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Invest in company where you are employed?

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  • xraygoggles xraygoggles 
    Participant
    Status: Physician
    Posts: 93
    Joined: 10/26/2018

    I am an employee in a relatively fast-growing startup company, current valuation of ~$4 billion. There has been rapid expansion in multiple states over the past years, both by establishing contracts with hospitals/private imaging centers along with buyout of small private practices, with increasing growth going forward. We recently had a large round of funding with 750M infusion of capital from a few VC firms.

    I have an opportunity to co-invest in the company. I was thinking of buying 50-75k worth of shares, and call it a night. I will also be getting an additional 125k worth of shares as a partner in 2 years.

    I already max out all tax advantaged accounts, and am starting to put 10k/month in taxable accounts, so this shouldn’t affect my long term prospects in any significant way if it doesn’t work out. But if it does, I could potentially have a nice windfall with continued share price growth and/or a potential IPO in a few years if they pursue that route. Additionally, there are occasional distributions that provide a nice dividend in the interim.

    The usual recommendation is not to invest in equity in the company you work at, but this is more of an educated risk. I wanted to see if others had any thoughts or advice.

    “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

    #244477 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1799
    Joined: 01/08/2016

    this question has come up a few times previously.  sure, why not, sounds like you want to toss in an amount that is tiny to your net worth.  maybe it’ll turn in to something un-tiny.

    besides, might as well try to make some profit with the company which will be treating you and your colleagues like rented mules.  but let’s be honest: the folks selling you shares are the ones making money.

    #244480 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2805
    Joined: 01/03/2017
    The usual recommendation is not to invest in equity in the company you work at, but this is more of an educated risk. I wanted to see if others had any thoughts or advice.

    Click to expand…

    The usual recommendation is not to have ALL of your investments in your company stock. I don’t see a big deal in having a small percentage of your portfolio in your company while trying to hit a lottery ticket. I doubt the amount of money you’re talking about will change your retirement plans. Every one deserves a little fun money in their portfolio to do with whatever they please.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #244481 Reply
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 635
    Joined: 07/14/2017

    I would certainly consider an investment, though your understanding of a number of questions will have solidify the choice and amount to invest.

    a. Are you relatively new employee? Is this the first time they’ve opened the opportunity to you. Are the terms identical/better than the most recent VC funding round?

    b. Is the company profitable, good CF? What type of P/E valuation is being assigned? Does said P/E make sense relative to competitors/ competitive moat, etc? What is the purpose of the latest VC funding, added growth, major shareholder buyout, fund losses, etc?

    IMO, the buy approach would be that any investment you make is a ‘lottery ticket’ until such time as an IPO occurs and lock-up’s expire. Given you appears to be maximizing tax deferred space, potentially a backdoor roth, and taxable contributions, maybe this ‘lottery ticket’ pays off and you achieve your FI a decade or so earlier.

    Lastly valuation near an IPO is fickle, just ask WeWork, why anyone would buy their shares of WeWork is completely mystifying to me.

    The usual recommendation is not to invest in equity in the company you work

    Click to expand…

    Empirically this is a true.  This issue is more problematic IMO when you have a person, buying share within a 401K, ESOP etc and basically tying their entire CF (b/c they get paid by the company) and NW to a single company.  You as a physician are likely in a position, that the investment and partner award will not comprise a large percentage of financial assets except via IPO/growth (i.e. lottery ticket).  Also, if this company goes BK and the investment becomes worthless, then you move on to as a physician, and though losing 25 – 50k  and certainly isn’t pleasant it is manageable financially for you.

    #244485 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8113
    Joined: 01/09/2016

    The perception that you are “educated” about your employer can blind you to the fact that you don’t know what you don’t know about what’s going on in the boardroom. You are aware only of the public knowledge that anyone can find out.

    Is this a publicly-held entity? If so, what you know is already baked into the price. If this is privately held, you have more opportunity to come out on top – or lose money. You should believe before buying that you can beat the long-term returns of the market.

    I don’t typically recommend not to invest in the company you work for, but I do recommend a well-diversified equity portfolio. Since $75k is not chump change, updating your IPS with a justification for the purchase might help you work through the pro’s and con’s. Ultimately, it is still a flip of the coin.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #244487 Reply
    Avatar EntrepreneurMD 
    Participant
    Status: Physician
    Posts: 323
    Joined: 06/10/2019

    The devil’s in the details. It may be a great opportunity (think Amazon), an average opportunity (think index funds), or a bad opportunity (think, God forbid, Enron). Remain objective, not overly optimistic or pessimistic about any opportunity and don’t make a decision under pressure as every potential opportunity requires a window of due diligence.

    Is this purely an investment opportunity or as an employee, are there terms in the agreement that requires a vesting schedule for example, to keep you an employee as long as possible? Ask yourself why they’re offering the opportunity to you rather than outside investors. At $4B in valuation, they don’t really need your money.

    Do you anticipate this investment will at least keep up with other potential investments with no more risk and outpace the interest on your debt? If so, consider further. If not, reconsider. Are they disclosing to all investors (not just large) their detailed financials? Are their profit margins and revenues increasing or decreasing in recent quarters? Was the $750M infusion as expected, more or less? Why did they need it? How have the shares performed over time? I’m a bit concerned they predicted increasing growth going forward, they can’t know that for sure. If they worked very hard to make their pitch with spectacular promises, that’s usually a red flag for me. I’ve received very “energetic” pitches by pre-IPO companies and Hollywood movie studios (my lest liked investment option) even meeting with their CEO’s but nothing’s excited me enough to pull the trigger yet.

