Congratulations on getting to the IPO, that is a huge amount of work and worth celebrating.
That said, it pretty much defines squeaking through the exit. Interested to read the reorganization they did last year in the S-1 [1] presumably to normalize all of the various rights clauses from previous funding rounds and to dump some otherwise undesirable baggage on what was left, aka "Opco". That they had a 1:10 and 1:5 splits on their early stock and have not done a reverse split prior to the IPO suggests the employees will do ok, assuming they can sell their stock at some point. It seems healthier than the Silverspring Networks IPO (SSNI) which was anemic at best and just got worse over time.
Let's hope that they keep their expenses in line and can crack the nut of acquiring new customers more cheaply than their competitors.
It is simpler than that. If you have 50,000 share option of a tradeable stock and it goes up $1[1] you feel great you just made $50,000! If just prior to the IPO your company does a reverse 50:1 split and you now have options for 1,000 shares of stock and it goes up $1 you, gee, that's nice and all but really it isn't enough to get a new Macbook Pro.
The other thing that happens is your strike price goes up in proportion. So if it cost you $1/share to exercise your 50,000 share option its going to cost you $50 a share to exercise your 1,000 share option.
It is the context that is important here, and the context is 'startup transitioning from privately held to publicly traded'. And the point of view is 'non-founder' employee with incentive stock options.
Prior to being publicly traded, stock options at a start up are essentially worthless. If you exercise them you have to pay tax on them, and generally if you did exercise them nobody would buy them from you. So worthless. And while it is perfectly fun to say "everyone says" or "at the last raise" this company is worth $x and my share of that would be $y, if you've been around you know that that number is also grossly inaccurate. Because really there are things like liquidation preferences, assignment to creditors, and all sorts of other legal maneuvers that do one thing, they convert unvested incentive stock options for common stock into a value slightly less than the recycled paper they are printed on.
So when you transition from the realm of 'privately held' to 'publicly traded', two magical things happen. First, all shares convert to common stock (although possibly separate classes of stock), and you can sell those shares that you either already own, or you become the owner of by paying the 'strike' price on your vested options and taking possession of them.
Always, in that last moment, and Blue Apron was no exception, as the cap table is re-balanced and the company prepares to be a 'real' publicly traded entity, employee stock options get dealt with. In part because there is going to be a new option pool allocated for giving out to new employees or refreshing grants of existing employees, and because sometimes the bankers taking the company make it part of their terms and conditions in order to take the company public.
The grand result, the finale if you will, is that on the day the company you work for goes public, you get crystal clarity on exactly how many shares you have options to buy, when you will be able to buy them, and what you will pay for them to buy them. And if that day comes, and on the other side of the opening bell of the NYSE or NASDAQ that day you have more than 10,000 shares in options, with a strike price that is lower than the current price, there is a big psychological pump attached to your brain.
I've seen it happen to literally hundreds of my peers as they and I made that switch. And now, while watching the ticker tape on CNBC or the headline news, occasionally the new ticker symbol for your company will go across the bottom with either a +nn or -nn next to it for going up or down in price. And if you own at least 10,000 shares in options it is like watching a car appear and disappear in your future as it goes up and down, or a house down payment, or a college fund. It is potential wealth made actual right in front of your eyes and sometimes it is impossible to take your eye off the ticker.
And since movements of a few dollars is common in freshly traded companies it can drive you nuts. During the dot.com days a friend of mine and I would joke about being "up two Porsche's today", "oops, we've lost about a Porsche and a half today" where we had chosen $50,000 to represent the value of one Porsche sports car.
And so, if you are in that context (and a bunch of Blue Apron employees are today, just like SNAP employees were earlier) and if this is suddenly your single largest "investment" because yesterday your stock was unsaleable and today you could sell it[1] what happened in that twilight moment between private and pubic can get oddly personal and twisted.
That is especially true if there was a big reverse split or if the entire company sort of stepped from one place to another and converted your vested options in the old company into unvested options in the new company.
It is also perversely irrelevant what percentage of the company you own if your current option value, after paying the strike price, is more money than you've ever had at one time before.
[1] Often there are restrictions and lock ups and black out periods and all sorts of constraints, except as many people know if you don't work for the company. So in the dot com days people would quit, exercise, and sell because once they quit the restrictions came off.
OK ya, that's all true. And a great description of the psychology of what it's like to be an employee at a company that IPOs.
But it doesn't have anything to do with splits. Having 50,000 shares and seeing the price go up $1 is the same as having 10,000 shares and seeing the price go up $5.
Unless you're in an egregiously unfavorable options contract (do these even exist?), an options contract should have the underlying number of shares it pays out adjusted in such a way that a stock split has no effect on your payout in USD.
Because when companies dilute stock they typically execute it so that investors don't lose any money. Their percentage stake in the company goes down, but since the company is raising money at a higher valuation it balances out.
This trick doesn't work when dilution results from someone calling options but that's pretty standard and usually doesn't have much impact.
So it sounds like the only insurance plan against being diluted to zero is "I hope they don't fuck me" -- which sounds like a really, really bad insurance plan. I still remain unconvinced that they should be valued above zero.
The execution that Spivak described that causes the investors to not lose money also causes the employees to not lose money. If the value of a company goes up (because it is successful) your share price will continue to rise even if your shares get diluted due to additional financing.
I didn't get this part of the prospectus either, the language was pretty thick. It's probably some kind of cleanup/recapitalization? Probably wanted to shed some protective provisions or something. Please do comment if you find out more.
That said, it pretty much defines squeaking through the exit. Interested to read the reorganization they did last year in the S-1 [1] presumably to normalize all of the various rights clauses from previous funding rounds and to dump some otherwise undesirable baggage on what was left, aka "Opco". That they had a 1:10 and 1:5 splits on their early stock and have not done a reverse split prior to the IPO suggests the employees will do ok, assuming they can sell their stock at some point. It seems healthier than the Silverspring Networks IPO (SSNI) which was anemic at best and just got worse over time.
Let's hope that they keep their expenses in line and can crack the nut of acquiring new customers more cheaply than their competitors.
[1] https://www.sec.gov/Archives/edgar/data/1701114/000104746917...