For tech workers who missed IPO payday, it’s time to rethink the job market

A banner for Snowflake Inc. is displayed to celebrate the company’s IPO on the New York Stock Exchange (NYSE) in New York, U.S., September 16, 2020.

Brendan McDermid | Reuters

AI software startup DataRobot may not be a household name among the general public, but its employees ran into a well-known problem in the tech startup space as the market turned against public offerings initials for high-growth technology companies. Reports of internal tensions within the company included a fight over whether it should go public, and those stories were already percolating through the press before the market took a turn for the worse last fall and into early 2022, when the IPO market has slowed, and new offerings from older brands like Bausch & Lomb are more likely to make it to the public market than tech companies.

Dan Wright had replaced founder and CEO Jeremy Achin last year, in part because of a dispute stemming from his resistance to taking the company public, according to The Information. There was much more to the story than that, according to The Information, but this particular angle came to the fore again in July when The Information reported Wright’s departure, following anger within the company. after it was revealed that senior executives could sell $32 million worth of shares last year when the company’s private valuation peaked at $6.3 billion, while 1,200 other employees failed to didn’t have that chance.

The stock market just had its best month since 2022, so perhaps conditions will change faster than many predict for high-growth tech startups as well. But the window of opportunity has been closed, at least in the short term, on IPOs, and the exceptional paper wealth of many tech employees is on indefinite hold. DataRobot’s story tackles a much bigger problem for startups: dealing with the anger and frustration of a workforce that feels like it missed out on the jackpot.

A DataRobot spokeswoman declined to comment.

DataRobot management may have been right to say that the timing was not right for an IPO in recent years. The market has shown since last November that far too many companies have gone public too soon. But either way, the broader relationship between management and core employees, especially in late-stage startups, needs rebalancing in today’s market.

Some highly regarded startups moved quickly to make employees liquid given what was happening in the public market and investors backfired on tech IPOs. Brex, for example, which ranked No. 2 on the CNBC Disruptor 50 2022 list, earlier this year announced a $250 million takeover bid for its employees. But more needs to be done to reset how companies and employees view stock options, IPOs and compensation.

A decision that employees can always make: they can walk. And it’s something that happens, and more frequently, to jobs outside of the tech industry, according to Tom Gimbel, CEO of LaSalle Network, a national recruiting and staffing firm. “We see people going to Caterpillar or JPMorgan. Those companies have technology arms and they’re…airline quotes…real companies.”

While recent headlines point to hiring cuts and freezes not just in tech but also on Wall Street, these are more likely to be in divisions like mortgages, rather than core tech roles that CEOs Banks like Jamie Dimon see them as critical investments in any market to stay competitive in the future.

“Liquidity and stability is a value proposition now, and paying the best compensation in cash. They should go out there and recruit like crazy,” said Aalap Shah, managing director of compensation consultant Pearl Meyer, companies financial industry looking for tech workers.

Shah says the equity value proposition is company-specific and management needs to have a really good temperature about it from the employee base. “Do they believe the story is still there, the value, or is it just something they put in a home office drawer and don’t care about?”

The DataRobot story hints at what compensation and recruitment experts say is a new divide between the “haves and have-nots” among senior executives and tech workers, and they say there are ways respond to employee anger over missed monetization.

“There’s this feeling of being unhappy and anxious… ‘I’ve been in this seat doing this for a while and there was an expectation of cash…why can’t I have this?'” A said Shah. “Unfortunately the philosophy, the ethos has always been, it’s a fair game,” he said.

Tenders like the one carried out by Brex, as well as long-term cash incentive plans for performance, which vest like shares, are options for management to show key talent that not everything is worth it. is not an IPO issue.

For starters, any company that doesn’t do a buyout analysis of its top talent is doing itself a disservice, Shah said.

For some employees, paper equity becomes less important than seeing a possible path to monetization, and if there is no monetization event on site and there is no clear communication on the part of management, they may rightly ask themselves: what’s the point of waiting around?

Jason Stomel, founder of tech talent agency Executive, says he’s advised tech workers to think of stocks as a much smaller part of total compensation. And for employees willing to take the risk of starting over on the path to an IPO, it makes sense to identify companies that are growing rapidly and where the product is a good fit earlier. “There are always big companies. The risk is to make sure they grow quickly because following the funding, series B and C will be harder to get,” he said.

Management transparency is key, but employees should also push for more transparency about what the future holds and what the company is trying to achieve, Shah said.

In many cases, the reality may be that the time was not right for the company to go public. While the past decade, and particularly the boom in public offerings in the post-Covid bear market, has made it seem like the flow of deals will never stop, tech workers are no different than anyone else. when it comes to money and timing: there will always be those who miss a monetization opportunity when the market swings from bad to worse.

“The reality is that nobody wants what happened in 2020 and 2021 to happen again,” Shah said. “Companies that weren’t ready to go public have gone public and stock prices have plummeted. Yes, some people are making money, but it’s not really worth the blood, sweat and tears that have been paid into the business.”

This isn’t necessarily unfair to tech employees, but it’s also not enough for tech management to do nothing about it.

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