Employees of unicorns are cashing out before their start-up goes public. It shows how rocky this year’s big IPOs have been.

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Some Slack employees are selling their stakes in the start-up in the month leading up to an expected IPO, data from secondary marketplace Forge show.
The rocky public debuts of Lyft and Uber have spooked some employees in Silicon Valley, who want to get cash before the market potentially devalues their shares, according to Forge.
It’s another symptom of the explosion in private market capital, which has kept large companies private for longer and pushed investors like hedge funds into private equity and venture capital-like investments.
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The struggles of Lyft and Uber since they’ve gone public have not been ignored by employees at other start-ups.

While an IPO was once the way early employees at start-ups got big payouts, the boom in private market capital and the maturity of many unicorns has some looking to cash out before the market decides the value of their stock.

Forge, which runs a platform that allows early employees at unicorns to sell their stakes to large money managers and hedge funds, saw double the amount of staff offloading shares at some companies the month before their expected IPO.

See more: Inside Salesforce’s $15.7 billion takeover of Tableau, which came together at Marc Benioff’s San Francisco mansion and almost died last week amid wild market swings

Employees at Slack — the $17 billion cloud-based communication tool used internally by thousands of businesses — have come to Forge and tried to cash out as much as half of their stake before it gets to the public markets because they can’t trust that they’d make more there, Forge’s VP of marketplace Javier Avalos said in an interview with Business Insider.

"The easiest thing for us to do would be to take some chips off the table" and give them liquidity, he said.

Slack, which is expected to go public next week, declined to comment.

Both Uber and Lyft have been met with a tepid response from the public markets. Lyft’s stock drop since its March IPO has cut nearly $7 billion of its market cap, as its stock has fallen from more than $78 a share at its launch to roughly $60 a share now. Meanwhile, Uber priced its public stock at a market cap of $82 billion, despite investment bankers initially thinking it could go public at more than $120 billion.

Now, with big Silicon Valley IPOs like Slack on the horizon, early employees are tampering their expectations for a big pay-off after the firms go public. Slack in particular has seen shares on the secondary market spike as it nears its direct public listing date, following in Spotify’s footsteps.

Secondary marketplace EquityZen reports that Slack shares were trading in the private market at a nearly 250% increase to its series H funding round, which brought in $427 million a year ago and valued the company at $7.1 billion — $10 billion less than it what it plans to go public at in its direct listing.

EquityZen declined to give trading volume information around specific companies, though senior research associate Adam Augusiak-Boro told Business Insider in an email that overall transactions continue to grow, echoing Avalos’ comments about unicorn employees looking to "take some chips off the table."

Milestone, not the ‘end of the road’

One of Uber’s early investors, $31 billion growth equity firm General Atlantic, does not see Uber’s IPO as the "end of the road" for the company or unicorn IPOs.

Speaking on a Bloomberg panel last week, General Atlantic CEO William Ford said it was a milestone for the company and that Uber will continue to grow — but acknowledged a lot of growth was not accessible for public investors.

"More of the growth of these companies is happening in the private market and not the public market," said Ford. "It’s the reason why many institutional investors, why many retail investors are saying ‘I need to get exposure to the private markets.’"

Ford said that he’s still confident in the coming Slack IPO, and said Zoom and Pinterest both proved that it is still worth going public.

See more: The booming private market has some hedge funds spreading into private equity’s domain. Now a tug-of-war has broken out over talent.

"The biggest negatives to me is public investors not having access to some of the more exciting companies early in their development," Ford said.

Uber and Lyft might be anomalies because they were such well-known, consumer-facing brands and might have been overly hyped by the media and investors, alternative data company Indexica said. The firm found that before the IPO, Uber and Lyft were both covered in media reports more than the average top 20 S&P 500 company.

"This is a clear ‘bubble’ indicator in terms of conversational volume. Usually this matches up relatively well with market performance. But because the companies weren’t public during this spike, it just generated excitement for the IPO," a spokesperson for Indexica said in an email.

Lyft’s IPO was oversubscribed several times over, and their roadshow included a stop in New York where some investors were crammed into a sideroom and had to watch the executives’ presentation on a TV. Uber’s IPO was also oversubscribed, though not at Lyft’s level.

See more: Inside the Lyft roadshow in NYC where investors packed the penthouse of a $1,000-a-night hotel

Since their public launches, critics, including short-sellers, have grown louder.

Javier Avalos, the vice president of marketplace for Forge, said some employees whose companies have recently gone public have come to Forge during their lock-up period when they cannot sell out of their stock. They’re looking to buy put options or shorts on their own shares as an insurance policy.

"It all trends toward hedging risks," he said.

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