“All the group chats and Facebook groups lit up,” said one longtime Uber employee, who left the company this year. Employees put in limit orders, to sell stock if it hit a certain price. Even those who didn’t plan on selling followed along. (Current and former Uber employees spoke on the condition of anonymity because they were not authorized to speak publicly.)
In the tech industry, stock is a major part of compensation, especially at highly valued start-ups such as Uber, Lyft, Pinterest and Slack. Salary offers are almost always lower than at tech giants, offset by early access to stock at the start-ups. It’s a high-risk setup evangelized as the best bet to get rich. Typically, those options “vest” over a four-year period, tying the company’s fate to the employee’s finances.
“I think if you joined mid-2016, you came away with a couple million,” said an ex-employee of Slack, which was founded in 2009. As the workforces of start-ups swelled to thousands of people, fewer employees had the potential to become millionaires. Slack was worth about $11 billion this week, down from $19.5 billion when it went public in June.
After years of anticipation, “unicorn” start-ups including Uber, Lyft, Pinterest and Slack made their public market debuts in 2019, allowing employees to cash out more easily the billions of dollars of stock value that was difficult to trade in a private company. Instead, the underwhelming IPOs have been a rude awakening for some rank-and-file employees, who have fewer protections than investors and fewer options to cash out their shares.
It’s routine for a company’s stock to slide when the lockup period expires, and some companies such as Facebook have recovered after rocky debuts. But Silicon Valley lore is built around major companies such as Facebook and Google going public, generating huge amounts of wealth for a still relatively small number of employees.
Uber made its future sound bright. A second former Uber employee said that when she was hired in September 2016, the Uber recruiter told her the company gave workers lower salaries because stock in the company was so valuable. As an incentive to join Uber rather than pursue a competing offer, the recruiter told her that Uber’s valuation had been doubling every year and that the company expected to keep growing at that rate. At the time, Uber’s valuation was around $68 billion. It is currently worth $45.9 billion, based on its Wednesday share price, about 44 percent lower than its IPO valuation.
Amid Uber’s IPO, a majority of eligible employees bought into a program where they could voluntarily purchase stock, the company said, a signal of their confidence in Uber’s prospects.
For employees, “it’s the price of the stock at the end of the lockup period that’s important, not the price at IPO,” said Bruce Barton, a financial planner with Parkworth Wealth Management. Slack’s decision to go public as a direct listing rather than the traditional route was a boon for employees because it allowed them to sell right away, “a good idea because Slack’s stock price is down,” Barton said.
Some highly hyped unicorns didn’t even make it to the IPO finish line. In late September, WeWork withdrew its plans for an IPO after investors balked at massive losses and self-dealing to then-CEO Adam Neumann. Shortly after, Neumann was offered a $1.7 billion deal to walk away while WeWork debated laying off thousands of employees, according to a report in the Wall Street Journal. WeWork declined to comment.
The IPO flop has brought renewed attention to just how stratified the start-up ecosystem can be. Not only are Uber drivers and other gig workers excluded from the wealth of a business model that depends on their labor, but even the lucky few employees granted equity operate in a system optimized to make a few people at the top very rich. Uber’s initial stock market filing showed that a 19-person group of board members and executives held 34 percent of the shares.
“No founder or [venture capitalist] is ever going to tell you that your stock is worth less than their stock and that even a ‘successful’ exit that benefits them financially might be a loss for you and your co-workers,” said Jackie Luo, a software engineer at a tech company in San Francisco, who started a viral Twitter thread posting compensation numbers, including salary and stock, sent to her by male tech workers who want to promote transparency in gender pay disparity. Start-ups have taken advantage of “the black box” around their likelihood of success and the vagaries around compensation “to convince people to make a trade-off they wouldn’t otherwise have made.”
On Tuesday night, one early Uber investor, Menlo Ventures, issued a news release indicating its intention to hold onto its shares. The move was quickly applauded by Uber chief executive Dara Khosrowshahi: “Definition of long term #partnership,” he tweeted, adding a prayer hands emoji.
One Uber employee who joined pre-IPO says they were given an offer sheet that assumed the stock price would range from about $40 on the low end up to around $100. The dip in price was made worse by the fact that employees owe taxes based on the IPO price of $45 a share.
Uber, Lyft, Slack and Pinterest declined to comment.
For employees at Uber, watching the stock drop Wednesday is just the latest indignity. Since Uber went public in May, employees have seen a steady erosion of the promise that came with being a public company. Uber has been hit with three separate rounds of layoffs in the past four months.
All-hands meetings have become platforms for grievances. Uber got rid of “Uberversary” balloons to save money, and some craft coffee disappeared from drip dispensers. It was a far cry from IPO day, when champagne bottles were popped in the office, bar crawls sent streams of employees into establishments, and partying elicited complaints from inside and outside headquarters.
Of course, the tech IPOs, even if they haven’t been smash hits, have still minted many new millionaires.
“We have just had a gangbuster year in mortgages,” said Yvette Butler, head of private banking and wealth advisory at Silicon Valley Bank, which caters to executives from venture-backed companies, offering them the ability to borrow money against the value of their stock.
“Even this fall, the buyers are mostly in tech,” said Danielle Lazier, a Compass real estate broker in San Francisco.
In the past couple of months, Lazier says some of those buyers have offered her clients unusual tech-adjacent perks to sweeten the deal, such as Pinterest stock (trading down 12 percent from its IPO value of $12.7 billion in April) and a Tesla. “The sellers said, ‘We actually need two Teslas,’ and [the buyers] said ‘Okay,’ ” Lazier explained. In the end, neither of the unconventional bids won, and the sellers went with the “highest amount in U.S. dollars.”
“There’s still some optimism out there and a lot of people wanting to hold on to all of [their Uber stock],” said the former Uber employee who participated in the Facebook groups. She left the company this year and made a million dollars on her equity. “I’m from an immigrant family from the Bronx. This is life-changing,” she said. “If I had to do it all over again, I absolutely would.”