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Curious about this, what "distinction" are you referring to here exactly? My understand is that the whole point of preferred vs. common shares is that there's a

Curious about this, what "distinction" are you referring to here exactly? My understand is that the whole point of preferred vs. common shares is that there's a distinction: preferred shares get, well, preference in a liquidity event. This ensures investors recoup their losses if things go awry.

jschwartzi 10y ago
The problem is that the whole point of options is as consideration for the employee's time investment.
CalChris 10y ago
We are talking about the exact same distinction and the exact same scenario only from different POVs. To be clear, I'm not at all saying that investors who put up real money for startups shouldn't get preferred stock as compared with employees' common. What I am saying is that if+when an employee leaves a startup and has say 90 days to buy any accrued options then that employee should utterly pass if they think the company looks at all dicey. If it looks dicey then the distinction between preferred and common is very real and hella pass. Most startups fail and this employee is leaving that company for some reason. Now if the employee is early and the options are cheap and there's little taxes then maybe it's a lottery ticket. The details are always more complex. I'm just looking at it from an employee's POV. You're probably looking at it from a VC's POV. Would you voluntarily sign a pay to play agreement late in the game? No. You'd stare cold and hard at the facts on the table. You sure wouldn't throw good money after bad. You should expect the same from a rational employee.
- elastic_church 10y ago
  employees don't currently have the transparency to make this objective decision. founders and board members are very opaque about this information, the prevalence and the covenants of preferred shares. the state of delaware has created greater transparency requirements for securities holders of private companies. fortuantely it is still trendy for companies to incorporate in that state despite the 55+ distinct jurisdictions under the federal umbrella. unfortunately, employees have found themselves in legal battles with their own companies for attempting to leverage these regulations.

jschwartzi 10y ago

The problem is that the whole point of options is as consideration for the employee's time investment.

CalChris 10y ago

We are talking about the exact same distinction and the exact same scenario only from different POVs. To be clear, I'm not at all saying that investors who put up real money for startups shouldn't get preferred stock as compared with employees' common. What I am saying is that if+when an employee leaves a startup and has say 90 days to buy any accrued options then that employee should utterly pass if they think the company looks at all dicey. If it looks dicey then the distinction between preferred and common is very real and hella pass. Most startups fail and this employee is leaving that company for some reason. Now if the employee is early and the options are cheap and there's little taxes then maybe it's a lottery ticket. The details are always more complex. I'm just looking at it from an employee's POV. You're probably looking at it from a VC's POV. Would you voluntarily sign a pay to play agreement late in the game? No. You'd stare cold and hard at the facts on the table. You sure wouldn't throw good money after bad. You should expect the same from a rational employee.

elastic_church 10y ago
employees don't currently have the transparency to make this objective decision. founders and board members are very opaque about this information, the prevalence and the covenants of preferred shares. the state of delaware has created greater transparency requirements for securities holders of private companies. fortuantely it is still trendy for companies to incorporate in that state despite the 55+ distinct jurisdictions under the federal umbrella. unfortunately, employees have found themselves in legal battles with their own companies for attempting to leverage these regulations.