Here is a fascinating story by Katie Benner about a fallen unicorn with the puzzlingly generic name “Good Technology.” Good was formed in 2009 by the combination of a startup and a division of Motorola. It ”raised about $300 million in equity and debt,”1 hitting a peak valuation of more than $1 billion in early 2014. It filed for an initial public offering in May 2014, but then it delayed and ultimately cancelled the IPO. Its board turned down an $825 million acquisition offer in March 2015, “confident that Good would be valued at around $1 billion when it went public.” But then it ran into financial trouble and was ultimately sold for $425 million in September.
That $425 million was more or less enough to make whole Good’s venture capital investors, who owned preferred stock,2 but was a shock to employees, who had received common stock and stock options as part of their compensation, and who “discovered their Good stock was valued at 44 cents a share, down from $4.32 a year earlier.” Some of these employees had bought stock in the open market, in addition to the shares they’d received in compensation; others had paid cash taxes to exercise their options in amounts that exceeded what the shares ended up being worth. “Employees essentially ended up paying to work for the company,” says one of them.
As a further indignity, the buyer was BlackBerry.
The interesting question is, what went wrong for these employees? What caused their bad outcome? Of course there is a simple answer, which is that they were employee-shareholders of a company, and the company’s stock went down, and so their share holdings lost value. That happens to lots of employees at lots of companies, and if Good’s employees want to complain, they are unlikely to find too many sympathetic listeners at Blackberry. Here are the last five years of Blackberry’s stock:
Oh tell me more about how your unicorn died.
Still it feels like there is some difference between Good and Blackberry, some reason we should feel worse for Good’s employee-shareholders than for the average public-company employee-shareholder whose stock goes down. An obvious possibility to start with is that Good was a private company, so there was no public trading market for its stock. That has two bad effects. One is really basic: If you get stock from your employer, and there’s no market where you can sell it, then you are stuck with it, and if it loses value you are hosed. The other bad effect is that, without a public market for the stock, there is no way to know how much it is worth, or rather, how much the market thinks it’s worth.
Except that there was a market for Good stock, and Good employees — at least some of those mentioned in the article – were buyers, not sellers:
Companies that buy employee shares offered some Good workers about $3 a share for their stock in the first half of the year. But based on their belief in the company’s robust health, the employees refused. Others bought Good common stock in August, when it was valued at $3.34 a share, according to individual employee tax documents reviewed by The New York Times.
You know what I think: Private markets are the new public markets, and private companies now have many of the amenities that used to be limited to public markets. So private companies can have trading markets for their stock, letting employees get liquidity at market-derived prices. Good’s stock wasn’t listed on Nasdaq or anything, but employees could sell if they wanted to, and could get a sense of the arms-length, third-party, market-ish price of their stock. (In fact, Good was one of the “most-watched companies” on SecondMarket in 2012, suggesting that employees did pay attention to the market price.) But they chose not to sell — they chose to buy – because they thought the market price was too low.
Another possibility is that, unlike public companies, Good wasn’t subject to Securities and Exchange Commission rules about disclosure, and so perhaps Good’s investor-employees were deceived by bad or insufficient financial disclosure. This does seem to be part of the story: Benner notes that, when employees were buying in August, they “had little idea that an outside appraisal firm had valued Good at $434 million and the common stock at about 88 cents a share as of June 30,” or for that matter that “by late July, the board knew that Good would run out of cash in 30 to 60 days” and was frantically negotiating a deal with BlackBerry.