Secondary Markets

The JOBS Act in a Nutshell – Part III General Solicitation and Private Offering Platforms

by Vanessa Schoenthaler on April 30, 2012

Jumpstart Our Business StartupsThe JOBS Act makes several significant changes to the rules surrounding private capital formation. One such change being the much-discussed elimination of the prohibition on general solicitation and general advertising in certain private securities offerings. Another being the addition of an exemption from broker-dealer registration for platforms that, to a certain extent, facilitate offers and sales of unregistered securities.

General Solicitation and General Advertising in Private Offerings

Section 201 of the JOBS Act requires that within 90 days of its enactment, or by July 4, 2012, the Securities and Exchange Commission revise Regulation D to eliminate the prohibition on general solicitation and general advertising in private offerings made in reliance on the safe harbor afforded by Rule 506, provided that only accredited investors participate in the offerings.

In its current form, Rule 506 allows an unlimited amount of capital to be raised from an unlimited number of accredited investors and up to 35 sophisticated non-accredited investors, provided, however, that whenever non-accredited investors participate in an offering certain information disclosure requirements must be met. In its current form Rule 506 also explicitly prohibits general solicitation and general advertising, regardless of whether participating investors are accredited or non-accredited.

Section 201 of the JOBS Act also requires that the Commission, again by July 4, 2012, revise Rule 144A to provide that securities sold thereunder may be offered to persons other than qualified institutional buyers (QIBs), including by means of general solicitation or general advertising, provided that the securities are ultimately sold only to persons that the seller or anyone acting on the seller’s behalf reasonably believe to be QIBs.

Like Rule 506, Rule 144A is a safe harbor for sales of unregistered securities. Where they differ is that Rule 506 addresses sales of securities by an issuer (akin to a primary offering), whereas Rule 144A addresses resales by persons other than an issuer (akin to a secondary offering). Very generally, the safe harbor afforded by Rule 144A allows for resales of a limited category of qualifying securities to QIBs. Rule 144A resales often follow in close proximity to the private offering in which the securities being resold were originally issued.

So how are these changes going to impact the market for private securities offerings?

Insofar as Rule 506 offerings are concerned, over time we may see a shift from other types of Regulation D offerings to Rule 506 offerings, but lifting the ban on general solicitation and general advertising is not likely to have a significant impact on the type of investors participating in Rule 506 offerings.

Based on a recent report by the Commission’s Division of Risk, Strategy and Financial Innovation (FSHI), Rule 506 is already by far the most popular private offering exemption; used in over half of all the private offerings examined in FSHI’s report. And, even though Rule 506 allows for participation by up to 35 non-accredited investor, almost 90% of all Regulation D offerings (Rules 504, 505 and 506 combined) are made up entirely of accredited investors. So, while we may ultimately see even more Rule 506 offerings, there’s not much room for a shift in the ratio of non-accredited to accredited investors.

As for transactions set up to take advantage of the Rule 144A resale exemption, they only make up a small number of the private offerings conducted each year and they generally involve larger companies that already are, or immediately become, subject to the Exchange Act’s reporting requirements. Compared to Rule 506 offerings, Rule 144A transactions are fairly niche and, while I don’t have anything in the way of stats to back it up, I don’t think that we’re going to see any great shift toward Rule 144A offerings just because general solicitation and general advertising is permitted.

Where lifting the ban on general solicitation and general advertising will undoubtedly have the greatest impact is in the amount of information about private offerings that becomes publicly available. Hopefully this will result in a better understanding of how private capital formation works, as opposed to an overload of information that is of diminishing value or quality.

One other item of note here is that, despite the JOBS Act having taken effect, the current prohibition on general solicitation and general advertising remains in place until the Commission adopts amended or new implementing rules and those rules themselves take effect.

The Platform Exemption to Broker-Dealer Registration

Finally, Section 201 the JOBS Act creates an entirely new exemption from the broker-dealer registration requirements for anyone that maintains a platform or other mechanism that permits offers, sales, purchases or negotiations of securities, or permits general solicitation, general advertising or related activities by an issuer that is offering securities, regardless of whether those activities take place online, in person or by some other means.

What’s more, the exemption is available even if the person maintaining the platform invests in or provides “ancillary services” related to the securities that are made available through the platform. Ancillary services are defined to include due diligence services, provided no compensated investment advice is given, and the provision of standardized documents, provided there is no involvement in the negotiation process and the parties are free to use their own transaction documents if they choose to.

