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On first reading I thought this was a way for employee's to cash out without requiring the company to go public, which I think most people who have worked for a

On first reading I thought this was a way for employee's to cash out without requiring the company to go public, which I think most people who have worked for a startup in the past 10 years would agree is sorely missing. > The new set of documents explicitly state that the investors’ shares can’t be subject to restrictions on transfer (with minor exceptions) after the earlier of five years or a $100 million valuation. But I guess its not... > Ahmed adds that TATS does not have an impact on the common stock that founders and employees hold, as such stock is subject to a right of first refusal in favor of the company and the largest investors. So I guess this just lets investors but not employee's get out of illiquid companies? I guess this is good for a very, very, very small set of people, but doesn't help the most vulnerable group, the employees. I know its not fair to expect Y Combinator to have to solve every problem in startup land but at some point you'd think they'd look up and realize that they are making money, the founders are making money due to early cashouts, VC's are making money but the employee's of Y Combinator startups are still getting very little of the value compared to everyone else. At some point employee's are going to realize that working for an early stage startup isn't a great idea.

YCode 9y ago
> At some point employee's are going to realize that working for an early stage startup isn't a great idea. I suspect it's always been the case that as one demographic of employees gets wise to this another comes pushing and shoving through the door to fill the seat.
- dmitrygr 9y ago
  Why else the focus on young new college grads? :) * Enthusiasm & Energy * Naivete * Lack of family to keep them away from work * Lack of understanding of how startup comp works
- ericd 9y ago
  I guess the question becomes, is the experience level of the outgoing set worth enough to make it worth making a consciously better set of employee terms to target getting them in the door at a company. My intuition says that getting smarter/wiser employees plus the loyalty that comes from treating your employees fairly pays off in spades, but based on the market terms I see, I wonder, because everyone else seems to have converged on the opposite conclusion. Maybe it's long term vs short term thinking, or maybe it's just idealism.
JoshTriplett 9y ago
"Right of first refusal" doesn't inherently cause a problem, as long as, if the company/investors refuse, the equity can be sold elsewhere.
thruflo22 9y ago
One interesting mechanism is to exit out to employee ownership. E.g. ref: https://www.nceo.org https://www.nceo.org As a founder, you can exit gradually, selling your shares to the company, so that a. your exit is financed by the company's profit and b. the shares you sell back go into employee ownership. So you get an exit without selling your employees out. Quite the opposite in fact.
BatFastard 9y ago
Depends on your goals. If you want excitement, contributing at a meaningful level, and over-coming huge challenges then startups are great. If you want to maximize your income, and are willing to have minimal impact, then large stable corporations are for you. I personally prefer startups, but most of my friends have a lot more money than I do.
- s73ver 9y ago
  Except one generally does not have to sacrifice pay to get that. The idea that those things are only available by sacrificing significant wages is a myth.
ptero 9y ago
I think the main problem (and you are pointing it out) is that most people have no idea how startup compensation works. If they get 0.5% of stock as an early employee and 5 years later the company gets acquired at 100M valuation they think they will end up with 500k. I suspect that this leads to irrational expectations and agreeing to work for much lower salary. It would be great if someone could share any statistics on what, say 1% at seed money ends up at 100M valuation (or pick another metric). That can give early employees a data point for sanity checks on their comp.
- madamelic 9y ago
  Yeah, I feel like getting a full picture of the health and investment of a company you are working at would be nice. At my last company, they would announce how much we had in the bank and how long the runway was at every all-hands and other stats about investments. Understanding the acquistion priority / leverage (I forget the phrase for it. Basically how much the investors have to make before the money trickles down), how much your potential shares are diluting, etc are important. Unfortunately I think it is better for companies to keep this info close to the chest, especially in badly-run companies or green-behind-the-ears founders (who agree to bad terms because of inexperience)
  - ptero 9y ago
    That's why I would like to see a statistical data point for a successful startup (say, limited to 100M+ valuations). Yes, companies are different; some may need to raise more and some less, but if I knew how much, on average, 1% stock at seed translates at 100M buyout it would be a valuable data point.
    - madamelic 9y ago
      Definitely. Yours is pre-computed, my suggestion / comment was just about giving raw stats for employees to compute and verify themselves. I guess yours is more palatable to give out than giving the raw stats that can be leaked.
  - clairity 9y ago
dang 9y ago
I don't think this document has anything to do with YC? The YC partners I talk to are certainly aware of how critical early employee compensation is.
- chollida1 9y ago
  I agree it doesn't have anything to do with YC. My point is that it seems like its gotten worse and worse as the years go on, toi be a startup employee. Since YC is dependent on their being high caliber startup employees available for its portfolio companies, then at some point perhaps they might want to look into what can be done to help improve the outcomes for employees. I mean, I think you can argue they did a lot to help founders, mostly with advice, term sheets, etc but founders were never really getting screwed. You can argue, and I guess I sort of am, that employee's are now getting pretty screwed. It used to be that the unwritten rule was that in roughly 5 years of founding you'd know if you were going to get a payout from your shares. Now a days 10+ years without any liquidity event are not in anyway uncommon.

