In May, AI sales automation startup Clay said it was allowing most of its employees to sell some of their shares at a $1.5 billion valuation. Coming just months after its Series B, Clay’s offer of liquidity was a rarity in a market where tender offers, as these types of secondary transactions are known, were still uncommon for relatively young companies.
Since then, several other newer, fast-growing startups have allowed their staff to convert some of their stock into cash. Linear, a six-year-old AI-powered Atlassian rival, completed a tender offer at the same valuation as the company’s $1.25 billion Series C. More recently, the three-year-old ElevenLabs authorized a $100 million secondary sale for staff, at a valuation of $6.6 billion, double its previous value.
And just last week, Clay, which has tripled its annual recurring revenue (ARR) to $100 million in one year, decided it was again time for its employees to cash in on the company’s fast growth. The eight-year-old startup announced that its staff can sell stock at a valuation of $5 billion, a more than 60% increase from its $3.1 billion valuation announced in August.
These secondary sales at increasingly higher valuations for young, perhaps still-unproven companies may initially appear to be a premature “cash out” reminiscent of the 2021 bubble. The most infamous example of that time was Hopin, whose founder, Johnny Boufarhat, reportedly sold $195 million worth of his company’s stock just two years before the company’s assets were sold for a tiny fraction of its peak $7.7 billion valuation.
But there is a critical distinction between the 2021 boom and today’s market.
During the ZIRP era, a large portion of the secondary deals provided liquidity almost exclusively to founders of buzzy companies like Hopin. In contrast, the recent transactions from Clay, Linear, and ElevenLabs are structured as tender offers that also benefit employees.
While investors these days largely frown upon the outsized founder payouts of the 2021 boom, the current shift toward employee-wide tender offers is viewed far more favorably.
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