Lastly, the exemption is contingent on there being no transaction related compensation, no possession of securities or customer funds and no involvement by persons subject to statutory disqualification under Section 3(a)(39) of the Exchange Act.

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SharesPost: The Evolution of a Broker-Dealer

by Vanessa Schoenthaler on March 15, 2012

Yesterday the Securities and Exchange Commission announced that it settled a proposed administrative and cease-and-desist proceeding against SharesPost, Inc., an online private capital marketplace, and its founder and president, Gregg Brogger, for acting as an unregistered broker-dealer.

First, What is a Broker-Dealer?

Under the Securities Exchange Act a “broker” is broadly defined as “any person engaged in the business of effecting transactions in securities for the account of others,” and a dealer as “any person engaged in the business of buying and selling securities for such person’s own account through a broker or otherwise.”

Before a broker-dealer can “effect any transactions in, or … induce or attempt to induce the purchase or sale of, any security …” it must register with the Commission and become a member of FINRA and the SIPC. Additionally, broker-dealers must comply with the registration requirements of the laws of each state in which they intend to operate.

Once a broker-dealer is registered it becomes subject to a number of specific conduct, financial responsibility and reporting requirements, as well as to periodic compliance examinations by the Commission, FINRA and the state securities commissions.

What Does it Mean to be “Engaged in the Business” of Effecting Securities Transactions?

Neither the Exchange Act nor the rules promulgated thereunder define what it means to be “engaged in the business of effecting transactions in securities,” and the courts and the Commission, by means of administrative and enforcement proceedings and through interpretive decisions in the form of no-action letters, have come to construe the phrase broadly to include activities such as:

  • soliciting, structuring or negotiating securities transactions;
  • providing valuation advice;
  • disseminating quotation information;
  • receiving transaction-related compensation;
  • preparing, conveying or collecting transaction-related documentation; or
  • otherwise acting as an intermediary in a securities transaction.

So, What Happened in the SharesPost Case?

SharesPost started out in June 2009 as an online bulletin board for buyers and sellers of private company securities. They charged a flat membership fee for access to their platform and left members to arrange and execute their own transactions. But private sales of securities can be complicated and many members ended up needing “substantial assistance from SharesPost and/or a representative of a registered broker-dealer” in order to complete their transactions. At this point SharesPost probably should have either registered as or merged with a broker-dealer.

Instead, in 2010, SharesPost entered into a series of agreements with registered representatives from various other broker-dealers. The representatives were designated as “Company Specialists” and were each assigned to cover certain categories of companies (e.g., social media, green tech., etc.). Their role was to facilitate transactions between buyers and sellers. As compensation for these services their supervising broker-dealer was paid a transaction based fee. The broker-dealer in turn paid a portion of that fee over to the representative, pursuant to a separate agreement between the broker-dealer and the representative.

To make things a bit more complicated, each representative also entered into an arrangement with SharesPost whereby they agreed to pay 35% of their gross commissions to another broker-dealer to be designated by SharesPost in the future. The only problem is that SharesPost never designated a broker-dealer. It did, however, keep track of the commissions owed and when one of its representatives left SharesPost itself received the accrued commissions (even though it still wasn’t a registered broker-dealer).

By late 2010 SharesPost decided “that maintaining arrangements with multiple registered representatives affiliated with multiple broker-dealers was cumbersome” and so (rather than registering as or merging with a broker-dealer at that point) SharesPost entered into a “Broker-Dealer Independent Affiliate Agreement” with “Broker-Dealer A.”

Pursuant to this latest agreement SharesPost employees who were also registered representatives of a broker-dealer, including its then CEO and other senior executives, facilitated transactions between buyers and sellers on a commissioned basis. Any commissions earned were paid into a compensation pool at Broker-Dealer A. The CEO of SharesPost would then provide Broker-Dealer A with written instructions as to what percentage of funds in the commission pool were to be distributed to each representative and to Broker-Dealer A.

Beyond the creative compensation arrangements SharesPost also engaged in other activities that made it more like a broker-dealer and less like the passive bulletin board that it started out as. Among other things, it made available through its website and suggested that members use its own copyrighted form transaction documents. SharesPost personnel, some of whom were not registered representatives, served as intermediaries between buyers, sellers, companies and transfer agents. It made available free research reports detailing information about the companies whose securities were posted on its bulletin boards and it created a “Venture Index” that aggregated and weighed certain known or estimated data for its most active companies.

