A banner for Snowflake Inc. is displayed in celebration of the company’s initial public offering on the New York Stock Exchange (NYSE) in New York, the United States, September 16, 2020.
Brendan McDermid | Reuters
AI software startup DataRobot may not be a name that many of the public are familiar with, but its employees have endured a well-known tech startup struggle as the market turned against IPOs for high-growth tech companies. Reports of internal tensions at the company included a row over whether it should go public, and those stories were already leaking in the press before the market turned sour last fall and early 2022 as the IPO market slowed and new ones emerged Offerings from legacy brands like Bausch & Lomb are more likely to make it into the public market than hot tech companies.
Dan Wright replaced founder and CEO Jeremy Achin last year, in part over a conflict that resulted from his opposition to taking the company public, according to The Information. According to The Information, there was a lot more to the story, but that particular angle came back into focus in July when The Information reported on Wright’s departure after anger erupted within the company after it was revealed senior executives were able to Selling $32 million shares last year, when the company’s private valuation peaked at $6.3 billion, while 1,200 other employees didn’t get that chance.
The stock market just had its best month since 2022, so conditions may change faster than many are predicting, even for high-growth tech startups. But the window of opportunity has closed, at least in the short term, in IPOs, and many tech workers’ unexpected paper fortunes have been suspended indefinitely. DataRobot’s story addresses a much bigger problem for startup companies: dealing with anger and frustration in a workforce that feels like they missed the big payoff.
A DataRobot spokeswoman declined to comment.
The DataRobot management may have been correct in its assessment that the timing for an IPO in recent years was not the right one. 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 rank and file, particularly in later-stage startups, needs to be rebalanced in the current market.
In light of public market events and investor opposition to tech IPOs, some well-regarded startups have reacted quickly to liquidate employees. For example, Brex, ranked #2 on the 2022 CNBC Disruptor 50 list, announced a $250 million takeover bid for its employees earlier this year. However, much more needs to be done to redefine how companies and employees think about stock options, IPOs and compensation.
Employees can always make one decision: they can walk. According to Tom Gimbel, CEO of LaSalle Network, a national recruitment firm, this is happening more and more often in non-tech jobs. “We see people going to Caterpillar or JPMorgan. These companies have tech arms and they are… air quotes… real companies.”
While recent headlines point to cuts and hiring freezes not only in tech but also on Wall Street, these are more likely to be found in areas like mortgages than in core tech roles that bank CEOs like Jamie Dimon see as important investments in any market, to stay competitive in the future.
“Liquidity and stability are now a value proposition and they pay top dollar cash comp. They should go out there and recruit like crazy,” said Aalap Shah, chief executive of compensation consultancy Pearl Meyer, of companies in the financial sector that are vying for tech workers.
Shah says the value proposition of equity is company specific and management from the employee base needs to have a very good temperature for it. “Do they think the story is still there, the value, or is it just something they put on the shelf in a home office and don’t care?”
The DataRobot story points to what compensation and recruiting experts are saying is a new have-and-have gap between technology executives and tech workers, and they say there are ways to address employee anger over respond to the missed monetization.
“There’s this feeling of being upset and scared… ‘I’ve been sitting in this seat for a while and some liquidity was expected… why can’t I have that?'” Shah said. “Unfortunately the philosophy, the ethos has always been it’s an equity game,” he said.
Takeover bids like the one completed by Brex, as well as long-term performance cash incentive plans that vest like stock, are options for management to show key talent it’s not just about going public.
First of all, any company that doesn’t conduct a buyout analysis of its best talent is doing itself a disservice, Shah said.
For some employees, paper capital is becoming less important than seeing a possible path to monetization, and when there is no monetization event on-site and there is no clear communication from senior management, they may rightly be asking themselves: what’s the point of waiting? around?
Jason Stomel, founder of tech talent agency Cadre, says he’s advised tech workers to consider stocks as a much smaller part of total compensation. And for employees willing to take risks on the way to the IPO payout, it makes sense to identify companies early on that are growing strongly and to which the product fits. “There are always great companies. The risk is making sure they grow quickly because follow-on funding, Series B and Series C, will be harder to come by,” he said.
Transparency from management is key, but employees should also be pushing for more transparency about what the future holds and where the company is trying to go, Shah said.
In many cases, the reality may be that the timing of the company’s IPO may not have been right. While the last decade, and particularly the stock market boom following 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: it will always happen. There are some who do Missing monetization opportunity as the market swings from better to worse.
“The reality is nobody wants what happened in 2020 and 2021 to happen again,” Shah said. “Companies that were not ready to go public went public and stock prices plummeted. Yes, some people make some money, but it’s not really worth the blood, sweat and tears that went into the company.”
That’s not necessarily unfair to tech employees, but it’s not enough that tech management doesn’t do anything about it either.
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