Research when to sell your shares in a privately held company, and the results may have you laughing — not because they’re funny but they’re because there’s an almost comical amount of information available out there. From blog posts to advertisements to advertorials to calculators, the data is overwhelming to the point of being useless.
It’s a problem that Matt Venables and Tom Hennessy — both former execs at the peer-to-peer payments company Circle — experienced first-hand across numerous startup jobs. The more they looked to understand what their equity was worth and how to sell it without making a massive financial misstep, the more frustrated they felt.
Enter Vested, their three-month-old, Boston-based startup, one that is already backed already with $1.2 million from UnderscoreVC and Boston Seed Capital, and which — if they’re exceedingly lucky — will become the first stop for many thousands of startup employees who are in the same boat that the two once were.
What these individuals will find, promises Vested: Access to both both secondary outfits that buy stocks and loan providers, but also information around taxes, explained plainly; and competitive data about different industries and other recent stock sale information. More specifically, they both say, Vested will be hosting data that VCs and data analysts use, including public records filings, salary information, and independent appraisals of companies based on their last round of financing, their number of employees, and their valuation growth to produce as close as it can each startup’s fair market valuation.
Hennessey explains the pitch this way: “Matt and I have both some sold shares on the secondary market, and the process was non-transparent and not a fair process. But we realized the problem is much bigger than that — that the bigger issue is really around private equity compensation. The misunderstanding starts from day one. We’d love to capture employees before they ever sign an offer letter, then keep them along the way, so they understand at what points along the way does it make sense to exercise their options and why.”
Ultimately, the goal is guide more employees to exercise responsibly and to convert option holders into shareholders, because the alternative, apparently, is to do nothing at all. Says Venables, “Something like 80 percent of options are ever exercised. It’s abysmally low because people are confused, they wait too long, and [the rising value of their holdings] triggers the [alternative minimum tax]. A lot of people leave their jobs within a couple of years and they just decide it’s not worth the hassle.”
Of course, it’s very early days. Venables and Hennessey say they’ve already spoken to numerous secondary exchanges that want to work with Vested, which will serve as a kind of offer aggregator. To motivate the exchanges to put their best foot forward, Venables adds that, “In time, the most compelling offers will be surfaced first.” The same will go for lenders offering non-recourse loans to employees who want to exercise more options than they can afford at the moment, say the founders.
As for the Vested’s business model, the idea is to receive a finders fee from both the exchanges and the lenders. The company also plans to offer a low-cost subscription product that goes above and beyond what an employee can find by by visiting Vested’s site. One idea is for them to receive push notifications when a buyer expresses interest in their company’s shares but Venables and Hennessey are contemplating a host of other bells and whistles.
Of course, step one is to build up awareness around Vested, and then attract employees in search of better, clearer, more actionable information. In the meantime, the duo may need to watch out for the 600-pound elephant in their space — Carta, which helps private company investors, founders, and employees manage their equity and ownership and that raised a big round of funding led by Andreessen Horowitz earlier this year to build out a secondary marketplace. What if Carta tried killing off Vested before it ever has a chance, we asked the founders on a call earlier this week.
Vested instead sees the two as complementary. Says Venables, “Carta is building a structured secondary marketplace, one that’s really [catering to] employers. We’re building Vested 100 percent for employees.”
Pictured above from left to right: Vested cofounders Tom Hennessey and Matt Venables, along with their VP of Design, Nat Tarbox.
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