8 ms·

I think you need to reform employee stock options - in the UK there are far less possibilities to screw employees over stock options.

munk-a 7y ago
Absolutely, stock options in the US are super strange, they can be performance tied and for non-qualified shares. The thing I'd actually like to see is a better default governance for companies - companies are wholly owned by founders and I think there is just something fundamentally wrong with treating all employees as contractors by default until it's decided to grant them options or actual ownership. A bunch of people gather together and build a thing - why is the first person to the table the person who takes home all the profit? Sure employees are technically signing away their rights by agreeing to work without being compensated with a portion of their work, but it'd be really hard to actually pursue proportional ownership in the current labour market.
- dcow 7y ago
  This. There is really no reason a founder deserves as much equity as they generally give themselves (I know the investors also have a say in what an acceptable cap table looks like so it’s not just on founders). If early stage startup founders split equity more evenly I think the numbers would start to make more sense. Maybe like 10% founder, 5% first 5, 2.5% next 5, and then 15% equity pool as you grow from 10 to 50. And that still leaves you with half your company left to raise capital with. Then there’s advisors and execs. You can enter into an A stage startup as an exec or an advisor and generally expect ~1% equity post dilution. This easily eclipses all but the first few early employees who have been working their asses off with much less comp for a much longer time. Maybe really good execs and advisors are game changers but I haven’t seen it play out in practice. More often than not success of the early few hides failure of the new leadership to do anything remotely resembling what they’re paid so preciously to do. So in the current market the only valuable part of working at a small gig becomes the alignment of risk profiles and consequential networking, and the do or die environment that accompanies an 18 month runway. I think these are good experiences for anybody to have at some point in their career. But since most people are rational they look at the numbers and it just doesn’t add up.
  - manigandham 7y ago
    "deserve" doesn't really mean anything. As for why founders get the most equity, it comes down to the most risk. They have the most to lose and are usually are paid last compared to employees who get cash and benefits. It's easy to claim the profits and yet ignore all the risks and losses incurred by founders. I've yet to see someone who thinks otherwise actually go out and start a company. Perhaps it's because the calculus changes when it's your business and livelihood on the line.
    - dcow 7y ago
      “Deserve“ absolutely means exactly what it means. I’m talking about the equity distribution sub-10 here. What sub-10 employees are getting any more benefits than their founder(s)? Maybe marginally more cash but it’s all still below market so it doesn’t really matter. But most founders I’ve encountered are actually paying themselves more than their early employees because they have to in order to maintain their lifestyle in big city. But they also have remarkably disproportional slices of equity. If a founder is investing large sums of their own cash it’s because they have that luxury. And I don’t think that’s actually very common. More often a founder drops some sweat and cash to incorporate and then maybe isn’t getting paid much while they pitch for seed capital but they’re doing so because they can’t afford to take no salary for very long. Even if you occasionally do see founders who’ve “killed” themselves for their cause, most of the founders I’ve encountered actually come out of cushy jobs where they essentially moonlit as a founder until they met someone willing to blow a few MM their way. In my opinion this type of story does not justify such disproportional equity distribution. At this point I honestly think telling founders that they take on so much risk and should retain such a large portion of their company because they did all the hard work is a somewhat subversive tactic used by investors who want to retain control over their investments. It’s a lot easier to reason with a single founder than 5 large equity holders. I think founders deserve a lot. I don’t think the typical founder deserves 10 times the equity of sub-10 employees. I think you’d see more people willing to join early stage companies if the attitude around equity shifted.
      - manigandham 7y ago
- manigandham 7y ago
  Employees get cash, that's the compensation like any other worker. Why should equity be a default option? Most startups fail so that's like saying workers should get something that has a high probability of being worthless while suffering all the tax implications. If anything equity should be decreased. Startups are better off competing on cash and other benefits like work flexibility and increased responsibility.
  - someguydave 7y ago
    That would imply that they make revenue, which is somewhat unfashionable.
    - manigandham 7y ago
      You need cash to run a business, wherever it comes from. Otherwise you don't have a business in the first place.
      - someguydave 7y ago
        You need engineering talent to run a tech business. Otherwise you don’t have a tech business in the first place. Money comes from anywhere, tech talent is fixed in supply.
        manigandham 7y ago
        A business needs cash to operate. It doesn't matter what talent you have if you can't pay them. Startups die when they run out of cash, not because they couldn't hire anyone. Startups offering more cash has no implication that they must generate revenue (although that's obvious to building a good business). The point is that operational costs exist - and so a business must already have cash to exist - and increasing costs for better salaries and benefits is a better trade-off than increasing equity which is mostly worthless anyway. Also global tech talent has more supply than demand once you get past the SV/HN bubble. No serious startup has failed because they didn't get the perfect engineer.
- C1sc0cat 7y ago
  Are you confusing "contractors" with "employees"

munk-a 7y ago

Absolutely, stock options in the US are super strange, they can be performance tied and for non-qualified shares. The thing I'd actually like to see is a better default governance for companies - companies are wholly owned by founders and I think there is just something fundamentally wrong with treating all employees as contractors by default until it's decided to grant them options or actual ownership. A bunch of people gather together and build a thing - why is the first person to the table the person who takes home all the profit? Sure employees are technically signing away their rights by agreeing to work without being compensated with a portion of their work, but it'd be really hard to actually pursue proportional ownership in the current labour market.

