Employees Reveal That Blue Origin Stock Is Worthless Just Weeks After SpaceX IPO Turned Employees Into Millionaires

Just about everybody who works in Silicon Valley was sold the same dream: Take a low salary now, accept stock options, and work like a dog for a few years. Then, you can cash out when your unicorn goes public, and you’ll retire before you hit age 30.

Well, that dream finally became a reality for a whole lot of SpaceX (SPCX) employees this summer. The company’s blockbuster IPO was effectively one of the biggest wealth creation events the tech industry has ever seen. In fact, over 4,000 current and former employees were reportedly turned into overnight millionaires after years’ worth of equity compensation suddenly became liquid.

But the mood is a little bit different right now over at Blue Origin.

Over the past few months, employees at SpaceX’s top competitor have been getting incredibly frustrated at Jeff Bezos over their useless stock options. Blue Origin staff say they’ve been working for years to help Bezos build one of the world's leading private space companies. But without an IPO, acquisition, or formal liquidity event, employees have no way to cash out.

Not only does it look like everybody over at Blue Origin has gotten a raw deal, but the contrast between these two competitors also reveals a pretty unforgettable truth about startup compensation.

A Tale of Two Startups

It wasn't just your average IPO when SpaceX went public in June. It was a culmination of over 20 years worth of rapid growth.

When Elon Musk founded SpaceX in 2002, he was piloting an ambitious startup dealing with constant rocket failures. Today, the company is the globe’s dominant force in commercial spaceflight. It’s launching more satellites and transporting more astronauts than anybody else, overseeing the globe’s largest satellite internet constellation, and has bagged all the biggest U.S. government contracts.

Bearing that in mind, it’s little wonder the company’s valuation has increased exponentially. And after SpaceX did go public, every employee who’d accepted stock options suddenly owned shares of one of the globe’s most valuable tech companies. 

As soon as those shares were tradable, that wealth wasn’t just a number on a spreadsheet cell. It became real. This is precisely how startup equity is supposed to work, and it’s essentially the Silicon Valley dream.

Then, there’s Blue Origin.

Reports indicate the company’s pursuing outward investment in the region of $130 billion. On paper, that makes it one of the most valuable private aerospace businesses on the planet. But unlike SpaceX, Blue Origin still hasn’t gone public.

That means all of the employees holding stock options have no way to convert those shares into cash. The value of their options only exists in theory until the company creates some sort of liquidity event. And bearing in mind Blue Origin has been around for more than 25 years, it makes sense that staff are getting impatient.

There have been reports that employees have gotten so vocal that Blue Origin is trying to revise parts of its compensation structure. But until the company floats, everybody holding on to equity is just sitting on a piece of paper with no real monetary value. Employees are calling it worthless, and they’re not wrong.

After all, $1 million in untradable options can’t put bread on the table.

Unfortunately, Blue Origin employees aren’t the only workers in Silicon Valley who have been missold this dream on equity compensation.

There's a Hidden Risk Behind Startup Stock Options

It’s one thing to tell employees they’re receiving company shares worth hundreds of thousands of dollars. But an option worth $100,000 on paper is effectively worth $0 in spendable cash if there's no realistic way for employees to cash in.

That’s why startup veterans are finally starting to wake up and stop asking how much shares are worth before accepting equity. Instead, they’ve started asking, “When can I sell?”

Some startups do hold regular tender offers that let employees sell back portions of their holdings, and that dramatically changes the real-world value of these equity-high compensation packages. But plenty of others don’t, and it places a lot of Silicon Valley’s top talent up a creek without a paddle.

This is the sticking point that both investors and aspiring tech engineers should consider, and the lesson is this: Competition for talent is fierce in tech, and compensation matters. But more important still, liquidity matters.

The valuations of a few big private companies have exploded over the past five or ten years, sure. Nevertheless, a presumed valuation and an investable asset are two very different things, and that’s the reason public markets command a premium. 

After all, paper wealth might look impressive when your startup is fundraising. But real wealth doesn’t begin until somebody’s actually able to sell something.

Paper wealth can look spectacular during a fundraising round. Real wealth begins the moment someone can actually sell.

On the date of publication, Nash Riggins did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.