Revolut is facing a backlash from ex-employees after announcing they’ll need to pay a surcharge to cash in on their shares in the $33bn London fintech.
The company informed its alumni last week that they’ll face a 2.75% processing fee for taking part in an upcoming secondary share sale, according to Whatsapp messages seen by Sifted.
This has prompted an internal protest, with one describing the charge as "extortionate" and lacking in transparency. To add to their complaints, current employees don't have to pay the fee and will be given first selling rights.
Revolut, which has orchestrated the upcoming $100m+ sale, has also forbidden option holders from selling any shares outside of the formal process, leaving one ex-employee to complain of being "trapped behind paper gains."
The saga highlights the difficulties employees face in banking their shares, often encountering complex and opaque rules
Normally, employees struggle to sell their shares at all until the company they work for is either bought or listed on a stock exchange, something which can take years or even decades.
To its credit, Revolut is one of the few startups in Europe that has arranged to give its staff — and former staff — the opportunity to take part in a large secondary sale and cash out earlier.
But it's also come with strings attached.
A Revolut spokesperson told Sifted:
"You have to do the best you can. We want to be fair, but yes, we do slightly favour current employees...they're the ones still supporting the [company's] growth...It's an illiquid market — equity is a long term engagement."
They added that Revolut was already covering part of the costs associated with finding new investors, which amounts to more than the 2.75% being charged to ex-employees.
To ensure the sale’s execution, ex-employees will be capped at selling 10% of their stake. Meanwhile, current employees have been able to sell 20% of their stakes — as long as they've worked there for over 18 months.
The spokesperson declined to comment on how much Revolut's cofounders would cash in during the secondary.
Revolut was recently valued at $33bn, meaning over 70 employees and ex-employees now have equity worth over $1m — at least on paper.
The fee debate
Although it’s proven controversial, Revolut's decision not to cover the sale fees for ex-employees is not abnormal.
Firstly, selling a stake in a company early is considered a rare luxury rather than a right. The invitation to do so could therefore be seen as a generous gesture by Revolut.
Secondly, the fee is not out of whack with other secondary sale providers. Crowdcube, for instance, charges sellers 4% on its secondary platform. Rival Seedrs charges 1.5% while Funderbeam charges 0.5%. Secondary sales can be complex and require a team of advisors and lawyers.
Revolut is also allowing shareholders to sell shares at the $33bn valuation price, which is $609 per share, rather than at a discount, offering up a fair swap.
As a result, another small camp of ex-employees told Sifted they actually considered it a fair deal.
"I’ve no issue. If I went to an agent to sell my shares privately I’d pay 4-5% commission to them and I wouldn’t necessarily get the primary share price on offer here," one senior ex-executive at Revolut said.
Another former colleague argued that Revolut shouldn't feel "obligated" to pay his fees forever.
Nonetheless, the decision to penalise only ex-employees have been dubbed a little unusual. One investor in Revolut noted:
"I understand why Revolut is doing that ... but it's not good optics."
Revolut's ex-employees broadly include those who helped build the company in its first days and take credit for its meteoric rise.
For comparison, when Transferwise ran its first secondary sale for its employees (and ex-employees), everyone involved paid the same “small fee", a spokesperson confirmed.
Ex-employees that Sifted spoke to argued that "some kind of fee is fine, but it should be a fair and equal[ly] spread."
Revolut shareholders are also questioning why they are being blocked from selling to eager investors that they find independently.
"It makes the alumni completely dependent upon Revolut to fund them a buyer," one complained.
While the company may want to keep control over its cap table (and its fundraising pool), there is growing pressure for large scale-ups to open themselves up more to the secondary market.