A lot of employees of digital media companies got stock options that they hoped would turn into windfalls one day.

But many now see their hopes of a windfall deflate as those companies' prospects for a successful acquisition or IPO have dwindled, leading to frustration and resignation.

Some people have tried to sell their stakes through digital marketplaces for pre-IPO companies, but buyer interest has been weak given the state of digital media.

After going through mergers and diversifying their revenue, it's possible these companies can still have a strong exit, but they also face questions about whether these moves will materially change their business.

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Vice Media has had a reputation for paying low salaries, but cofounder Shane Smith reportedly used to go around telling people they'd get rich from their stock options some day.

"A lot of people built up their equity on the promise of something happening, and it still hasn't happened," said a former Vice employee. "A lot of people there feel really stuck."

These employees aren't alone.

A number of fast-growing digital startups gave options or other equity compensation to employees to convince them to help build media companies of the future and in some cases, leave established media outlets to do it. According to interviews with seven current or former employees of these companies, there was a sense among early-stage employees that one day, their companies would have a big exit and their hard work could be rewarded with an amount big enough to finally pay off their student loans, maybe even make a housing payment.

Now, employees of these startups are seeing their hopes of getting rich off shares fading.

Read more: Billions from VC companies like Lerer Hippeau and Lightspeed fueled the rise of digital media and stoked crazy expectations for growth — here's why insiders say that approach is killing companies

Digital media companies have been squeezed

John Chan joined BuzzFeed in 2011 when the company was only about 30 people.

"Everyone was working on a mission," said Chan, who went on to co-found Native Lift. "We were at the cusp of the social web blowing up. There was just massive potential. As a publisher, we were the internet darling. Advertisers were knocking at the door. There was an unspoken shared feeling that this is something big we're part of."

US VC funding in digital media nearly doubled from 2013 to 2014 to more than $206 million, according to PitchBook. Some companies, including HuffPost, Bleacher Report, and Business Insider, sold for high prices, and lots of jobs were created (though many were also lost).

Fast forward to today, and three of the most heavily funded digital media companies — BuzzFeed, along with Vice Media and Vox Media — are still independent but have laid off staff and had to diversify to get to ongoing profitability as their core digital advertising business has gotten squeezed.

Many employees told Business Insider they assume the stock options they got in these companies are largely worthless at this point, although it's hard to say what their actual value is. And because the companies are private, it's difficult to trade in those options or convert them to cash.

In general, people who were early hires could have done well if they exercised their options at a price well below the height of the companies' valuation, often at the time of the last fundraising round.

But for more recent hires who are still holding their options with a much higher exercise price, it's unclear if their options will ever amount to much.

"The general rule is, the earlier you get in, the better. If you were employee No. 5, you may have a decent payday if you're a common shareholder," said Adam Augusiak-Boro, a senior research analyst at EquityZen, a secondary market for pre-IPO company stock. But if a company sells at a discount, those holding options on common shares come in last to get paid, he said. "They're at the bottom."

Get to the end of the line

In general, the options these companies issue to employees are on common shares. That means if these companies sell at a discount to the peak valuation their investors gave them, any debt holders and investors with preference will be first in line to get paid, and common shareholders are dead last to get paid. And the more people choose to exercise their options, the less money there is to distribute among all of them.

"To quote 'The Simpsons,' it was my retirement grease," said an early BuzzFeed exec. "I'm still probably between a down payment and a kid's college education. But that's me, and a lot of people don't even have that."

There were other catches. For a period, at Vice, the price to convert options to shares was in the "five figures" for a period, making them cost-prohibitive for many, the former exec there said. That means they would have to spend a lot of money they didn't necessarily have to buy shares whose value will still be largely in question until the company exits or goes public.

"On paper, it would amount to over $1 million after vesting four years. So if you're getting paid $45,000 a year you feel like you've made it — but there was no way you could buy it," this person said.

Vice eventually offered to buy back options from people who were interested in unloading them, this person said.

To be sure, these employees made the choice to work at these companies. It's also possible that some employees were uninformed about how to make the most from options and had unrealistic expectations — fed by their companies leaders or not — about their potential winnings.

These companies also stress that they pay competitive benefits and salaries; Vice, for its part, has increased retirement benefits and set a goal of fixing pay disparity after settling a pay disparity lawsuit.

Does anyone want to buy Vice stock today, anyway?

Founded in 2006, BuzzFeed raised nearly $500 million, including $400 million from Comcast, at a $1.7 billion valuation to grow to 1,450 employees by the end of 2018. BuzzFeed expects to be profitable for the second half of this year after having laid off staff and diversified away from advertising.

Vice, founded in 1994, reportedly raised $1.4 billion in funding on the promise of speaking to young people disaffected by traditional media. Then the company was the subject of a New York Times expose about #MeToo problems; it had to raise $250 million in debt; and Disney wrote down its Vice stake this year, effectively valuing its stake at virtually nothing.

Vice acquired women's digital media publisher Refinery29 this fall at a combined valuation of $4 billion, down from Vice's peak valuation of $5.7 billion.

Vox Media was founded in 2011 and raised more than $300 million, including a $200 million investment in 2015 by Comcast. It reportedly turned a small profit in 2018. It acquired New York Media this fall with the hope of leveraging its media, entertainment, luxury, and beauty advertising and e-commerce business.

The theory is that a combination of cutting costs and diversifying will help these companies get sustainable and remain strong as standalone companies. But in an era where size still counts when you're courting advertisers, these companies may not stay independent for long. Then the question is whether they'll be acquired for a high enough price to create enough value for those common shareholders — assuming their options haven't expired at that point.

But no one really knows yet.

Some people have tried to sell their stakes through marketplaces for pre-IPO company shares like EquityZen or SharesPost or find investors willing to buy their options, said people who have sold shares or facilitated transactions for these people. But there are few takers, given the uncertain state of digital media.

Some former employees of these companies express resignation and frustration privately and in online chat groups.

"It doesn't feel like a moment of hope," said one. "It's a very different place where a hundred million investments were going into places. We were all misguided about how these companies would turn out."