Also in late 2010 SharesPost created a series of funds each designed to purchase the securities of one of the companies posted on its bulletin boards. These funds were used to create an auction process. To quote at length from the Commission’s Order:

[P]otential sellers of a company’s stock would set a reserve price for the block of shares they wished to sell. In turn, SharesPost members who posted indications of interest to buy interests in the [fund] were contacted by SharesPost personnel, who were registered representatives of Broker-Dealer A to see if they wanted to participate in the auction. The buyers were bidding on interests in the fund and the fund would in turn purchase the stock. The auction process began to feature prominently on the SharesPost website – thus, at that point, SharesPost was using the website to sell securities (interests in the fund) in which it had a financial interest. The SharesPost subsidiary management company [that oversaw the funds] charged a one-time service fee, which was five percent of the investment and a three percent fee on any distributions to the fund.

Finally, in December 2011, SharesPost acquired a broker-dealer which it also registered with the Commission as an alternative trading system, a development first announced in a press release yesterday.

Overall I think this is a good outcome, SharesPost should have registered or acquired a broker-dealer from the beginning (or at least earlier on) and it’s good to see the Commission reaffirm it’s commitment to both innovation in the market and investor protection. Or as Robert Khuzami noted in the Commission’s press release: “[w]hile we applaud innovation in the capital markets, new platforms and products must obey the rules and ensure the basic fairness and disclosure that are the hallmarks of sound financial regulation.”

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Want to Stay Private Longer? Plan Ahead.

by Vanessa Schoenthaler on August 25, 2011

The median number of years that it takes to for a venture-backed company to go from startup to IPO has been increasing over the last two decades. According to data assembled by University of Florida Professor Jay Ritter, as of 2010 that number was at 10 years, down from a high of 15 years in 2009.

Median Age of IPOs with VC and Buyout Backing, 1980-2010

See Table 4: Median Age and Fraction of IPOs with VC and Buyout Backing, 1980-2010

One aftereffect of this lengthening of time to exit has been an increase in demand for secondary market transactions in private company shares, both as a means for early investors and employees to achieve liquidity and for late-stage investors to get into promising companies pre-IPO. While definitely a boon for the business model of private marketplaces like Share Post and SecondMarket, this outgrowth has left some companies that have shares quoted in these markets with mixed feelings.

Why? Well among other things, with these burgeoning markets come a whole new set of responsibilities and an added level of complexity for a company otherwise focused on growth, and, if not monitored or properly managed, a company’s shareholder base could get the better of its own IPO timeline.

The 500 Shareholder Rule

Which brings us to the requisite discussion of Section 12(g) of the Securities Exchange Act of 1934, popularly referred to as the “500 shareholder rule”.

Section 12(g), enacted in 1964–right around the same time the venture capital industry was getting underway–requires that a company with an excess of $10 million in assets and a class of equity securities held of record by 500 or more persons register that class of equity securities under the Exchange Act within 120 days of the end of the first fiscal year in which both the asset and shareholder tests are met.

Once a company’s securities are registered it has to comply with the Exchange Act’s reporting requirements, including filing quarterly and annual reports containing interim and audited financial statements. That’s why when a company reaches the 500 shareholder threshold it will often file for an IPO (an offer and sale of securities to the public under the Securities Act of 1933); if a company’s going to have to make the disclosures anyway it may as well raise some money in the process.

Time for an Upgrade?

While 500 shareholders may seem like a lot, especially to a company that’s just starting out, if you add a number of years, a few rounds of financing, a hundred or more employees and maybe even an acquisition or two, all of a sudden 500 shareholders isn’t really that many.

So is it time for an upgrade, after all in a lot of ways 1964 was a long time ago? Perhaps. Some members of the Senate and House certainly think so, and in May, in testifying before the House Committee on Oversight and Government Reform, Chairman Schapiro acknowledged that the Commission is reviewing the rule, both in terms of the number of shareholders that a company should have before triggering Section 12(g)’s registration requirements and in how those shareholders should be counted.

In the Meantime, Plan Ahead

In the meantime, given the 500 shareholder limitation, what can a private company do to manage its shareholder base in the face of an expanding secondary market for private company shares?

