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> Why shouldn't they, when they put up all the money that the company's been burning? Because there is another group that's putting up all the work. In startup

> Why shouldn't they, when they put up all the money that the company's been burning? Because there is another group that's putting up all the work. In startups, that work is generally more intense and risk laden, which is why employees are offered shares as part of compensation. Otherwise, why would they be offering shares? Both groups deserve protection. The SEC was created so that people couldn't swindle each other in a legal manner. It works to some degree for investors who are, by the definition of these types of investors, rich ($1mm in assets or $200k/income). But it clearly isn't working for the people doing the work. So our system protects the rich, but not the people who apply a trade. If you think that's ok, fine. But I find it terribly unfair. Joint stock companies exist as a result of legislation, the separation of capital and management requires courts for mediation. I can't see why someone wouldn't support changing it to be more equitable to all involved, especially if it is done based on merit (where labor and capital are both weighed as equal inputs at the time of distribution of large liquidity events)

sokoloff 7y ago
That labor is being paid cash along the way. It might additionally be getting common stock, under the same terms of other common shareholders, which is to say, behind the preferred shareholders, who are behind the bond holders.
- greggman2 7y ago
  I'm surprised how many people don't get this part. Person A, investor puts in $100k Person B, employee gets paid $100k Company fails. Person A lost $100k Person B gained $100k This is why person A gets the lion's share of the rewards if the company succeed. Person B risked nothing. Person A risked $100k. The typical retort from Person B is they could have gone to a different company so their risk was to work for this particular company. For example they could have gone to a FAANG company and made a high salary but instead went to some startup at a lower salary on the risk that it would succeed. From one POV that is a risk but it's not your money until it's in your hands. Future money is similar to saying well "if I won the lottery tomorrow". Until you do actually win that money it doesn't really count. You can use that line of reasoning in negotiations (you want me to join your startup but I have an offer from a FANNG company, sweeten the deal if you want me). But after that you didn't actually take a risk relevant to the company. Instead you made a choice to be paid X amount for your labor. Note: I've never been on the investing side, only the employee side, but for some reason I've never felt ripped off since I knew I was taking no risk.
  - techsupporter 7y ago
    > Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find their investments significantly restricted. The problem is that the some of the people taking a risk and making investment, often the ones in the worst position, have far less information than others. It is inherently unfair that one "investor" can be worse off than another, especially when stacking up money against time. As the author wrote, this isn't inherently unfair...as long as it's not hidden. But it's almost always hidden because the "lottery ticket hope" of turning 1% equity into seven figures is spoken of as being a regular amount of risk when, in reality, you'd be better taking that higher salary at a FMANGUNFXZOR company and putting the difference into actual lottery tickets. (As an addendum, if anyone is about to reply with the words "rational actor" anywhere in it, I'm not moved by that rebuttal. Human beings are not rational all of the time and we are nowhere near as rational as economic textbooks would have you believe. Yet, somehow, that rationality or lack thereof is only called into question whenever the person in the crappier position with less leverage is the one who loses.)
    - chrismcb 7y ago
      They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.
      - 4ntonius8lock 7y ago
        They got paid for it in the form of money and stock. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful (the start up and its investors). As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust which creates friction. The argument that people's rewards, one who put in $50 in cash and another who and accepted a lower payment/higher risk which resulted in a decreased earnings potential of say $50 should be treated differently is anti-meritocratic. Both are risking $50. BTW, if the company offered no stock to employees, we wouldn't be having this conversation. But the comments are, or should be, based on the FA of which this is a thread.
WalterBright 7y ago
> putting up all the work Generally speaking, the big money goes to the people who risk, not the people who work. If it didn't work that way, who would finance a risky project? Investors may or may not get paid sometime in the future, while employees get paid today, whether what they do works out or not.
- 4ntonius8lock 7y ago
  So people who work for a start up aren't taking risk? Employment is more than just the paycheck. It's security. It's a career trajectory. Otherwise, why do consultants get paid more than employees? You can see it that employees take no risk. That's fine. But then I wonder why start ups tout the stocks they give? And why is it acceptable to tout something that they know has no value? The SEC has a function. To avoid dishonest actions that would otherwise be legal under standard criminal law from eroding trust in security markets. The employee of the article we are discussing here received 1% for losing out on opportunities of growth in a larger company. Obviously he was worth something to the company, and more than they were willing to pay him in cash. He was betting on the future value of the offerings he was receiving. By being able to trust that, start ups could/would/should obtain labor at discounted rates. This is good for the market. Trust in securities. You can call him naive. But I will remind you that in the late 19th and early 20th century the stock market was not well capitalized. People presumed they were getting screwed. And anybody who placed trust in the system was called naive. "they shouldn't trust" is an easy argument. It's the old 'it's just the way it is' argument. It's arguable, but I'd say creating trust within the exchange of securities via systems like the SEC was a great advance in the allocation of resources. It's why we have well capitalized markets. Without trust, friction comes along. That is why I feel what was described in the article is deeply unfair and given that the entire structure of joint stock companies is a legislative creation, surely it could be changed. So basically, your view that "the big money goes to the people who risk" seems idiosyncratic and reflexive rather than based on any substantial analysis of the article or the situation. I'm hardly advocating for any revolutionary ideas. Overall, having read The Wealth of Nations, I'm a big supporter of Adam Smith's ideas. Which is why I can see how the system can be structured differently within the capitalist context.

