---
title: Square’s Debut Draws Concerns Over IPO Ratchets, Impact on Tech Talent
description: Square’s IPO points a spotlight on “IPO Ratchets”--now a common demand among tech investors. But how might ratchets affect employees?
---

<https://careerarc.com/blog>

# [Square’s Debut Draws Concerns Over IPO Ratchets, Impact on Tech Talent](https://careerarc.com/blog/square-debut-draws-concerns-over-ipo-ratchets-impact-on-tech-talent)

 Written by [Tallulah David](https://careerarc.com/blog/author/tallulah-david) | Nov 22, 2015 8:38:06 PM

### <https://careerarc.com/hubfs/Imported_Blog_Media/square-ipo-ratchet-header-1.jpg>

### We’ve been keeping a close eye on the tech market as [news of prominent tech layoffs](http://www.careerarc.com/blog/2015/10/how-to-prepare-for-layoffs-3-tips-for-tech-companies/) and [devaluations of prized tech unicorns](http://www.careerarc.com/blog/2015/11/do-recent-startup-devaluations-signal-tech-market-trouble/) have drummed up talks of a market bubble. Square’s recent IPO gave similar cause for concern in the tech community.

Last week, Square–the mobile payments startup unicorn–set its initial public offering at $9, notably below the anticipated $11 – $14 range. However, there emerged two other stories from Square’s news.  
Let’s start with the good story. [Square apparently achieved something that hasn’t been seen in 17 years](http://qz.com/555250/squares-ipo-achieved-something-that-hasnt-been-seen-in-17-years/)–after setting its IPO below the targeted range in its prospectus, the stock price actually rose. Square’s shares increased to $13.07 by market close, that’s a 45% increase within the same day.  
The other story has to do with how the set IPO price was way under $15.46, the price Square’s investors paid in the last $150 million funding round that occurred over a year ago. However, that last round came with a caveat referred to as a **“ratchet”–a guarantee of additional shares bestowed upon investors if the IPO price failed to reach a certain level**–a penalty which [Square indeed had to pay in additional shares amounting to $93 million](http://blogs.wsj.com/digits/2015/11/18/square-pays-93-million-penalty-to-some-investors-in-ipo/?mod=rss_Technology).

**Related: [Webinar – 3 Keys to Protecting Your Brand in a Downsize: Lessons from the Tech Industry](http://web.careerarc.com/webinar-3-keys-to-protecting-employer-brand-in-downsize.html)**  
Why is this concerning? **Because ratchets are great for late-stage investors, but bad for employees and early investors whose shares dilute immediately when ratchets trigger.** This may ultimately hurt the company that could witness some of its earliest employees exiting at a crucial time in its post-IPO journey.  
These exits have the potential to happen more often than we think. Ratchets have become a trend in Silicon Valley; the WSJ reports that [30% of private companies valued at $1 billion or more agreed to some type of ratchet](http://blogs.wsj.com/digits/2015/11/18/square-pays-93-million-penalty-to-some-investors-in-ipo/?mod=rss_Technology) agreement with their investors.  
***Will IPO ratchets tempt coveted tech talent to jump ship? And which companies, looking to recruit these in-demand workers, will benefit from the fallout?***

[View full post](https://careerarc.com/blog/square-debut-draws-concerns-over-ipo-ratchets-impact-on-tech-talent)

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