Go Dutch or Shift a Portion of Share Transfer Fees

One tactic is to pass some or all of the legal and administrative fees associated with effectuating a private share transfer onto the transferor.

This is not to suggest imposing exorbitant transfer fees in an attempt to stifle a developing market, but all parties should be well aware of the costs–in terms of time, money and disclosure risk–that are associated with private share transfers. By passing some or all of the monetary costs onto transferors a company can deter frequent or casual trading.

Adopt An Insider Trading Policy

The federal securities laws prohibit insiders from buying or selling securities on the basis of material nonpublic information in breach of a fiduciary duty or relationship of trust or confidence. While this prohibition against illegal insider trading applies equally to public and private companies, historically it hasn’t been much of an issue for private companies, because there hasn’t been much in the way of a market for their securities.

By adopting an insider trading policy that prohibits insiders, such as officers, directors or employees, from trading in company securities outside of certain designated trading windows, a company can effectively mitigate the risks of illegal insider trading and to a certain extent control the degree to which insiders contribute to an expanding shareholder base.

Switch to Restricted Stock Units

As a company advances it may be advisable to switch from issuing stock options to issuing restricted stock units. Once a stock option has vested the holder can generally exercise that option and receive the underlying shares. In contrast, a restricted stock unit is essentially a promise to deliver shares, subject to the satisfaction of any vesting requirements, at some point in the future, such as when a company is acquired or IPOs.

In 2008 the Commission issued Facebook a no-action letter relieving it from the registration requirements of Section 12(g) with respect to issuance of its restricted stock units. The Commission’s decision was based, in part, on Facebook’s representation that its restricted stock units were specifically designed to preclude any transfer or trading from taking place. In June of this year the Commission issued a similar no-action letter to Zynga with respect to its restricted stock units.*

IR and Arranged Marriages

Investor relations isn’t just for public companies. Communicate with your shareholders, part of the beauty of being private is that, comparatively, there aren’t that many of them, plus you actually know who they are. Understand where their interests lie and be prepared for those interests to change over time.

Because it takes longer to exit there are more shareholders with wealth tied up in private companies than in periods past. Early employees with vested options, former employees that have exercised their options and now hold shares, and even early investors with funds approaching the end of life, may all be looking for their own exit opportunities. Rather than each of these parties going out on their own and potentially expanding a company’ s shareholder base, it may be possible to arrange for one or a small group of third-party buyers, or for the company to raise funds and buy the shares itself.

Maybe the Commission will end up raising the 500 shareholder threshold, maybe Congress will pass a bill requiring it to, or maybe not. Either way, with a little bit of planning there’s no reason why a company can’t control its own IPO timeline and still keep its shareholders engaged.

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*Update September 13, 2011: Twitter was issued a similar no-action letter with respect to its restricted stock units today.

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The BX Venture Market – Can the Market for Small IPOs Make a Comeback?

by Vanessa Schoenthaler on May 17, 2011

Nasdaq’s bid for NYSE Euronext didn’t exactly go according to plan, but perhaps they’ll have better luck at the other end of the listing market.

Earlier this month the Securities and Exchange Commission approved a proposed Nasdaq OMX BX, Inc. rule change to create a new listing market–the BX Venture Market–which is expected to begin operating this year.

The BX Venture Market will target smaller companies seeking their first exchange listing, whether as part of an initial public offering or as a progression from the over-the-counter markets, as well as companies that are being delisted from other national securities exchanges for having failed to maintain the requisite quantitative listing requirements.

The rule release notes that the BX Venture Market “will provide an opportunity for smaller, private, venture-backed companies to expand capital financing opportunities and go public, and at the same time, encourage investment in early-stage companies by providing private equity and venture funds with an exit strategy.”

There’s been quite a bit of commentary lately (or once again, depending on how you look at it) regarding the dearth of smaller company IPOs and the impact of private secondary markets, like  SecondMarket or SharesPost, on a company’s determination to go public.  What’s more, the Commission is in the process of reviewing how its current rules and regulations impact capital formation and if regulatory burdens can be reduced for small businesses while still maintaining investor protections.

So what do you think, can the addition of the BX Venture Market help spur demand for the smaller company IPO? The compliance costs associated with Sarbanes-Oxley, an often-cited contributor to the lack of small IPOs, have, at worst, leveled-off. Social IR, though still in a nascent stage for smaller companies, may be able to fill in some of the research analyst void. And the BX Venture Market is a national securities exchange, so institutional as well as retail investors, will be able to participate.

