Growing up, one of my favorite positioning of products was the Roach Motel, a cockroach trap.
The trap used a scent to lure the cockroach into the trap and then used poison bait to kill the pest.
The Roach Motel entered the vernacular through their clever slogan:
Roaches check in, but they don’t check out!
Turns out Unicorns with cleverly structured stock compensation programs are no better than The Roach Motel for employees that join.
Let’s be concrete.
If you join VMware, the minute you vest your shares there is a large public liquid market that you can turn those shares into cash. There are no restrictions on how many shares you can sell. The only restriction on selling them is if you have material information that makes you an insider.
If you join a startup, the shares are vested, and you can’t sell a single share until some liquidity event happens.
No problem, you think to yourself. I will just wait until the company IPO…
But what if you have to quit your job?
Well then that’s okay, you can just …
There are two options
(1) If they are options you just buy them and take them with you. Except you may not have a large pile of cash that you can use to buy them with. And unless you made money at your last startup you probably don’t have that kind of money. And so you lose them.
Except that some stock plans may not give you that option. Because they don’t want anyone to own the shares outright until after a liquidity event that is not an employee of the company or a direct investor.
Even if you, had the cash, you may not be able to.
Well it’s a litle more nuanced. You do have the right to buy the shares, and then the company has the right to buy them back from you when you are leaving at what they think is the fair market value.
See what happened to Skype employees. http://techcrunch.com/2011/06/26/skypes-worthless-employee-stock-option-plan-heres-why-they-did-it/
This kind of behavior is not as uncommon as you think.
(2) I will take my RSU’s and run!
Again companies can do the same thing…. You get your RSU’s and if you leave the company you lose them. More precisely they get sold back to the company at the price the company decides.
So what to do?
The short version, is that don’t assume your equity in a Unicorn is yours. Make sure you get a lawyer or a person in HR that doesn’t work at the company to walk you through the agreement for any specific time bombs.
And remember rules can change capriciously later.
For Valley employees, Unicorns with their ever receding IPO dates, their preferential treatment of founders and early investors are increasingly looking like a Roach Motel where employees can join with the promise of future fortune where none is to be found.