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Employees that get part of their payment in stock are also investors. It’s just that they have less leverage so it is understood that, unlike the other investo

Employees that get part of their payment in stock are also investors. It’s just that they have less leverage so it is understood that, unlike the other investors that have preference, employees won’t get their investment back.

sonnyblarney 8y ago
Even though one could rhetorically try to make the case that 'employees are investors' ... really, in any common sense of the term, they are not. Employees are compensated with equity, they are not investors. Not even founders would be referred to as investors, unless they've put a meaningful amount of cash up for equity.
- olliej 8y ago
  Let’s try to rearrange this to demonstrate that your reasoning that employees are not investors is wrong: Instead of paying employees below market rate, the startup pays employees an actual fair market rate. Note that because of the short term failure risk of a startup a fair market rate is /still/ higher than market rate and an established company. Now each time they receive a paycheck the employees give you back a chunk of the money in exchange for common shares. The end result is the employees have the same amount of cash and shares, and the company has the same amount of cash. Employees working below market rate are investing in the company. Getting paid isn’t “security” it is the part of their income the employee is choosing not to invest in the company.
  - sonnyblarney 8y ago
    Yes, the 'employees are investing their time' point is an established argument, this rhetoric is well-trodden. But they're still not investors. Putting in a considerable amount of hard cash, is a fundamentally different thing than considering the after-tax value of some possible future gain from employment ... and then putting in hard cash. (Though it's definitely a valuable calculation to make on the part of the employee.) If someone walks around the Valley talking about how they are 'investors' in X, Y or Z because they worked there for some time as an employee, but did not invest in a round, they will definitely be misinterpreted because the premise is simply not generally accepted. Moreover, this person would either be marked as 'not understanding what he is saying' or 'purposely misleading people'. Consider the vastly different terms attached to the equity of either side ... and that so many actual startup employees who have done modestly well on some exit and then do 'part time' Angel investing, generally participate along the lines of classical 'investors terms' , not on the terms of the employees of the startups they fund. There's a reason that this is the common standard, and that there is no movement afoot to put investors and staffers on the same terms.
- chrisbennet 8y ago
  I think I understand what you're saying but it seems like a distinction without a difference. "Real" investors get stock. Employees get "equity" (in some form of stock). It seems like a fiction that benefits "real" investors at the expense of employees "investment". As long as VCs can maintain this fiction they can exploit the other stockholders. Sort of like "Well, you're just a woman, you're not a "real" fill-in-the-blank. We shouldn't have to pay you like one."
  - sonnyblarney 8y ago
    The distinction between investors investing actual money, and employees who are comped with equity is is not a fiction. Investors are in a totally separate class for so many reasons, and it's why there are distinctions in the type of equity they get. The market for both talent and capital is very liquid and there really aren't that many secrets - so the current equilibrium between capital and talent is a function of the reality of market dynamics, not some sort of 'secret marketing magic' that VC's use. Although on a case by case basis, there's going to be some leveraging by VC's on some level, one could argue the corollary is the number of completely-full-of-crap 'founders' who are full of rubbish, some of them not even aware they are, or who are simply not aware of the real amount of risk they are offering. Silicon Valley is full of people who are making things for companies that will fail, and are therefore taking huge salaries at the expense of capital. In fact, VC as an asset class is kind of a loser overall, globally - and almost all of the returns go to the top handful of funds, so one could argue that it's the mid-to-long tail of VC's that are the 'chumps' in the equation, because they're literally losing money while staffers making 'stuff that nobody wants' are walking away with small fortunes in salary for which there was no ROI. So 'investors' are different than 'employees who take equity as comp' - and the 'power balance' between them can favour one side or the other, even as this clear distinction remains.

sonnyblarney 8y ago

Even though one could rhetorically try to make the case that 'employees are investors' ... really, in any common sense of the term, they are not. Employees are compensated with equity, they are not investors. Not even founders would be referred to as investors, unless they've put a meaningful amount of cash up for equity.

olliej 8y ago
Let’s try to rearrange this to demonstrate that your reasoning that employees are not investors is wrong: Instead of paying employees below market rate, the startup pays employees an actual fair market rate. Note that because of the short term failure risk of a startup a fair market rate is /still/ higher than market rate and an established company. Now each time they receive a paycheck the employees give you back a chunk of the money in exchange for common shares. The end result is the employees have the same amount of cash and shares, and the company has the same amount of cash. Employees working below market rate are investing in the company. Getting paid isn’t “security” it is the part of their income the employee is choosing not to invest in the company.
- sonnyblarney 8y ago
  Yes, the 'employees are investing their time' point is an established argument, this rhetoric is well-trodden. But they're still not investors. Putting in a considerable amount of hard cash, is a fundamentally different thing than considering the after-tax value of some possible future gain from employment ... and then putting in hard cash. (Though it's definitely a valuable calculation to make on the part of the employee.) If someone walks around the Valley talking about how they are 'investors' in X, Y or Z because they worked there for some time as an employee, but did not invest in a round, they will definitely be misinterpreted because the premise is simply not generally accepted. Moreover, this person would either be marked as 'not understanding what he is saying' or 'purposely misleading people'. Consider the vastly different terms attached to the equity of either side ... and that so many actual startup employees who have done modestly well on some exit and then do 'part time' Angel investing, generally participate along the lines of classical 'investors terms' , not on the terms of the employees of the startups they fund. There's a reason that this is the common standard, and that there is no movement afoot to put investors and staffers on the same terms.
chrisbennet 8y ago
I think I understand what you're saying but it seems like a distinction without a difference. "Real" investors get stock. Employees get "equity" (in some form of stock). It seems like a fiction that benefits "real" investors at the expense of employees "investment". As long as VCs can maintain this fiction they can exploit the other stockholders. Sort of like "Well, you're just a woman, you're not a "real" fill-in-the-blank. We shouldn't have to pay you like one."
- sonnyblarney 8y ago
  The distinction between investors investing actual money, and employees who are comped with equity is is not a fiction. Investors are in a totally separate class for so many reasons, and it's why there are distinctions in the type of equity they get. The market for both talent and capital is very liquid and there really aren't that many secrets - so the current equilibrium between capital and talent is a function of the reality of market dynamics, not some sort of 'secret marketing magic' that VC's use. Although on a case by case basis, there's going to be some leveraging by VC's on some level, one could argue the corollary is the number of completely-full-of-crap 'founders' who are full of rubbish, some of them not even aware they are, or who are simply not aware of the real amount of risk they are offering. Silicon Valley is full of people who are making things for companies that will fail, and are therefore taking huge salaries at the expense of capital. In fact, VC as an asset class is kind of a loser overall, globally - and almost all of the returns go to the top handful of funds, so one could argue that it's the mid-to-long tail of VC's that are the 'chumps' in the equation, because they're literally losing money while staffers making 'stuff that nobody wants' are walking away with small fortunes in salary for which there was no ROI. So 'investors' are different than 'employees who take equity as comp' - and the 'power balance' between them can favour one side or the other, even as this clear distinction remains.