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What a strange perspective. This piece seems to assume that founders of a company are just some kind of super-employee of the VC that are only going to be arou

What a strange perspective. This piece seems to assume that founders of a company are just some kind of super-employee of the VC that are only going to be around so long as they are getting regular compensation. That isn't how it's supposed to work. The founder has to believe they create the value. They don't work to get grants of stock, they work to increase the value of the stock. They created all the stock in the first place! If they think that they could just hire someone else to do their job and everything would just turn out the same then what the hell did they even found the company for in the first place? The way VC is set up in the valley has warped peoples understanding of what a business even is.

mcherm 8y ago
To be fair, Fred Wilson is not saying that these grants of new stock are appropriate everywhere -- he specifically said he has never seen it happen when a founder-CEO owned 25% or more of the company and that the cutoff is somewhere around "double digits". If a founder-CEO only controls about 8 or 9% of the company stock then perhaps they ARE just a kind of super-employee of the VCs.
josh2600 8y ago
You need different sets of skills at different times. Peter Thiel eloquently articulated this as “before you can have a company vision, you need a company mantra”. In the beginning the work is about instantiating the product into the world. It’s unclear what bumps you’re going to run into so you have to be careful about overdefining the problem. You also can’t have no definition or no work gets done. It’s tricky (this is the 0->1). The 1->Many is different. You also can’t over constrain the problem but you need a lot more definition and constraint than you did before product market fit. Not everyone likes this part. If you have a founder who does the 0->1 really well and has a massive equity position, but they don’t do the 1->Many well, that’s going to make the company very, very difficult to govern. It’s tricky to think about how to reason about this because many people think they can do everything. Not everyone is a creator, and not everyone is an operator. It’s not obvious (and if there isn’t a big success incentive, it’s hard to get good people to work on the problem).
beaner 8y ago
Didn't even realize founder's equity vested. I thought since they created the company, they owned it since day 1.
- sverhagen 8y ago
  It seems to make most sense if there's multiple founders, and the risk that they leave at different times.
- markbnj 8y ago
  It doesn't really, unless the founder has signed a stockholder's agreement with other founders or investors specifying a vesting period. Under normal circumstances a founder or founders form a corp, put some cash/equity in, sign a stockholders agreement specifying who owns how much, and from that moment the equity is wholly owned by the signatories to that agreement. Other agreements may come into play as the company seeks additional investment, etc., but I can tell you that at least 20 years ago when I did a startup + angel round + series A + B nobody at any time suggested that the equity I'd worked for the first four years should somehow be clawed back and then vested, and the conversation would not have gone well if they had.
  - x0x0 8y ago
    It's all open to negotiation. Founders outright own the company in the period between creating the C Corp through taking safes, if any, until taking a priced round. Depending on the progress at that point, you may or may not get asked to revest. In our case, we negotiated with our VC that our vesting period started on incorporation. However, we were funded within 6 months of incorporation. If that period were to be years, it would be extremely reasonable for a VC to demand revesting, and to the benefit of multiple founders IMO.
- tptacek 8y ago
  No. All operator equity vests. Any potential partner who demands unvested equity is one you should avoid. Vesting protects cofounders as much as it protects money investors.
dlubarov 8y ago
That perspective makes sense for founders who own a ton of stock, but not as much for people like Aaron Levie, who owns 3.4% of Box.
- geofft 8y ago
  What's the story behind how he ended up with only 3.4%? Just lots of dilution, or something more unusual?
  - landon32 8y ago
    I believe he was 1 of 4 co-founders, and then raised 11 (according to crunch base) financing rounds. If you get diluted even a very reasonable amount 11 times, you won't end up with a large percentage of the company. Basically if a company is successful they'll probably raise many rounds and then end up with their founder/ceo only having a small portion of equity. At this point, the founder/ceo might be rich and has "made it" so could easily leave and be happy, but investors may want them to stick around. One way to get them to stick around might be to compensate them with even more stock. Obviously depends on the situation, but it seems silly to lose a founder/ceo because investors didn't want to dilute their equity and give the founder/ceo a little more.
  - captainperl 8y ago
    I believe he was 19 years old.
- yashap 8y ago
  Box’s market cap is $2.5 bil, so that’s still $85 mil. If he can take actions that increase their market cap 10%, that’s still $8.5 mil for him personally. I feel like his interests are still very aligned with “grow Box”, even if he isn’t given more equity.
  - dlubarov 8y ago
    True, but he could always divest before leaving. In theory that seems like the right move if he's undercompensated, assuming that his motives are purely financial, that the market has valued the company correctly, and that his career won't suffer from "quitting".
bernardlunn 8y ago
For most Founders who go the VC route,the reality is your boss is the investor. Crowdfunding 2.0 aka Security Tokens will change this dynamic. Then your boss is the market, which is more healthy.
chaostheory 8y ago
> The way VC is set up in the valley has warped peoples understanding of what a business even is. Fred Wilson is based in NYC and not SV.
microdrum 8y ago
You re right, but this is a NY guy, not a Silicon Valley guy.