Listing Requirements

To be eligible for listing on the BX Venture Market a company will have to meet certain qualitative and quantitative listing requirements designed to ensure sufficient levels of investor protection and market activity, but with the smaller or transitioning company in mind.

Qualitative Listing Requirements

Qualitatively, a company must, among other things:

  • be registered under Section 12(b) of the Exchange Act and current in its reporting requirements;
  • adopt a code of conduct;
  • have 3 independent directors and a fully independent audit committee; and
  • hold an annual shareholders’ meeting.

Quantitative Listing Requirements

A couple of other noteworthy characteristics of the BX Venture Market:

  • listed shares will not be NMS securities or blue sky exempt;
  • shareholder approval will be required for certain equity compensation arrangements but not for other share issuances (i.e., no 20% rule; although a company will have to provide notice of any 5% change in the number of its outstanding shares); and
  • if a company can meet the quantitative requirements of Nasdaq it will not be eligible to list on the BX Venture Market (read: sorry, no regulatory arbitrage opportunities here).

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Will Facebook be Forced to IPO by Spring?

by Vanessa Schoenthaler on December 30, 2010

Looks like those exorbitant transfer fees weren’t enough to put a damper on the growing market for shares of companies like Facebook and Zynga.

The New York Times and The Wall Street Journal have been reporting that the Securities and Exchange Commission has launched an inquiry into the trading of shares of Facebook,  Zynga, Twitter and LinkedIn in secondary markets like SecondMarket and SharesPost.com.

The Commission declined to comment on the matter, but that’s to be expected as inquires are always conducted confidentially unless an administrative proceeding or legal action are filed.

Both articles also note that the inquiry appears to be focused, in part, on certain investment funds set up to purchase the companies’ shares (Bloomberg did a piece on three such funds back in November) and both question whether the inquiry could ultimately force Facebook into filing for an IPO.

But how do you force a company to IPO?

Companies with an excess of $10 million in assets and a class of equity securities held of record by 500 or more persons are required to register that class of equity securities under Section 12(g) of the Securities Exchange Act of 1934.  The required registration statement must be filed within 120 days of the end of the first fiscal year in which a company meets both the asset and shareholder tests.

As an aside, registering under the Exchange Act isn’t the same as filing for an IPO.  Exchange Act registration only requires that a company comply with applicable disclosure requirements, such as the filing of quarterly and annual reports.  When a company files for an IPO it does so by registering securities for sale to the public under the Securities Act of 1933.  What frequently happens when a company is forced to register under the Exchange Act is that it will simultaneously file for an IPO under the Securities Act.  This was the case in the often cited example of Google, which filed for registration under both the Securities Act and Exchange Act on April 29, 2004.

Each of Facebook,  Zynga, Twitter and LinkedIn have already surpassed the asset requirement of Section 12(g), so the deciding factor in whether they will be forced into registration under the Exchange Act is whether their securities are held of record by 500 or more shareholders.  As currently defined, the holder of record is the person identified in a company’s records as the owner of the securities in question.  Meaning that securities held in the name of an entity, like one of the investment funds being set up to purchase shares of Facebook, are only counted as being held by one person, regardless of how many investors make up the funds.  There is an exception to this rule, however: if Facebook knows or has reason to know that the investment funds are primarily being used to avoid Exchange Act registration the Commission can count the beneficial owners of the securities as the holders of record, meaning, in our example, the investors that make up the funds.  This may be where Facebook and other companies run the risk of being forced into Exchange Act registration.

If this is the case, and assuming Facebook uses the calendar year for its fiscal year, then if the Commission finds that Facebook had 500 or more shareholders of record on the last day of its fiscal year end on December 31, Facebook would be required to file a registration statement under the Exchange Act by April 30, 2011.

Another potential explanation for the inquiry is that the Commission may be considering amending the definition of “held of record”, the current version of which was adopted in 1965.  In 2003 a group of investment funds petitioned the Commission to revise the definition to count the beneficial owners of securities held in street name as the holders of record.  Interested parties have been commenting on the proposal since its introduction, with the most recent comment letter being submitted in April 2009.

With the growth of secondary markets for illiquid assets and the increased use of alternative investment vehicles, perhaps the Commission is reconsidering how it tallies up shareholders and whether a company the size of Facebook should be required to disclose certain information to its investors.

