionally not considered an asset you can underwrite. Since it’s illiquid, banks don’t want to use it as collateral. They sometimes make exceptions for high-net-worth individuals or founders when they want to build a long-term relationship, but most of the startup community lacks any way to achieve private equity liquidity.

I could state that the system is broken. I agree.

So what can startup employees do if they want liquidity?

  1. Any.
  2. Expect a company-sponsored public offering (usually once a unicorn, but less common with a weakening market).
  3. Explore the secondary market and ask if investors or others are looking to buy your private stock.

Secondary markets have a key benefit: you can sell your shares on your own time.

Regardless of the solution, it is important to set clear expectations.

The process to get liquidity sucks, especially in a market downturn. There is no LaaS (liquidity as a service) start-up…yet. Here are some awkward situations you will come across:

  1. Cold messages on LinkedIn: “Are you interested in selling [your company] Do you share?”
  2. Facebook Ads (if you still use Facebook): “Get cash now for your startup actions today!”
  3. Independent brokers who promise to “get buyers for your capital.”

It’s mind-boggling: How can a multi-billion dollar industry be so fragmented and confused? There are hundreds of thousands of startup employees interested in accessing liquidity. However, there is no reliable source of information or solutions for the actual problem.

However, there are two main ways you can get liquidity today: takeover bids and secondary markets.

tender offers

A takeover bid is when a company offers its employees the opportunity to sell their illiquid shares at a fixed preferred price per share. Takeover bids are more common in late-stage growth companies (unicorn range) and may be offered once or twice a year.

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