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Sure, these founders went too far, but the basic problem of Founders >>> Employees is there at every startup. When even employee #1 at typical SV startup signs

Sure, these founders went too far, but the basic problem of Founders >>> Employees is there at every startup. When even employee #1 at typical SV startup signs on for 1% and employee #4 already for half that, why do “employees” still think there’s anything equitable about equity? Listen up, prospective employee: if your founder makes several million, you’ll get zilch. If founder makes tens of millions, you might get enough for a modest car. If your founder makes over $100 million, you might have enough for a down payment on a house. Then you can go to the next startup and work super hard all over again to try to mint another mega-millionaire.

birken 9y ago
This fatalist attitude is just as bad as the overly naive attitude that I'm sure left many employees of this company feeling screwed. Employees have agency. Founders don't have some magical power over you with which to screw you. You choose to work for them in exchange for money, stock, whatever. If stock is a sizable part of your compensation, you probably should be asking a lot of questions about it. How many shares will I get? How many shares do you have? How is the company doing? What are the future plans? When am I going to get liquidity? Do your own accounting. If they won't give you the information you require, don't join! If the company isn't hitting its benchmarks, leave! There are lots of other companies out there to join, including many publicly traded ones so you'll always have the full financials (and liquid stock). If you do your homework and are serious about continually evaluating the company at which you work, you will not get screwed. Your time is the investment, and every 3-6 months you should re-evaluate whether the company is the best place to work. You don't owe the company anything! They need to keep proving to you, quarter after quarter, that what compensation they are giving you is worth you continuing to work there. Are you guaranteed to be successful? Of course not. Being an employee of a startup is risky, and you might make the "right" move that ends up not working out. Just from this article it seemed to me there were many clear warning signs this company wasn't all it was cracked up to be, and some employees didn't evaluate the company's trajectory properly and ended up getting screwed. It's a lesson learned but I'm sure many of them could have pointed out in retrospect where they went wrong. And I'll also add that being a founder sucks, and being an employee is comparably much easier. First, getting companies off the ground is really really hard and founders have to do that themselves. As an employee you can look around and join a company that already is showing some traction, saving yourself a bunch of time and frustration. Additionally, as an employee you can and should leave if the company starts falling behind its benchmarks and you think there are better opportunities elsewhere. As a founder you can't really do this, you basically have to stick it out until the end. So basically, being a founder isn't any better or worse than being an employee, they are different paths with different expectations, and each one of them has to be done with care to get the most out of it.
- JamesBarney 9y ago
  Evaluating the worth of a company and stock options is very hard and usually requires several skill sets the employee doesn't have, as well as information the company is reluctant to give out. If I asked the founder for all of the financial documents the company has signed so I could know it's obligations, I can't imagine that a majority of the founders/CEOs would say "sure here you go". And even if they did, the cost of a lawyer to go over all of that paperwork to make sure you didn't miss anything would be expensive.
  - birken 9y ago
    Learn the skills! Financial literacy is a very important skill. Yes, startups are complicated. To be an informed employee you need to deeply understand how stock options work, you need to deeply understand how startup financing works, and it wouldn't hurt to have a general understanding of business. And look, if you just want to be a software engineer, then you don't have to learn these things, but then you can't complain if you get screwed. Or take a job at a publicly traded company and use the stock price as a proxy for how the company is doing. And as for the availability of the documents and financial information, the main ones you care about are: revenue, expenses, total burn and cash in the bank. Any company that will not reveal those is being shady, full stop. These figures should be so top of mind the CEO or CFO should know them off hand without even having the look. A good company will share all of these with the full company every month or quarter, because they are really important indicators of how the company is doing and what the overall strategy should be. You don't need a lawyer. You are not auditing the company, you are just getting a sense for the company's trajectory. Your job is actually really easy. If things are going well that is normally obvious. Revenue going up. Burn going down. Fundraising rounds at higher valuations. If these things aren't happening or you suspect something shady is going on, leave! You don't need to break the case, just get a better job at another company that is doing better.
    - JonFish85 9y ago
      "the main ones you care about are: revenue, expenses, total burn and cash in the bank" That's part of it, but not all of it. Total number of outstanding shares (including warrantable shares!) can change the complexion of things a lot. And then there's the question of preference -- deals that a company made years ago can make for a big difference in share value. Unless a company has an incredibly clean cap table, a rank-and-file employee will never really know how much their shares are worth until they are either worthless, or have a cash-in-hand buyer. What you're talking about is the general case of "things are moving in a pretty good direction", and that's important. But to really gauge value of a stock option is much, much more complex (and is constantly changing!). Even if an employee were able to come to a reasonable estimate of common stock value, one bad month can wipe that away (an emergency $5m round to make payroll? a loan backed by stock? a long-term lease backed by stock?).
jsant 9y ago
I’m thinking a lot about this right now. Do you know of any successful company that did not adhere to giving conventional (i.e. very small) amounts of equity to employees? I’m also wondering whether giving significantly more equity than usual to employees would deter potential investors, even if their own share of the cake remains the same (i.e. only by diluting the founders).
- sharemywin 9y ago
  welcome to the collusion club. don't worry you'll never get the right to vote on anything. so even if you did get any kind of weird deal they'll just "fix" it in the next round, or your company goes up in flames.
akkat 9y ago
And if your founder fails (like most startups) and ends up wasting several years earning no income then you get to have had a modest job for however long the founder was able to last
- gaius 9y ago
  The founder will swan straight into his or her next Series A without missing a beat. They have already proven themselves to be a willing pawn for VCs to exploit Workers after all. The petit bourgeoisie, if you will.

