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It reminds me of an idea I've had kicking around. Basically, instead of the founders holding equity directly, they set up a trust that holds the non-investment

It reminds me of an idea I've had kicking around. Basically, instead of the founders holding equity directly, they set up a trust that holds the non-investment positions and pays things out proportionally. The point is to basically have equity, but prevent individual exercise - if the founder wants to cash out, the only way to do so is to dump cash into the bonus pool. Important note would be to distribute the trust's assets when the company becomes fully liquid (acquisition, IPO + exercise window expired, etc). It makes a lot of sense from a game-theoretic perspective, but I don't know what the tax implications would be. Like, I know that a very minor equity position will often give little-to-no negotiation power when the distribution of the company's riches gets decided. I'd much rather ride along on the founder's coattails. As it stands, I have to ask what sort of equity position the founders get and make sure it's the same, and run into complex issues when leaving the company, etc. Much easier for me to understand is "when the founder gets a million dollars, you get a thousand" or the like.

late2part 10y ago
This is a very strange idea. You start a company and you're arm's length to enjoy the benefit?
- ThrustVectoring 10y ago
  Game theory is strange. Gaining an option to do something can be negative value, because it affects what other people expect you to do in future situations (and because other people now have an incentive to coerce you into exercising that option). Given that I don't want to screw over my employees, I'd rather have legal structures set up so that I can't. Furthermore, I'd prefer this system to be extraordinarily obvious, so that it's clear to everyone that I've committed myself to a course of action. Like, how you win a game of chicken is by removing the steering wheel from your car, waving it out the window, and yelling that you can't turn away. You'd don't keep the ability to swerve just because you might think you'll need it.
  - dlubarov 10y ago
    Couldn't the founders just give themselves common stock with similar terms (including non-transferability) as employees' RSUs? I don't see the need for a trust.
- RangerScience 10y ago
  I think the weird metaphor is that by being at arms length, you can fit a lot more people in the group hug, and that's good for attracting (and retaining) top talent.

late2part 10y ago

This is a very strange idea. You start a company and you're arm's length to enjoy the benefit?

ThrustVectoring 10y ago
Game theory is strange. Gaining an option to do something can be negative value, because it affects what other people expect you to do in future situations (and because other people now have an incentive to coerce you into exercising that option). Given that I don't want to screw over my employees, I'd rather have legal structures set up so that I can't. Furthermore, I'd prefer this system to be extraordinarily obvious, so that it's clear to everyone that I've committed myself to a course of action. Like, how you win a game of chicken is by removing the steering wheel from your car, waving it out the window, and yelling that you can't turn away. You'd don't keep the ability to swerve just because you might think you'll need it.
- dlubarov 10y ago
  Couldn't the founders just give themselves common stock with similar terms (including non-transferability) as employees' RSUs? I don't see the need for a trust.
RangerScience 10y ago
I think the weird metaphor is that by being at arms length, you can fit a lot more people in the group hug, and that's good for attracting (and retaining) top talent.