SPAC Wonderland - Winter Newsletter - Stock Option Counsel, P.C.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Hello Startup Community!
Happy New Year! Before we move on from 2020, I wanted to answer some FAQs on SPACs as they relate to startup employee equity.
SPACs. The special-purpose acquisition company - or SPAC - has become a popular path to liquidity for venture capital startups. Virgin Galactic, DraftKings and Nikola Motor Co. (among many others) have gone public via SPAC, and there are many other such deals in the pipeline for 2021. If you're looking for more information on the phenomenon, I would suggest the WSJ's article Why Finance Executives Choose SPACs: A Guide to the IPO Rival.
In addition, I've answered some questions frequently asked by employee equity holders at startups on the SPAC acquisition process:
Q: If my company is going public through a SPAC, when can I sell my shares?
Some companies provide an opportunity for immediate liquidity at the closing of the transaction. This is known as a secondary offering or tender offer, and will allow you to sell some portion (say, 10%) of your holdings as the merger closes and the company's shares become publicly traded. This sale is to a designated buyer at a designated price.
If your company's SPAC is not designed to include such a tender offer, you will have to wait until the lockup on sales expires to sell your shares.
Q: Why can't I sell all my shares if the SPAC deal makes the company's stock publicly traded?
When you accepted your stock options or purchased your shares, you agreed that you would be bound by a lockup for some period following the company's public offering. This is a standard term in private company stock documents. It is designed to ease the company's path to the public markets by limiting the quantity of shares available to the public after the company's shares become publicly traded.
Q: When will I be able to sell my shares?
After the lockup expires. The traditional lockup length is 180 days. However, SPAC transactions often have a variation to this standard. Some require employee stockholders to agree to a longer term, such as one year. Others have eased the traditional 180 day period by allowing for earlier sales if the company's stock achieves a targeted price for a certain period within that 180 day period.
Q: What should I do to prepare for the SPAC?
Think of it just as you would an IPO. If you have any questions about your legal rights to your shares or options or the terms of a tender offer, reach out to your attorney. If you are making option exercise or stock sale decisions, reach out to your accountant and/or financial planner. You're always welcome to reach out to Stock Option Counsel for guidance.
Podcast. Thank you to Aaron Phillips of the Green Financial Planner Podcast for having me as a guest this month. The episode - Top Priorities To Consider When
Stock Option Counsel, P.C. - Legal Services for Individuals. Thank you for your enthusiasm for my practice and blog. You can learn more - including testimonials - on the website.
“Mary is a great resource and was very easy to work with. She was very thorough and helped me negotiate my worth. I recommend that any potential startup employee (at any level) work with Stock Option Counsel to make sure they understand their contracts and offers. ”
— Kevin Beauregard, Vice President - Engineering, Equity Offer Counsel
Please keep in touch!
Best,
Mary
Mary Russell | Attorney and Founder
Stock Option Counsel, P.C. | Legal Services for Individuals
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
