Should Stripe employees sell in the upcoming tender offer at a lower $50B valuation?
By Vieje Piauwasdy, Senior Director, Equity Strategy, Secfi
Stripe’s $7B funding round is raising eyebrows, not just because it’s the largest ever.
But because they took a large valuation cut to get it. And, it’s all for an employee tender offer.
I’ve been speaking with many of our Stripe clients about what it means for them, and what could have been if they had IPO’d earlier. So, I ran some numbers for a hypothetical Stripe employee (thanks to our Equity Planner, which anyone can use for free to do a similar analysis of their own equity).
First, some background. Stripe’s last known tender offer was in 2021 at a $95B valuation, at $40.125 per share. Around the same time, there were many rumors that shares were going on the secondary markets for $200B, or $80 per share!
Yesterday, Stripe raised their Series I at a $50B valuation, which comes out to $20.13 per share. It’s certainly a disappointing share price given where the valuation was just 2 years ago. But the goal of that round is to help employees sell shares in an upcoming company-sponsored tender offer.
So, let’s take a look at this hypothetical Stripe employee to see how much she’d take home in a number of various scenarios. Let’s assume that she was granted 100K options at a $0.97 strike price, and that she both works and lives in California.
Scenario 1: She sold all 100K options, in a cashless sale, during the last tender in 2021 for $40.125.
As you can see below, she got hit with ordinary income tax because they were unexercised options. Still, she makes it out with $1.9M after taxes.
Scenario 2: She was able to find a buyer on the secondary market for $80 per share (or at a $200B valuation).
The company lets her sell (note: Many companies require approval and/or have a right of first refusal clause) and she offloads 100K shares at $80, also in a cashless exercise.
Similar to the first scenario, she gets whacked by taxes but nets $3.8M.
Scenario 3: She sells in the upcoming tender offer at $20 per share, again in a cashless exercise. And, like in the above scenarios, she has to pay over 50% in taxes because she lives in California.
She only nets a (still not insignificant) $944K. But, you can see how the valuation decrease significantly impacted her.
Scenario 4: She already exercised her ISOs a few years ago and decides to participate in the upcoming tender at $20 per share.
Because the shares were already exercised, it reduces her tax burden and she brings home $1.2M. Nearly $300K more because she exercised earlier.
Scenario 5: For fun, what if she sold the already exercised ISOs for $80 per share on the secondary market?
She’d take home over $5M!
Not many startup employees will see an exit, whether at $95B, $50B, or even $1B. Stripe employees should celebrate the upcoming tender, especially in this tough environment.
Could they IPO at a better valuation? Sure, they’re a great company and they could grow back into their previous valuation. It’s also possible, especially in this environment, that their valuation could decrease again.
So, as a Stripe employee (or any employee at a late-stage tech company with a tender option), how should you decide whether to sell now or wait for the IPO window to open back up again?
Start with evaluating both your cash needs today and your future financial goals. Working with a professional, like a financial advisor, can really help you take a look at your full financial picture. Plus, they can help you identify what those goals are.
Why start there? Because that will help you step back and understand what your financial plan should look like — whether it’s paying off debt, saving up for a house, or even just getting cash for a big international trip.
There’s no right or wrong answer here. The most important thing is to understand what your goals and needs are to better evaluate whether to sell, and how much to sell. And, most importantly, what you want to do with the money you take home (after taxes).
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