birken 9y ago

This fatalist attitude is just as bad as the overly naive attitude that I'm sure left many employees of this company feeling screwed. Employees have agency. Founders don't have some magical power over you with which to screw you. You choose to work for them in exchange for money, stock, whatever. If stock is a sizable part of your compensation, you probably should be asking a lot of questions about it. How many shares will I get? How many shares do you have? How is the company doing? What are the future plans? When am I going to get liquidity? Do your own accounting. If they won't give you the information you require, don't join! If the company isn't hitting its benchmarks, leave! There are lots of other companies out there to join, including many publicly traded ones so you'll always have the full financials (and liquid stock). If you do your homework and are serious about continually evaluating the company at which you work, you will not get screwed. Your time is the investment, and every 3-6 months you should re-evaluate whether the company is the best place to work. You don't owe the company anything! They need to keep proving to you, quarter after quarter, that what compensation they are giving you is worth you continuing to work there. Are you guaranteed to be successful? Of course not. Being an employee of a startup is risky, and you might make the "right" move that ends up not working out. Just from this article it seemed to me there were many clear warning signs this company wasn't all it was cracked up to be, and some employees didn't evaluate the company's trajectory properly and ended up getting screwed. It's a lesson learned but I'm sure many of them could have pointed out in retrospect where they went wrong. And I'll also add that being a founder sucks, and being an employee is comparably much easier. First, getting companies off the ground is really really hard and founders have to do that themselves. As an employee you can look around and join a company that already is showing some traction, saving yourself a bunch of time and frustration. Additionally, as an employee you can and should leave if the company starts falling behind its benchmarks and you think there are better opportunities elsewhere. As a founder you can't really do this, you basically have to stick it out until the end. So basically, being a founder isn't any better or worse than being an employee, they are different paths with different expectations, and each one of them has to be done with care to get the most out of it.

JamesBarney 9y ago
Evaluating the worth of a company and stock options is very hard and usually requires several skill sets the employee doesn't have, as well as information the company is reluctant to give out. If I asked the founder for all of the financial documents the company has signed so I could know it's obligations, I can't imagine that a majority of the founders/CEOs would say "sure here you go". And even if they did, the cost of a lawyer to go over all of that paperwork to make sure you didn't miss anything would be expensive.
- birken 9y ago
  Learn the skills! Financial literacy is a very important skill. Yes, startups are complicated. To be an informed employee you need to deeply understand how stock options work, you need to deeply understand how startup financing works, and it wouldn't hurt to have a general understanding of business. And look, if you just want to be a software engineer, then you don't have to learn these things, but then you can't complain if you get screwed. Or take a job at a publicly traded company and use the stock price as a proxy for how the company is doing. And as for the availability of the documents and financial information, the main ones you care about are: revenue, expenses, total burn and cash in the bank. Any company that will not reveal those is being shady, full stop. These figures should be so top of mind the CEO or CFO should know them off hand without even having the look. A good company will share all of these with the full company every month or quarter, because they are really important indicators of how the company is doing and what the overall strategy should be. You don't need a lawyer. You are not auditing the company, you are just getting a sense for the company's trajectory. Your job is actually really easy. If things are going well that is normally obvious. Revenue going up. Burn going down. Fundraising rounds at higher valuations. If these things aren't happening or you suspect something shady is going on, leave! You don't need to break the case, just get a better job at another company that is doing better.
  - JonFish85 9y ago
    "the main ones you care about are: revenue, expenses, total burn and cash in the bank" That's part of it, but not all of it. Total number of outstanding shares (including warrantable shares!) can change the complexion of things a lot. And then there's the question of preference -- deals that a company made years ago can make for a big difference in share value. Unless a company has an incredibly clean cap table, a rank-and-file employee will never really know how much their shares are worth until they are either worthless, or have a cash-in-hand buyer. What you're talking about is the general case of "things are moving in a pretty good direction", and that's important. But to really gauge value of a stock option is much, much more complex (and is constantly changing!). Even if an employee were able to come to a reasonable estimate of common stock value, one bad month can wipe that away (an emergency $5m round to make payroll? a loan backed by stock? a long-term lease backed by stock?).

jsant 9y ago

I’m thinking a lot about this right now. Do you know of any successful company that did not adhere to giving conventional (i.e. very small) amounts of equity to employees? I’m also wondering whether giving significantly more equity than usual to employees would deter potential investors, even if their own share of the cake remains the same (i.e. only by diluting the founders).

sharemywin 9y ago
welcome to the collusion club. don't worry you'll never get the right to vote on anything. so even if you did get any kind of weird deal they'll just "fix" it in the next round, or your company goes up in flames.

akkat 9y ago

And if your founder fails (like most startups) and ends up wasting several years earning no income then you get to have had a modest job for however long the founder was able to last

gaius 9y ago
The founder will swan straight into his or her next Series A without missing a beat. They have already proven themselves to be a willing pawn for VCs to exploit Workers after all. The petit bourgeoisie, if you will.