sokoloff 7y ago

That labor is being paid cash along the way. It might additionally be getting common stock, under the same terms of other common shareholders, which is to say, behind the preferred shareholders, who are behind the bond holders.

greggman2 7y ago
I'm surprised how many people don't get this part. Person A, investor puts in $100k Person B, employee gets paid $100k Company fails. Person A lost $100k Person B gained $100k This is why person A gets the lion's share of the rewards if the company succeed. Person B risked nothing. Person A risked $100k. The typical retort from Person B is they could have gone to a different company so their risk was to work for this particular company. For example they could have gone to a FAANG company and made a high salary but instead went to some startup at a lower salary on the risk that it would succeed. From one POV that is a risk but it's not your money until it's in your hands. Future money is similar to saying well "if I won the lottery tomorrow". Until you do actually win that money it doesn't really count. You can use that line of reasoning in negotiations (you want me to join your startup but I have an offer from a FANNG company, sweeten the deal if you want me). But after that you didn't actually take a risk relevant to the company. Instead you made a choice to be paid X amount for your labor. Note: I've never been on the investing side, only the employee side, but for some reason I've never felt ripped off since I knew I was taking no risk.
- techsupporter 7y ago
  > Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find their investments significantly restricted. The problem is that the some of the people taking a risk and making investment, often the ones in the worst position, have far less information than others. It is inherently unfair that one "investor" can be worse off than another, especially when stacking up money against time. As the author wrote, this isn't inherently unfair...as long as it's not hidden. But it's almost always hidden because the "lottery ticket hope" of turning 1% equity into seven figures is spoken of as being a regular amount of risk when, in reality, you'd be better taking that higher salary at a FMANGUNFXZOR company and putting the difference into actual lottery tickets. (As an addendum, if anyone is about to reply with the words "rational actor" anywhere in it, I'm not moved by that rebuttal. Human beings are not rational all of the time and we are nowhere near as rational as economic textbooks would have you believe. Yet, somehow, that rationality or lack thereof is only called into question whenever the person in the crappier position with less leverage is the one who loses.)
  - chrismcb 7y ago
    They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.
    - 4ntonius8lock 7y ago
      They got paid for it in the form of money and stock. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful (the start up and its investors). As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust which creates friction. The argument that people's rewards, one who put in $50 in cash and another who and accepted a lower payment/higher risk which resulted in a decreased earnings potential of say $50 should be treated differently is anti-meritocratic. Both are risking $50. BTW, if the company offered no stock to employees, we wouldn't be having this conversation. But the comments are, or should be, based on the FA of which this is a thread.

WalterBright 7y ago

> putting up all the work Generally speaking, the big money goes to the people who risk, not the people who work. If it didn't work that way, who would finance a risky project? Investors may or may not get paid sometime in the future, while employees get paid today, whether what they do works out or not.

4ntonius8lock 7y ago
So people who work for a start up aren't taking risk? Employment is more than just the paycheck. It's security. It's a career trajectory. Otherwise, why do consultants get paid more than employees? You can see it that employees take no risk. That's fine. But then I wonder why start ups tout the stocks they give? And why is it acceptable to tout something that they know has no value? The SEC has a function. To avoid dishonest actions that would otherwise be legal under standard criminal law from eroding trust in security markets. The employee of the article we are discussing here received 1% for losing out on opportunities of growth in a larger company. Obviously he was worth something to the company, and more than they were willing to pay him in cash. He was betting on the future value of the offerings he was receiving. By being able to trust that, start ups could/would/should obtain labor at discounted rates. This is good for the market. Trust in securities. You can call him naive. But I will remind you that in the late 19th and early 20th century the stock market was not well capitalized. People presumed they were getting screwed. And anybody who placed trust in the system was called naive. "they shouldn't trust" is an easy argument. It's the old 'it's just the way it is' argument. It's arguable, but I'd say creating trust within the exchange of securities via systems like the SEC was a great advance in the allocation of resources. It's why we have well capitalized markets. Without trust, friction comes along. That is why I feel what was described in the article is deeply unfair and given that the entire structure of joint stock companies is a legislative creation, surely it could be changed. So basically, your view that "the big money goes to the people who risk" seems idiosyncratic and reflexive rather than based on any substantial analysis of the article or the situation. I'm hardly advocating for any revolutionary ideas. Overall, having read The Wealth of Nations, I'm a big supporter of Adam Smith's ideas. Which is why I can see how the system can be structured differently within the capitalist context.