The wave of tech layoffs this year is adding to shockwaves in the private markets, as many workers look to sell their company stock just as valuations are collapsing.
Why it matters: Say goodbye to the golden age of employee stock options. This is part of a big unraveling happening for tech workers, many living through their first downturn and experiencing unfamiliar job woes like layoffs, hiring freezes, and the diminishing value of their stock compensation.
- It's also an example of the real-world impact of the market selloff prompted by the Fed's aggressive rate hiking campaign.
- Plus: Those big stock payouts — and record low interest rates — helped drive the housing boom in 2021.
By the numbers: In Q3, shares of private tech companies traded at a median discount of over 40% compared with their most recent primary fund-raising valuation (see the chart below), according to Forge, a private-market trading platform.
- In October, that discount grew to 47%.
Flashback: A year ago, rates were low, capital was aplenty and private company valuations were skyrocketing.
- All manner of investors — venture capital, private equity, mutual funds, family offices — were interested in private shares, Greg Martin and Glen Anderson, co-founders of Rainmaker Securities, tell Axios. Rainmaker is a small investment bank that focuses exclusively on private market transactions.
- But demand has fallen off, and now sellers exceed buyers, according to Rainmaker's data.
- Back in December 2021, the ratio of sellers to buyers was 1:1 — but it shot up to 4 sellers to every one buyer this past summer. It's come back a bit since then, but there are still 2.5 sellers for each buyer on Rainmaker's platform.
How it works: Companies like Forge and Carta provide platforms that match buyers and sellers; others like SecFi and Quid offer loans to tech employees who use their stock options as collateral.
- Startups typically give employees stock options as part of their compensation. Employees can "exercise" them — or buy the shares — at a low price and then, ideally, sell them for a higher price when the company goes public or is sold.
- Back when valuations were moving up and to the right, all was well. An IPO blitz last year allowed loads of startup employees to cash out some of their shares.
The valuation drop is painful for laid-off tech workers. Most only have a short 90-day window to exercise their options — though a handful of employers have extended the time frame.
- And because they need money, some wind up selling those shares for far less than they'd hoped — and less than they might be worth if and when the market recovers.
"The desperation seller is starting to hit the market," says Martin. "The ability to hang on to price starts to fade when your options expire next week."
- Workers at crypto companies are even worse off. "Demand for anything that touches crypto is almost nonexistent right now," Anderson adds.
What we’re watching: The vibe shift is a reckoning of sorts for some tech employees who’ve grown to feel entitled to making loads of money off stock options.
- "In compensation conversations between engineers, they were just, like, savage in their greed," says a tech employee who's worked in the startup world for a decade, speaking to Axios anonymously.
- "What's the word of the year, goblin? It was like goblins," she says.
