Stock in venture backed private companies is generally illiquid. In other words, there is a limited market for the stock since it is not freely transferable or publicly traded so cashing out stock options isn't really an option or can involve significant fees and legal hoops to jump through.
Owners of common stock in private companies such as founders, employees, consultants, and others who wanted to obtain cash for their stock have traditionally either had to wait for a company liquidity event (for example, a sale or IPO of the company) or sell employee stock options on the secondary market, completely transferring economic interest and capping their returns at the early sale price. If the shares continue to appreciate and the company makes to an exit event the employee will not be able to participate or tap into the potential excess returns.
No Liquidity Events
The problem with waiting for a liquidity event is that for many private companies, there will never be a liquidity event because the company will fail. The issue with a direct secondary sale of common stock is that most buyers are interested only in large blocks of stock in "almost public companies" and when the stock is sold, the seller receives the purchase price so there is no opportunity for additional gain. ESO can significantly mitigate these risks by providing financing against the value of the stock without a full transfer of economic ownership. No payments are due unless and until there is a liquidity event involving the company that issued the shares, such as a sale or IPO. At that time, the owner of the stock and ESO share the upside of the liquidity event and ESO is repaid.
How ESO Can Help with Cashing Out Stock Options
An advance from ESO to provide liquidity on your existing stock allows owners of common stock in private companies to obtain immediate funds while retaining significant upside with minimal risk. If you'd like to know more about how ESO can help you monetize your private company stock, please contact us at the ESO Fund.