Many moons ago before working in startups I had a cup of coffee on Wall Street. Well it was more like slightly to the north of Wall Street. Anyway, I got a small feel for the motion of the capital markets. Connecting the dots from how private companies grew into “small” or “mid” capitalized public companies. Hearing how public market investors evaluated companies on their way up and all that jazz.

So much attention is given to the financial markers of the startup journey. What drives most of the news when it comes to tech companies? Is it internal teams conquering tough problems? Nope. It’s the latest fundraising news. Since most of the companies we work for are funded by investors, there’s a really strong pull to charting the path toward an eventual financial exit. I mean those tee shirts and free lunches don’t pay for themselves.

Growth eats cash. And the eventual supermarket for the biggest appetites is the public markets. There’s a reason for that! Eventually, if growth continues, that’s where you end up. If you’re not swallowed first.

Some news this week. Ryan Breslow, Founder & Executive Chairman of payments startup Bolt, tweeted out the below thread about a benefits change he was making at his company. If you feel compelled go ahead and read it through but the summary is that Bolt will be offering employees personal loans to buy their stock options.

At Bolt, we just did something radical.

We rolled out THE MOST EMPLOYEE-FRIENDLY stock option program possible.

… and I believe we’re the first tech company to ever do it.

It's a BREAKTHROUGH and might be as big as 4 day work week.

Let’s dive in 👇👇👇

— Ryan Breslow 🕺 (@theryanking) February 15, 2022

As you can imagine there’s a fair amount of internet debate around the pros and cons of exposing employees to the personal liability of taking on debt to buy private company equity. We can assume that this loan is backed by a growth asset where the underlying value hinges upon maintaining that growth for a certain period of time. And the last public valuation of the company puts its value @ ~$11B. Rarefied air.

Now back to those mileage markers. The pool of buyers who can buy stock at higher prices naturally shrinks as you grow. If you’re going to buy stock in a startup, any startup, let alone take out debt to do so it’s helpful to go through the thought exercise of the “market” of buyers that might be interested in purchasing your equity at a higher price.

Join a Series A startup in a large, growing market? Your success is never assured but at least you can feel somewhat confident that a product in market with customers has the potential for future value creation. There should be a decent pool of investors. If you’re putting your career into this company, I’d think you’d want to buy the stock there? No, I’m not saying whether you should take out debt to do so. That’s on you to decide!

As you advance through Series B, C, D & XYZ reaching ever loftier valuations that pool of buyers numerically shrinks. They’re still out there! But they have higher expectations of revenue growth, market opportunity, and product quality. Until you get to Stripe. They have one potential buyer. The public markets.

I guess what I’m trying to say is that before you might take out a loan to buy your company stock try to figure out – what’s your margin of safety? How large is that buyer pool above your equity’s strike price? Because no one wants to be holding a bag of stock options in a company who’s valuation outpaces the possibility of what future growth can deliver. The appetite for your certificates might not be there. Your personal bank account depends on it!