    I assume your employer is still a private company. Do you know of any plans to go public? That would be a plus. If they are indeed private, how difficult or easy is it to get your investment back if you want it?

    I agree nothing’s wrong with investing in your employer as long as you are well diversified outside of your employer and it seems you are. It’s no different than me reinvesting funds into my practice or someone buying into their partnership so long as one has other investments elsewhere.

    Hope this helps a little and you do well whatever you decide to do.

    #244534 Reply
    Liked by xraygoggles
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 6177
    Joined: 01/12/2016

    Didnt xrayvision just have something like this finally pay off?

    Agree if its not a huge amount its likely worth the risk, VC and corporates interested in healthcare practices is just in the beginning stages. At some point if a law doesnt slow it down they will turn their greedy eyes fully our way as its just too profitable compared to other businesses.

    #244546 Reply
    Liked by xraygoggles
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3030
    Joined: 09/18/2018
    You are aware only of the public knowledge that anyone can find out.

    Click to expand…

    This is not necessarily true. The BOD gets most of the information from within the company. Depends on the function and access you have.

    However, alot of that what you think you know will lead to incorrect opinions about the probability of success. From the recent funding valuations, sometimes employee investment is a source of additional funding. You have a chance of success over the long term. So, the choice is really dependent on your thoughts on the viability of the venture. Most likely you can find out if the current equity structure is fair. I define “fair” as additional funding without previous investors cashing out. If its simply dilution, then you have potential for substantial gains in the long term. I am not in favor of selling simply when the restrictions expire. If it was a good investment, it may be worth holding onto for sometime. As long as you keep it below 5% of your NW  let it run to 10% and you will have another choice. I would invest as long as it does not interfere with the retirement savings targets you have. Not suitable for retirement accounts but potentially it can be a large supplement to your compensation. Consider it a reduction of compensation at risk. Do you have the capacity to dare! It is high risk.

     

    #244551 Reply
    Liked by xraygoggles
    Avatar wcinewbie 
    Participant
    Status: Physician
    Posts: 84
    Joined: 09/30/2017

    Are employees of pe backed firms clamoring on top of each other to buy as many shares of their company as possible? Or are more people worried and leery of being forced to buy in? As mentioned by others, the ones making the big money are the ones selling you the shares. Thankfully this investment wont matter to your long term financial health either way. One thing I’d add is to find out whether are multiple share classes. Red flag if the corporate people get their money first.

    #244554 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 91
    Joined: 05/25/2019

    If you plan to hold 5-10% of your portfolio in the company, I think it is ok.

    At $4B value, I think the chance that it will grow to $40B in the next 10 years is low.

    Can the value of the properties, rents, or profits from medical offices go up 10 times in 10 years?

    If you are employed in tech company with $1B value, I can see much higher potential.

    #244608 Reply
    Liked by xraygoggles
    Avatar Panscan 
    Participant
    Status: Resident
    Posts: 1076
    Joined: 03/18/2017

    Xrayvision was a multi specialty practice. Op sounds like a telerad firm.

    Telerad firms are a bubble IMO that are buying up nonprofit able practices left and right with vc money. Soon the vc money won’t be flowing in unless there are good profits which I don’t think have been shown. I would be very hesitant about investing in a telerad firm personally but obviously dependent on if you get a discount or how the investment is structured.

    #244631 Reply
    Liked by Zaphod
    Avatar Brains428 
    Participant
    Status: Physician
    Posts: 392
    Joined: 11/09/2017

    If it’s Envision, Teamhealth, Radpartners, etc. I would be weary of doing so unless you’re willing to ride it through the next presidential election.

    #244637 Reply
    xraygoggles xraygoggles 
    Participant
    Status: Physician
    Posts: 93
    Joined: 10/26/2018

    Thank you all for the wise words and suggestions. I only have sparse details at the moment, but I will be getting more information shortly if things go as planned.

    It is one of the companies Brains428 mentioned, and while I’m wary of the upcoming election, I will still probably end up taking a risk and investing a small amount in it.

    “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

    #244838 Reply
    Avatar Brains428 
    Participant
    Status: Physician
    Posts: 392
    Joined: 11/09/2017

    Radiology Partners has near junk bond ratings.

    https://www.moodys.com/research/Moodys-affirms-Radiology-Partners-B2-first-lien-bank-facility-ratings–PR_393917

    Also Envision’s KKR backing–

    “Envision’s $5.4bn loan maturing in 2025 has fallen from 86.2 cents on the dollar at the start of August to 77.3 cents on the dollar on Wednesday, compared with a decline from 97.1 cents on the dollar to 96.3 cents on the dollar for the broader market. ”

    Should you work for said company and own stocks in said company and company fails—> you know what happens. Basically, it’s decreasing your portfolio diversification. So, even if those companies were definitely doing well, then it could be a bad idea.

    #244912 Reply
    Liked by xraygoggles
    Avatar wideopenspaces 
    Participant
    Status: Physician
    Posts: 1137
    Joined: 01/12/2016

    My husband works for a tech company owned by Amazon and we get stock each year. I plan to keep some of the shares, I think it will be kinda fun to track their value over time.

    I know this is different but if it’s a small amount, I don’t see the problem.

    #244975 Reply
    Liked by Zaphod

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