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There is another way for equity to have some value. It's an old approach, but still works surprisingly well, and it doesn't even require anyone to buy the comp
by Negitivefrags 10y ago
There is another way for equity to have some value.
It's an old approach, but still works surprisingly well, and it doesn't even require anyone to buy the company or have an IPO.
You can earn a profit and then pay that profit to the shareholders in the form of dividends.
- uiri 10y agoDividends make sense for established, profitable businesses. They don't make sense for startups. No one wants the startup to issue dividends. The employees won't receive any dividends unless they have already paid to exercise their options and are holding restricted stock. The investors don't want to have their capital returned to them while the company is getting off the ground. They want the profit to be reinvested in growing the business. The founders are already taking a salary. It is easier for them to fine tune that than it is for them to take compensation in the form of dividends.
- Negitivefrags 10y agoOkay, but at some point you need to turn from a startup into a profitable business. This whole problem stems from the fact that these startups are either unwilling or unable to actually become real businesses at some point. And that should be the actual endgame that is being targeted, and that the employees should be striving for. People seem to have lost sight of that goal.
- hugs 10y agoThe Indie.vc program explicitly provides a cash distribution alternative for returning capital to the investors, fwiw.
- M2Ys4U 10y agoCouldn't one issue two classes of shares? Issue one class of share that is restricted from sale but earns dividends (for the employees) and one that is unrestricted but pays no dividends (for investors)?
- cft 10y agoThen you better bootstrap an S corp or an LLC. VC funded S corporations are not even structured for this.