5 ms·

Employees are as well.

jacquesm 8y ago
Employees have employment contracts, can apply for mortgages and credit to buy cars. Start-up founders tend to have a hard time with those things, especially if they went heavily into debt to be able to fund their start-up in the early days. It's not rare where I live to have founders rent crappy houses and employees buy their place because banks will not touch founders from a risk perspective.
- davismwfl 8y ago
  This is accurate, non-founders don't have a clue how hard normal everyday things can be, like even buying a crappy used car for a fair interest rate. I got downvoted in my other comment likely because I pointed out I would be suspect of early employees that get upset. Fact is, if you explain to early employees the truth and they get upset than they MAYBE aren't in it to win with the team, because if they are they would see you as a founder needing to be able to function in everyday life as critical to the business succeeding. But this is the exact reason I usually have seen founders hide the fact they do this and try to hide even purchases or say they came from a family member. Personally, I prefer the transparent method myself, but understand why people hide it so often.
  - jacquesm 8y ago
    In my company we are radically transparent regarding stock deals, hires, our financials, order pipeline and so on. So far that seems to work well, time will tell what it does in the longer run. It's an experiment of sorts. We also do not have class 'B' shares and do not have an ESOP but issue stock directly to employees (or sell founder shares). It's a bit of an odd duck as companies go because the ramp-up to the point where others could join was 8 years.
    - edoceo 8y ago
      8! When I made my first comment I assumed you were younger. This may make employees less mad, due to company age but I'm still not clear why the company doesn't just issue more shares rather than owners selling theirs. Have you been getting paid? Are you planning on leaving? Why divest?
      - jacquesm 8y ago
        Good questions. I'm 53, have worked pretty hard all my life. It's time to pass the mantle. I've allocated 40% of the stock in my company for the people that will pull the cart, will draw down to 51% as long as I'm CEO and will then drop to 10% in an MBO when the time is right. I do not want to become a backseat driver. The consultancy arm is small and quite profitable, we do our own investments and have more work than we could reasonably deal with, and a very impressive array of customers. I've been getting paid but about 1/2 of what I was making when I was still running the whole thing by myself, I see that as an investment and as a way to make the company less dependent on me as a person. To turn a one-man consultancy into a scalable company has been a major challenge but I think we have the hard part behind us. Our profit allocation is: 1/3rd shareholders, 1/3rd employees, 1/3rd investments. That gives us plenty of opportunity to dogfood our processes, and ensures that people get paid for their efforts. > Are you planning on leaving? Not immediately, but somewhere in the next couple of years. What will happen is we will split the investment and the consultancy branches, I will continue to run the investment part and my partners will run the consultancy, maybe some will join the investment part, time will tell. > Why divest? Because of (1) diversification, (2) the stock already being issued and (3) it being more tax efficient both for me and the rest of the partners here. Accelerated vesting in case of a liquidity event has been put in place as well, there is a tax liability there but it is manageable.
greenyoda 8y ago
Employees are generally not non-diversified investors, since they don't own enough company stock for that to be their primary investment. (Most of their assets could be in 401-K retirement accounts from previous employers, for example.)

Employees have employment contracts, can apply for mortgages and credit to buy cars. Start-up founders tend to have a hard time with those things, especially if they went heavily into debt to be able to fund their start-up in the early days. It's not rare where I live to have founders rent crappy houses and employees buy their place because banks will not touch founders from a risk perspective.

davismwfl 8y ago
This is accurate, non-founders don't have a clue how hard normal everyday things can be, like even buying a crappy used car for a fair interest rate. I got downvoted in my other comment likely because I pointed out I would be suspect of early employees that get upset. Fact is, if you explain to early employees the truth and they get upset than they MAYBE aren't in it to win with the team, because if they are they would see you as a founder needing to be able to function in everyday life as critical to the business succeeding. But this is the exact reason I usually have seen founders hide the fact they do this and try to hide even purchases or say they came from a family member. Personally, I prefer the transparent method myself, but understand why people hide it so often.
- jacquesm 8y ago
  In my company we are radically transparent regarding stock deals, hires, our financials, order pipeline and so on. So far that seems to work well, time will tell what it does in the longer run. It's an experiment of sorts. We also do not have class 'B' shares and do not have an ESOP but issue stock directly to employees (or sell founder shares). It's a bit of an odd duck as companies go because the ramp-up to the point where others could join was 8 years.
  - edoceo 8y ago
    8! When I made my first comment I assumed you were younger. This may make employees less mad, due to company age but I'm still not clear why the company doesn't just issue more shares rather than owners selling theirs. Have you been getting paid? Are you planning on leaving? Why divest?
    - jacquesm 8y ago
      Good questions. I'm 53, have worked pretty hard all my life. It's time to pass the mantle. I've allocated 40% of the stock in my company for the people that will pull the cart, will draw down to 51% as long as I'm CEO and will then drop to 10% in an MBO when the time is right. I do not want to become a backseat driver. The consultancy arm is small and quite profitable, we do our own investments and have more work than we could reasonably deal with, and a very impressive array of customers. I've been getting paid but about 1/2 of what I was making when I was still running the whole thing by myself, I see that as an investment and as a way to make the company less dependent on me as a person. To turn a one-man consultancy into a scalable company has been a major challenge but I think we have the hard part behind us. Our profit allocation is: 1/3rd shareholders, 1/3rd employees, 1/3rd investments. That gives us plenty of opportunity to dogfood our processes, and ensures that people get paid for their efforts. > Are you planning on leaving? Not immediately, but somewhere in the next couple of years. What will happen is we will split the investment and the consultancy branches, I will continue to run the investment part and my partners will run the consultancy, maybe some will join the investment part, time will tell. > Why divest? Because of (1) diversification, (2) the stock already being issued and (3) it being more tax efficient both for me and the rest of the partners here. Accelerated vesting in case of a liquidity event has been put in place as well, there is a tax liability there but it is manageable.

greenyoda 8y ago

Employees are generally not non-diversified investors, since they don't own enough company stock for that to be their primary investment. (Most of their assets could be in 401-K retirement accounts from previous employers, for example.)