In shut IPO market, paper riches of start-up employees find new buyers
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Venture capital funding is slowing, with the impact of recent IPOs and pains from public tech stocks on private equity valuations. This means that start-ups face new challenges in relation to employee stock, which has proven so profitable in the battle for talent.
Fintech start-up Brex, the No. 2 companyOn the 2022 CNBC Disruptor listIt is unique in its ability to adapt to the rapidly changing environment. Boxed, Outdoor Voices and other start-ups use its business credit card and financing products. AirbnbAnd DoorDashIt gives it instant access to the financial accounts for start-ups.
Henrique Dubugras (Brex founder and co-CEO), spoke to CNBC’s “SquawkBox” Tuesday. He said that the company does not plan to go public, but it was looking for liquidity to help employees weather the storm.
Brex made a 250 million dollar tender offer to employees as part its employee liquidity program. Existing investors, such as Y Combinator, bought shares from employees.
Dubugras explained that “it’s something we want to keep doing in future and I think it is a great bridge between now, and going public.”
Brex’s fundraising successes have been impressive in the current climate of venture capital. Tiger Global managed a Series D round in which it raised $425million to raise $7.4 billion. In January, the company received a $300m Series D-2 round valued at $12.3billion. The total amount raised by investors includes Max Levchin (Y Combinator) and Peter Thiel (PayPal co-founders).
How to handle employee liquidity — and the tension between retaining existing employees and recruiting new ones at lower valuations — has been an issue within some of the biggest recent decisions made by the most highly funded start-ups.
Instacart will launch March 1. slashed its valuation by nearly 40% to $24 billion as a reflection of the decline in technology stocks, and in particular, slowing growth in the online grocery sector. It was valued at $39Billion in March 2021, when the company raised $265M. This made it one of the most highly-valued venture-backed businesses in America.
It is linked closely to the economy of Silicon Valley compensation that valuations are now a reality. Instacart reduced its valuation in a preemptive manner. This message was sent to potential employees and recruits, stating that future stock awards would have a new fair price. It made potential equity packages attractive and more aligned to current market conditions.
Brian Lee is a senior analyst in enterprise technology for CB Insights, a venture capital and start-up investment firm. According to Lee, “Lowering valuations will allow you to lower exercise price for options…and allows for growth if the valuation goes up again.”
Instacart’s recent move was an exceptional case, which shows how difficult it can be for start ups. If employees have underwater options, they may be offered additional growth opportunities.
Instacart launched May 1. confidentially filed for an IPO with the U.S. Securities and Exchange Commission.
According to Kyle Stanford (PitchBook senior VC analyst), “It is a smart business move to begin looking, testing out the waters and see what interest exists for the business.” “And if it doesn’t complete the IPO for a year or more, employees can now see that it is going through the process, and has good options packages for new employees.”
SpaceX offers to buy shares in an employee tender. according to a reportThe New York Post, Tuesday. It is unclear whether Elon Musk will participate in the sale of SpaceX to finance his purchase of Twitter. SpaceX shares would go for $70 each and the deal would bring the company’s value to around $125million. In December, the company raised $337m at $100 billion.
Brex and start-up success
Brex’s core business, which is a high-limit, unsecured business credit card, has been able to benefit from the private capital boom. This card can be used by many start-ups that are privately funded. Brex estimates that it has over 10,000 corporate customers.
CNBC heard that Dubugras, the founder of Dubugras’ Disruptors list on Tuesday said “We disrupted the traditional credit card industry by giving limits start-ups companies and technology firms who couldn’t get it.” “As we evolved, these companies grew to be a lot larger than when they started and they started having new needs – so that’s when we went into spend management software and mobile, helping these companies not only scale their spend management but also hire anywhere.”
Brex, Dubugras claimed, competes against companies such as American Express for corporate card management and Concur to manage spend.
Dubugras stated that the software was designed to speed up businesses and foster financial discipline on a worldwide scale. That’s our next step.”
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