Coronavirus layoffs could cost startup employees their equity

Silicon Valley may end up with large numbers of abandoned employee equity, as startups cut jobs amid the coronavirus-caused economic uncertainty.

Why it matters: Startup employees typically have just 90 days from the end of employment to either exercise their stock options, for which they must pay cash, or to let them go.

Driving the news: A number of companies, such as SoftBank-backed Compass, travel lodging company Sonder, and business travel company TripActions, announced layoffs in recent days.

• Others include Zeus, FabFitFun, Wheels,and Lola.

"Paying up front out of pocket, it’s a significant amount that people just don’t have in cash," says EquityBee CEO Oren Barzilai, whose company helps finance employee stock option purchases.

• EquityBee and Secfi, which also offers financing for employee stock options, both report a recent uptick in startup employees signing up for their services.

Between the lines: What makes these decisions tricky for newly laid-off employees is the combination of the common 90-day exercise window and the volatile economic outlook.

• Some companies have extended these windows (e.g., Compass employees will have 12 months), but 90 days remains the industry standard.
• According to Carta, only about 11% of startup employees have exercise windows longer than 90 days, up from about 3% in 2010. And while employees exercise more options when they can do it early, only about 15% of options can be excercised early.

The bottom line: Some workers not only are losing their jobs, but they're likely to lose part of what they earned over the past several years.