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The old fashioned way shareholders would receive liquidity was through distributed earnings aka profit sharing; this is still a viable option. Employees receive

by mikeg8 7y ago

The old fashioned way shareholders would receive liquidity was through distributed earnings aka profit sharing; this is still a viable option. Employees receive a salary and shoulder little risk relative to shareholders/investors so I'm not sure I agree they "deserve" to be rewarded in the same way.

scurvy 7y ago
Employees are shareholders, too.
- mikeg8 7y ago
  If they do not own shares, no, they are not a shareholder. Companies want employees to feel like shareholders as it should increase productivity.
  - scurvy 7y ago
    Upon vesting, any employee can exercise one share and become a stockholder. It's a great way to see the books, too. But your tone in treating employees and shareholders was very antagonistic. The vibe in startups has always been "we're in this together." Not, "I'm the boss/investor and you're the cog."
    - mikeg8 7y ago
      Not trying to be antagonistic, but precise. You say "upon vesting" which makes the assumption all employees are granted options. This is not the case. I don't see anything wrong with simply being a payed employee, receiving a fair salary for the work performed. If someone wants to be guaranteed a shareholder position, they absolutely can! By starting a company of their own. That is the beauty of our economic system. Not everyone is entitled to ownership at their place of work, nor should they be.
      - undefined3840 7y ago
        Most full time employees at VC backed companies will receive stock comp as part of their compensation.
    - blevo 7y ago
      you make a good point. I think the 'vibe' is part of the problem. It's somewhat dishonest. Why do all companies need to be 'family?' Can't we just respect each other as we get the job done and go home to our actual families? The 'company culture' is a ruse to get employees to have loyalty where the company does not reciprocate. reminds me a bit of the blog post: <https://www.yegor256.com/2015/10/06/how-to-be-good-office-slave.html> https://www.yegor256.com/2015/10/06/how-to-be-good-office-sl...
toomuchtodo 7y ago
So you’ve given me compensation (equity stake) that I can’t sell, ever, effectively making it worthless. Borderline fraud. If I want cash flow, give me liquidity and I’ll go buy a public dividend fund. My time is worth more risk wise then some investors bottomless pit of fund dollars (cough SoftBank cough).
- mikeg8 7y ago
  I agree with you, though. I think employees want stock options without understanding their drawbacks and limitations. Receiving stock options sounds sexy and is motivated by social factors that may not be as beneficial now as they were several decades ago. But employees need to take personal responsibility for the offers they accept and if they feel under valued, they can leave at any time. I would personally opt for the cash flow route as well.
  - toomuchtodo 7y ago
    I think that stock options (and the eventual shares realized through option exercise) are a legitimate method for a cash constrained startup to offer deferred comp to early employees (as well as meaningful ongoing ownership in the business if done properly), but that additional government regulation is required to tip the power balance away from the employer/option grantor. I don’t disagree with social factors, but I think even today employees want upside exposure you can only obtain with options (or other equity instruments). Hustle has a cost. If you want to issue options, no right of first refusal. You have to allow the transfer of your shares on a secondary market for accredited investors. You have to provide a cap table to all shareholders, as well as dilution and preferred share info. You have to hand over a 409A valuation annually to all shareholders. You don’t have to go to the public markets, but you also don’t get to treat common shareholders (usually employees granted ISOs) as second class citizens. If private markets are the new public markets, we still regulate the private markets, just a bit less so. </soapbox>

by mikeg8 7y ago

scurvy 7y ago

Employees are shareholders, too.

mikeg8 7y ago
If they do not own shares, no, they are not a shareholder. Companies want employees to feel like shareholders as it should increase productivity.
- scurvy 7y ago
  Upon vesting, any employee can exercise one share and become a stockholder. It's a great way to see the books, too. But your tone in treating employees and shareholders was very antagonistic. The vibe in startups has always been "we're in this together." Not, "I'm the boss/investor and you're the cog."
  - mikeg8 7y ago
    Not trying to be antagonistic, but precise. You say "upon vesting" which makes the assumption all employees are granted options. This is not the case. I don't see anything wrong with simply being a payed employee, receiving a fair salary for the work performed. If someone wants to be guaranteed a shareholder position, they absolutely can! By starting a company of their own. That is the beauty of our economic system. Not everyone is entitled to ownership at their place of work, nor should they be.
    - undefined3840 7y ago
      Most full time employees at VC backed companies will receive stock comp as part of their compensation.
  - blevo 7y ago
    you make a good point. I think the 'vibe' is part of the problem. It's somewhat dishonest. Why do all companies need to be 'family?' Can't we just respect each other as we get the job done and go home to our actual families? The 'company culture' is a ruse to get employees to have loyalty where the company does not reciprocate. reminds me a bit of the blog post: <https://www.yegor256.com/2015/10/06/how-to-be-good-office-slave.html> https://www.yegor256.com/2015/10/06/how-to-be-good-office-sl...

toomuchtodo 7y ago

So you’ve given me compensation (equity stake) that I can’t sell, ever, effectively making it worthless. Borderline fraud. If I want cash flow, give me liquidity and I’ll go buy a public dividend fund. My time is worth more risk wise then some investors bottomless pit of fund dollars (cough SoftBank cough).

mikeg8 7y ago
I agree with you, though. I think employees want stock options without understanding their drawbacks and limitations. Receiving stock options sounds sexy and is motivated by social factors that may not be as beneficial now as they were several decades ago. But employees need to take personal responsibility for the offers they accept and if they feel under valued, they can leave at any time. I would personally opt for the cash flow route as well.
- toomuchtodo 7y ago
  I think that stock options (and the eventual shares realized through option exercise) are a legitimate method for a cash constrained startup to offer deferred comp to early employees (as well as meaningful ongoing ownership in the business if done properly), but that additional government regulation is required to tip the power balance away from the employer/option grantor. I don’t disagree with social factors, but I think even today employees want upside exposure you can only obtain with options (or other equity instruments). Hustle has a cost. If you want to issue options, no right of first refusal. You have to allow the transfer of your shares on a secondary market for accredited investors. You have to provide a cap table to all shareholders, as well as dilution and preferred share info. You have to hand over a 409A valuation annually to all shareholders. You don’t have to go to the public markets, but you also don’t get to treat common shareholders (usually employees granted ISOs) as second class citizens. If private markets are the new public markets, we still regulate the private markets, just a bit less so. </soapbox>