Employees are effectively making an investment in the company in the form of work instead of cash. If a startup chose not to give out stock options, they'd like

Employees are effectively making an investment in the company in the form of work instead of cash. If a startup chose not to give out stock options, they'd likely have to pay their employees more, and they may have to raise another round to get cash to do so. The dilution from that round would never come back to the original stockholders under any circumstances. When employees accepted the options in lieu of cash, they were taking a risk in exchange for a potential future reward. The work they put in often makes that success happen, whether or not they're actually working for the company at the time a liquidation event occurs. I liken the scheme a16z proposes to something like using a loophole to buy back all of your investors' stock at their original valuation, just because you got to profitability. At that point you no longer _need_ their money, so why do investors deserve to reap the rewards?