Update: January 10, 2011

At this point this topic has pretty much been covered to death. Rapper 50 Cent has opined on Facebook’s reported $50 billion valuation and there was even a rumor floating around that Mark Zuckerberg was going to shutter the company by March 15, because it was just too stressful for him to run.  With that kind of competition, I don’t think there’s much for me to add.  In the interest of being complete, however, I did want to include a few links to round out the story.  So, in summary:

Facebook did not have 500 shareholders as of its December 31, 2010 fiscal year end, so no IPO until next spring; the Commission is still investigating the trading of private company shares in the secondary markets (and I’ll probably have something more to say on the subject if, and when, we get details); some of Facebook’s financial information was leaked; and it looks like the Goldman Sachs offering was a success; but not everyone thinks that’s a good thing.

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Lessons from Facebook and Zynga’s Exorbitant Share Transfer Fees

by Vanessa Schoenthaler on October 26, 2010

Did you catch this recent Businessweek article?  Facebook and Zynga, two of the most popular social networking sites on the web, and already touted by some as two of the most highly anticipated IPOs of 2012 or possibly 2013, are now charging fees of between $2,500 and $6,000 for share transfers.

Why so much?  The Businessweek piece cites two possible reasons:

  • the companies are passing on the administrative costs of complying with applicable securities laws; and
  • they are trying to avoid Exchange Act registration.

At least in the case of Facebook, and most likely for Zynga too, I think the latter explanation is the true motivation.

Companies with an excess of $10 million in assets and a class of equity securities held of record by 500 or more persons are required to register that class of equity securities under the Exchange Act and comply with applicable reporting requirements, such as the filing of periodic reports.

Both Facebook and Zynga have already surpassed the asset requirement and, with the recent surge in secondary markets for illiquid assets, like SecondMarket and SharesPost.com, they really can’t afford to take a passive position on the 500 persons of record requirement, not if they intend to push out the possibility of an IPO until 2012 or beyond.

Increasingly, it looks as if Facebook and Zynga are actively trying to limit their shareholder bases, but did they move soon enough and will they be able to effectively hold back the growing secondary market for their securities?

This past April Facebook put into place an insider trading policy that prohibits current employees from selling shares unless the company opens a trading windows; Zynga has contemplated a similar insider trading policy.  Prior to that, some time in late 2007 or early 2008, Facebook stopped issuing employee stock options, switching instead to restricted stock units.

A restricted stock unit is essentially a promise to deliver shares of stock in the future, subject to the satisfaction of any vesting requirements.  In the case of Facebook, holders of restricted stock units will not receive their vested shares until the company undergoes a change in control, such as an acquisition or an IPO.  In a 2008 no-action letter request to the Securities and Exchange Commission, Facebook was granted relief from Exchange Act registration requirements with respect to its issuance of the restricted stock units.  The grant was based, in part, on Facebook’s representation to the Commission that the restricted stock units have been specifically designed to preclude any transfer or trading from taking place.

While the issuance of restricted stock units and the new insider trading policy may have effectively curbed sales by current employees, former employees are still capable of selling their shares in the secondary markets.  Hence the recent imposition of steep transfer fees, if Facebook and Zynga can’t prevent former employees and subsequent transferees from selling shares altogether, at least they can make it cost prohibitive for them to do so in small blocks, which will not only impede the development of a liquid market but also further check the expansion of their shareholder bases.

If that doesn’t work?  There’s not too much else Facebook and Zynga can do, other than maybe buying back their own shares, which is not generally the best use of a late-stage startup/early growth company’s funds, or arranging for a third-party buyer (as Facebook has done in the past).

What can other companies learn from this?  I think most clearly, that we need better planning.  The environment for growth companies has definitely changed.  This is partly because of the current state of economic affairs–it’s taking much longer to find an appropriate exit–and partly because of regulatory changes that have led to the development of unanticipated markets.  It’s important that companies not be forced to prematurely IPO, but at the same time it’s important to offer employees meaningful incentives.  Restricted stock units seem to have helped Facebook find that balance, but they’re operating on the basis of a no-action letter and they’re likely to IPO or otherwise exit in a reasonable enough time frame to keep employees engaged. So where does that leave the rest of us?

which can’t be sold or transferred and for which employees won’t receive the underlying shares of until

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