mcherm 8y ago

To be fair, Fred Wilson is not saying that these grants of new stock are appropriate everywhere -- he specifically said he has never seen it happen when a founder-CEO owned 25% or more of the company and that the cutoff is somewhere around "double digits". If a founder-CEO only controls about 8 or 9% of the company stock then perhaps they ARE just a kind of super-employee of the VCs.

josh2600 8y ago

You need different sets of skills at different times. Peter Thiel eloquently articulated this as “before you can have a company vision, you need a company mantra”. In the beginning the work is about instantiating the product into the world. It’s unclear what bumps you’re going to run into so you have to be careful about overdefining the problem. You also can’t have no definition or no work gets done. It’s tricky (this is the 0->1). The 1->Many is different. You also can’t over constrain the problem but you need a lot more definition and constraint than you did before product market fit. Not everyone likes this part. If you have a founder who does the 0->1 really well and has a massive equity position, but they don’t do the 1->Many well, that’s going to make the company very, very difficult to govern. It’s tricky to think about how to reason about this because many people think they can do everything. Not everyone is a creator, and not everyone is an operator. It’s not obvious (and if there isn’t a big success incentive, it’s hard to get good people to work on the problem).

beaner 8y ago

Didn't even realize founder's equity vested. I thought since they created the company, they owned it since day 1.

sverhagen 8y ago
It seems to make most sense if there's multiple founders, and the risk that they leave at different times.
markbnj 8y ago
It doesn't really, unless the founder has signed a stockholder's agreement with other founders or investors specifying a vesting period. Under normal circumstances a founder or founders form a corp, put some cash/equity in, sign a stockholders agreement specifying who owns how much, and from that moment the equity is wholly owned by the signatories to that agreement. Other agreements may come into play as the company seeks additional investment, etc., but I can tell you that at least 20 years ago when I did a startup + angel round + series A + B nobody at any time suggested that the equity I'd worked for the first four years should somehow be clawed back and then vested, and the conversation would not have gone well if they had.
- x0x0 8y ago
  It's all open to negotiation. Founders outright own the company in the period between creating the C Corp through taking safes, if any, until taking a priced round. Depending on the progress at that point, you may or may not get asked to revest. In our case, we negotiated with our VC that our vesting period started on incorporation. However, we were funded within 6 months of incorporation. If that period were to be years, it would be extremely reasonable for a VC to demand revesting, and to the benefit of multiple founders IMO.
tptacek 8y ago
No. All operator equity vests. Any potential partner who demands unvested equity is one you should avoid. Vesting protects cofounders as much as it protects money investors.

dlubarov 8y ago

That perspective makes sense for founders who own a ton of stock, but not as much for people like Aaron Levie, who owns 3.4% of Box.

geofft 8y ago
What's the story behind how he ended up with only 3.4%? Just lots of dilution, or something more unusual?
- landon32 8y ago
  I believe he was 1 of 4 co-founders, and then raised 11 (according to crunch base) financing rounds. If you get diluted even a very reasonable amount 11 times, you won't end up with a large percentage of the company. Basically if a company is successful they'll probably raise many rounds and then end up with their founder/ceo only having a small portion of equity. At this point, the founder/ceo might be rich and has "made it" so could easily leave and be happy, but investors may want them to stick around. One way to get them to stick around might be to compensate them with even more stock. Obviously depends on the situation, but it seems silly to lose a founder/ceo because investors didn't want to dilute their equity and give the founder/ceo a little more.
- captainperl 8y ago
  I believe he was 19 years old.
yashap 8y ago
Box’s market cap is $2.5 bil, so that’s still $85 mil. If he can take actions that increase their market cap 10%, that’s still $8.5 mil for him personally. I feel like his interests are still very aligned with “grow Box”, even if he isn’t given more equity.
- dlubarov 8y ago
  True, but he could always divest before leaving. In theory that seems like the right move if he's undercompensated, assuming that his motives are purely financial, that the market has valued the company correctly, and that his career won't suffer from "quitting".

bernardlunn 8y ago

For most Founders who go the VC route,the reality is your boss is the investor. Crowdfunding 2.0 aka Security Tokens will change this dynamic. Then your boss is the market, which is more healthy.

chaostheory 8y ago

> The way VC is set up in the valley has warped peoples understanding of what a business even is. Fred Wilson is based in NYC and not SV.

microdrum 8y ago

You re right, but this is a NY guy, not a Silicon Valley guy.