In May, the AI sales automation company Clay announced a unique opportunity for its employees, allowing them to sell a portion of their shares at a valuation of $1.5 billion. This move came shortly after their Series B funding, marking a notable shift in a landscape where such liquidity options were rare for emerging companies.
Following Clay's initiative, several other rapidly growing startups have followed suit, permitting their teams to convert part of their equity into cash. For instance, Linear, a competitor to Atlassian, executed a tender offer at the same valuation as its recent $1.25 billion Series C funding. Additionally, ElevenLabs, which has been operational for three years, authorized a $100 million secondary sale for its employees, achieving a valuation of $6.6 billion, effectively doubling its previous worth.
Recently, Clay, which has seen its annual recurring revenue triple to $100 million within a year, announced another round for its employees to cash in on the company's rapid expansion. Employees can now sell shares at a valuation of $5 billion, representing a significant increase from the $3.1 billion valuation reported in August.
While these secondary sales at rising valuations for relatively young companies might seem reminiscent of the 2021 market bubble, a crucial difference exists today. Previously, many secondary deals primarily benefited founders, but the recent transactions from companies like Clay, Linear, and ElevenLabs are structured to provide liquidity for all employees.
Investors today are generally more supportive of these employee-focused tender offers compared to the founder-centric payouts seen during the previous boom.
Nick Bunick, a partner at NewView Capital, stated that the numerous tenders he has witnessed have had no apparent downsides. As companies remain private for extended periods and competition for talent escalates, enabling employees to access some of their unrealized gains can significantly enhance recruitment, morale, and retention. "A little liquidity is healthy, and we've certainly seen that across the ecosystem," he remarked.
Clay's co-founder, Kareem Amin, emphasized that the primary motivation behind offering employees the chance to liquidate some of their stock is to ensure that the benefits do not solely accumulate to a select few.
Fast-growing AI startups are increasingly recognizing that without providing early liquidity, they risk losing top talent to public enterprises or more established companies, such as OpenAI and SpaceX, which frequently offer tender sales.
While the advantages of allowing startup employees to access cash from their efforts are clear, Ken Sawyer, co-founder of Saint Capital, cautioned about potential unintended consequences. He noted that while beneficial for employees, it may prolong the private status of companies, thereby limiting liquidity for venture investors, which poses challenges for limited partners.
This reliance on tenders as a long-term alternative to IPOs could potentially create a cycle that hinders the venture ecosystem, as limited partners may become hesitant to invest in VC firms that support startups if they do not see returns.
