Over the past several years, private company liquidity programs have grown increasingly more common, especially among venture-backed startups. Employees at startups will often forgo a higher salary in place of stock options or some other form of equity compensation. However, stock options or company shares alone do not help employees achieve life-long financial goals, like buying a home or building a diversified nest egg. A company-wide liquidity program provides opportunities for employees to seek liquidity for their equity pre-IPO, but ensures that the solution is company-vetted and saves employees the trouble of looking for solutions themselves.

Companies that have recognized the many benefits and importance of employee share liquidity programs understand that these programs can help improve employee morale, increase employee engagement and retention, and help attract top talent. Allowing employees to become company stockholders and to experience value from their shares before the company exits, can be a recruiting selling-point and employee motivator. In today’s current market, where talent acquisition and retention remains a critical industry-wide challenge, having an employee liquidity program in place should be a top priority.

From the employee perspective, today’s market may only drive further necessity for liquidity. With continued inflation, higher interest rates, and a potential recession on the horizon, employees may want to be prepared with immediate access to cash if they should need it. We’re also seeing fewer companies IPO in this market, with global IPO volumes nearly halved by H2 2022 in comparison with 2021. Companies that want to position themselves as employee-centric will need to find alternative paths to liquidity for their employees.

Unfortunately, it can be challenging for many private companies to offer liquidity programs in today’s turbulent market environment. Since private company valuations are still adjusting to those in the public markets, secondary buyers will likely expect a large share price discount if the company hasn’t gone through a recent capital raise. This can be problematic for companies who may not want to signal a lower valuation if they don’t have to. As a result, companies may consider putting off or ending liquidity programs to avoid facing a lower perceived valuation.

At Liquid Stock, we offer innovative programs to select high-growth private companies to offer an alternative approach to liquidity for their employees, tailored to their specific situation and needs. These solutions provide potential tax benefits and are not sales of shares – therefore do not elicit “price discovery,” which can be particularly beneficial in these uncertain times.

By supporting a private share liquidity program, a company can foster a culture of employee ownership, which can attract and engage employees. Learn more about how Liquid Stock can help strengthen equity benefits and empower employees to maximize the value of their equity.

About the Author:
Robert Pitti, Founding Partner at Liquid Stock, is an experienced wealth manager who has provided advisory services to many successful entrepreneurs and venture capitalists.

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