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Classic tragedy of the commons scenario. ISOs were originally a great idea for how an early group of employees could take a big salary cut in exchange for a sh

Classic tragedy of the commons scenario. ISOs were originally a great idea for how an early group of employees could take a big salary cut in exchange for a shot at getting wealthy. