Why do people say private companies stock is paper money?

AT&T / Eng
vNmD15

Go to company page AT&T Eng

vNmD15
Oct 8, 2020 7 Comments

Can't you sell your stock on private markets like equityzen?

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TOP 7 Comments
  • Uber
    uberific

    Go to company page Uber

    uberific
    Often not

    RSUs aren't shares until the company goes public

    Options can be exercised for shares but many companies have restrictions on selling such as the company has to approve any sale (which they likely won't do) and prohibit pledging shares (promising to sell later for money now)
    Oct 8, 2020 1
  • Google
    dhhdhd

    Go to company page Google

    dhhdhd
    You cannot sell your RSU’s, you can only sell your options. RSUs are purposefully timed to vest at liquidity events like IPO or sale so that you are not liable for taxes until you can cash them. So you technically don’t own them to sell them until some liquidity even.

    You can exercise and sell your options, but it’s a huge hassle and you end up paying a lot in commissions and fees:
    - With minimum lot sizes ~100k minimums
    - They need to find you a buyer, if there isn’t demand, you are required to wait
    - You have to pay a commission in the 5% range
    - Pay relevant fees to your company
    - Tack on the Attorney fees

    So too much of a hassle and only works for the options portion of your equity.....much easier to sell stock in public companies
    Oct 8, 2020 1
  • Stripe
    mCSr44

    Go to company page Stripe

    mCSr44
    What is the definition of paper money? Does it mean it's worth nothing, or just that it's illiquid? If it's the latter it really depends if you need the money for cash flow and if willing to take the risk on the company.
    Oct 9, 2020 1
  • Private companies also typically dont have RSUs. You get stock options, so you need to execute the option to get shares- which involves you paying some amount of money in hopes that you can trade that on the private market. Also some options have clauses that focus on ‘executable events’- so you might not even be able to execute them unless for instance the company is sold or they have an upround, etc. Bottom line they arent very liquid...
    Oct 9, 2020 0