There are a record number of startups valued at $1 billion or more, but there are signs that these so-called unicorns (or “mature startups”) are faltering. Employees who are compensated with stock options may bear the brunt of these disappointments due to senior rights of managers and financial investors. 

Private placement regulations are surprisingly lax when it comes to protecting employees as compared to other types of investors. While securities laws once followed other fields in considering employees to be vulnerable, the SEC has gradually relaxed regulation of equity grants to employees. 

This Essay considers a fundamental question: are startup employees capable investors? The analysis reveals a counterintuitive possibility: startup employees may be relatively capable investors in a company’s early stages (when the risk of investment is sometimes perceived as highest), but poorly equipped to navigate the risks of a mature startup. 

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