YCode 9y ago

> At some point employee's are going to realize that working for an early stage startup isn't a great idea. I suspect it's always been the case that as one demographic of employees gets wise to this another comes pushing and shoving through the door to fill the seat.

dmitrygr 9y ago
Why else the focus on young new college grads? :) * Enthusiasm & Energy * Naivete * Lack of family to keep them away from work * Lack of understanding of how startup comp works
ericd 9y ago
I guess the question becomes, is the experience level of the outgoing set worth enough to make it worth making a consciously better set of employee terms to target getting them in the door at a company. My intuition says that getting smarter/wiser employees plus the loyalty that comes from treating your employees fairly pays off in spades, but based on the market terms I see, I wonder, because everyone else seems to have converged on the opposite conclusion. Maybe it's long term vs short term thinking, or maybe it's just idealism.

JoshTriplett 9y ago

"Right of first refusal" doesn't inherently cause a problem, as long as, if the company/investors refuse, the equity can be sold elsewhere.

thruflo22 9y ago

One interesting mechanism is to exit out to employee ownership. E.g. ref: https://www.nceo.org https://www.nceo.org As a founder, you can exit gradually, selling your shares to the company, so that a. your exit is financed by the company's profit and b. the shares you sell back go into employee ownership. So you get an exit without selling your employees out. Quite the opposite in fact.

BatFastard 9y ago

Depends on your goals. If you want excitement, contributing at a meaningful level, and over-coming huge challenges then startups are great. If you want to maximize your income, and are willing to have minimal impact, then large stable corporations are for you. I personally prefer startups, but most of my friends have a lot more money than I do.

s73ver 9y ago
Except one generally does not have to sacrifice pay to get that. The idea that those things are only available by sacrificing significant wages is a myth.

ptero 9y ago

I think the main problem (and you are pointing it out) is that most people have no idea how startup compensation works. If they get 0.5% of stock as an early employee and 5 years later the company gets acquired at 100M valuation they think they will end up with 500k. I suspect that this leads to irrational expectations and agreeing to work for much lower salary. It would be great if someone could share any statistics on what, say 1% at seed money ends up at 100M valuation (or pick another metric). That can give early employees a data point for sanity checks on their comp.

madamelic 9y ago
Yeah, I feel like getting a full picture of the health and investment of a company you are working at would be nice. At my last company, they would announce how much we had in the bank and how long the runway was at every all-hands and other stats about investments. Understanding the acquistion priority / leverage (I forget the phrase for it. Basically how much the investors have to make before the money trickles down), how much your potential shares are diluting, etc are important. Unfortunately I think it is better for companies to keep this info close to the chest, especially in badly-run companies or green-behind-the-ears founders (who agree to bad terms because of inexperience)
- ptero 9y ago
  That's why I would like to see a statistical data point for a successful startup (say, limited to 100M+ valuations). Yes, companies are different; some may need to raise more and some less, but if I knew how much, on average, 1% stock at seed translates at 100M buyout it would be a valuable data point.
  - madamelic 9y ago
    Definitely. Yours is pre-computed, my suggestion / comment was just about giving raw stats for employees to compute and verify themselves. I guess yours is more palatable to give out than giving the raw stats that can be leaked.
- clairity 9y ago

dang 9y ago

I don't think this document has anything to do with YC? The YC partners I talk to are certainly aware of how critical early employee compensation is.

chollida1 9y ago
I agree it doesn't have anything to do with YC. My point is that it seems like its gotten worse and worse as the years go on, toi be a startup employee. Since YC is dependent on their being high caliber startup employees available for its portfolio companies, then at some point perhaps they might want to look into what can be done to help improve the outcomes for employees. I mean, I think you can argue they did a lot to help founders, mostly with advice, term sheets, etc but founders were never really getting screwed. You can argue, and I guess I sort of am, that employee's are now getting pretty screwed. It used to be that the unwritten rule was that in roughly 5 years of founding you'd know if you were going to get a payout from your shares. Now a days 10+ years without any liquidity event are not in anyway uncommon.