dcow 7y ago
This. There is really no reason a founder deserves as much equity as they generally give themselves (I know the investors also have a say in what an acceptable cap table looks like so it’s not just on founders). If early stage startup founders split equity more evenly I think the numbers would start to make more sense. Maybe like 10% founder, 5% first 5, 2.5% next 5, and then 15% equity pool as you grow from 10 to 50. And that still leaves you with half your company left to raise capital with. Then there’s advisors and execs. You can enter into an A stage startup as an exec or an advisor and generally expect ~1% equity post dilution. This easily eclipses all but the first few early employees who have been working their asses off with much less comp for a much longer time. Maybe really good execs and advisors are game changers but I haven’t seen it play out in practice. More often than not success of the early few hides failure of the new leadership to do anything remotely resembling what they’re paid so preciously to do. So in the current market the only valuable part of working at a small gig becomes the alignment of risk profiles and consequential networking, and the do or die environment that accompanies an 18 month runway. I think these are good experiences for anybody to have at some point in their career. But since most people are rational they look at the numbers and it just doesn’t add up.
- manigandham 7y ago
  "deserve" doesn't really mean anything. As for why founders get the most equity, it comes down to the most risk. They have the most to lose and are usually are paid last compared to employees who get cash and benefits. It's easy to claim the profits and yet ignore all the risks and losses incurred by founders. I've yet to see someone who thinks otherwise actually go out and start a company. Perhaps it's because the calculus changes when it's your business and livelihood on the line.
  - dcow 7y ago
    “Deserve“ absolutely means exactly what it means. I’m talking about the equity distribution sub-10 here. What sub-10 employees are getting any more benefits than their founder(s)? Maybe marginally more cash but it’s all still below market so it doesn’t really matter. But most founders I’ve encountered are actually paying themselves more than their early employees because they have to in order to maintain their lifestyle in big city. But they also have remarkably disproportional slices of equity. If a founder is investing large sums of their own cash it’s because they have that luxury. And I don’t think that’s actually very common. More often a founder drops some sweat and cash to incorporate and then maybe isn’t getting paid much while they pitch for seed capital but they’re doing so because they can’t afford to take no salary for very long. Even if you occasionally do see founders who’ve “killed” themselves for their cause, most of the founders I’ve encountered actually come out of cushy jobs where they essentially moonlit as a founder until they met someone willing to blow a few MM their way. In my opinion this type of story does not justify such disproportional equity distribution. At this point I honestly think telling founders that they take on so much risk and should retain such a large portion of their company because they did all the hard work is a somewhat subversive tactic used by investors who want to retain control over their investments. It’s a lot easier to reason with a single founder than 5 large equity holders. I think founders deserve a lot. I don’t think the typical founder deserves 10 times the equity of sub-10 employees. I think you’d see more people willing to join early stage companies if the attitude around equity shifted.
    - manigandham 7y ago
manigandham 7y ago
Employees get cash, that's the compensation like any other worker. Why should equity be a default option? Most startups fail so that's like saying workers should get something that has a high probability of being worthless while suffering all the tax implications. If anything equity should be decreased. Startups are better off competing on cash and other benefits like work flexibility and increased responsibility.
- someguydave 7y ago
  That would imply that they make revenue, which is somewhat unfashionable.
  - manigandham 7y ago
    You need cash to run a business, wherever it comes from. Otherwise you don't have a business in the first place.
    - someguydave 7y ago
      You need engineering talent to run a tech business. Otherwise you don’t have a tech business in the first place. Money comes from anywhere, tech talent is fixed in supply.
      - manigandham 7y ago
        A business needs cash to operate. It doesn't matter what talent you have if you can't pay them. Startups die when they run out of cash, not because they couldn't hire anyone. Startups offering more cash has no implication that they must generate revenue (although that's obvious to building a good business). The point is that operational costs exist - and so a business must already have cash to exist - and increasing costs for better salaries and benefits is a better trade-off than increasing equity which is mostly worthless anyway. Also global tech talent has more supply than demand once you get past the SV/HN bubble. No serious startup has failed because they didn't get the perfect engineer.
C1sc0cat 7y ago
Are you confusing "contractors" with "employees"