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Markdowns Squeeze Employee Stock

Alfred Lee

Jul 13, 2016 6:49 AM PDT ·

Comment by Dan Walter

Source: The Information Research

It’s no secret that the gap has been steadily narrowing between what mutual funds think some private tech firms are worth and where those firms have issued employee stock options. But in the past couple of quarters the gap has disappeared entirely for some companies.

In the past six months, the half-dozen biggest mutual fund investors in private tech have marked down their stakes in eight highly valued private tech firms, including DocuSign, MongoDB and Cloudera, to levels that are on average only 25% above the prices at which the companies have issued stock options and other stock awards. That gap was 43% at the end of last year, according to an analysis of public filings by The Information. (See above chart.)

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But there have been cases where mutual fund markdowns have presaged employee stock problems. Shares of Jawbone, for example, were marked down heavily late last year. The company later raised money at a lower valuation, which hurt employee stock value enough that the company issued extra shares to employees to offset the drop. When Zenefits shares were slashed by mutual funds last year, it reportedly prompted an internal debate over whether to re-price employee options to match the markdowns. Zenefits revealed last week it had repriced the options, The Information reported.