I see here that people discount pre ipo rsu because of higher risks due to being pre ipo. However I think companies like uber, lyft, airbnb etc who are going to ipo by next year probably have much more upsides. Looking at some companies like dropbox, etc., their opening price is still higher than the rsu grant price. Dropbox latest valuation was 18 a share and they're at around 23 right now. Box was at 14 a share prior to ipoing but now theyre 18. Thoughts?
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You cannot sell at opening price. Employees are subject to initial 6 months lockdown period, and then closed trading windows.. anything could happen during these times. Stocks almost always take huge dip after lockdown period expires
Right but it seems like, for most unicorn, the share price is still higher than the initial grant price after the 6 month period.
Right but a unicorn is not a typical startup. Unicorns are that for a reason. They are the exception to the rule.
Pre IPO stock is riskier because itâs a longer term investment, since u canât sell ur vested RSUs even if u wanted to.
You always get diluted as well and you are usually given ISOs and not RSUs if youâre joining early enough to count. Too risky.
I think OP means late stage unicorns. So neither should be a problem
In that case you arenât getting enough equity in order to pay off risk when you get basically the same comp from FAANG
âwhenâ the ipo happens is a huge risk. Even though it seems like Uber/Lyft/AirBnB will all ipo next year, it *also* seemed like they would ipo shortly back in 2016. Folks who joined in 2015 have been basically locked in for 3 years and still wonât be liquid anytime soon (>6 mths from now).
Normally pre-IPO companies have risk of share price, liquidity, unproven business models and uncertainty of when IPO will happen. With that said, for companies like Uber, etc the risk is much lower - as IPO is almost certain to happen in 9-12 months, business models are proven, etc.
Proven to not be profitable.
Some risks I can think of: 1. No guarantee that company would IPO. There could still be events that could delay or jeopardize their IPO. It could be government regulations, mergers or acquisitions by competitors. 2. Even if the company IPOs, it is difficult to predict how public markets would react. Uber / lyft for instance burn through millions of dollars every quarter. 3. Even if the company shares pop on IPO, employees can't sell until 6 months after. Since these companies have very high valuations and there are a lot of existing investors, they are all waiting to unload the shares bringing the price down.
Definitely some great points I didn't think about
Do you have an example here of a company that IPOâed in the past five years and did really well? And by âdid very wellâ I mean they did better than AMZN, MSFT, FB, GOOG, AAPL, NFLX in the past five years. If you have a hard time finding those pre-IPO companies then you should generally discount their pre-IPO RSU. I can think of a few counter examples such as SNAP, TWTR, DBX
Thinking in terms of pre IPO vs public as upside vs risk is too simplistic a blanket statement to get any value out of it. The fact there are companies who did well post IPO (Dropbox, FB) to companies who did poorly post IPO (Twitter, Snap) just means there's no clear cut answer.
Do you think Uber vs Lyft is the same story as Facebook vs Twtr? (Not that they are exactly a fair comparison, but discounting details...etc)
What makes you think that dropbox did well? Their current market cap is slightly less than what it used to be pre-ipo.
Youâre literally talking about the top .01% of companies. Clearly itâs riskier to join a garbage start up vs a unicorn...You need to research business before you ask what is honestly a dumb question.
I'm talking about unicorns. People on blind still discount unicorn.
If you donât want to answer, no one is asking you to. Why bother responding ?. Anonymity does not mean you should be rude.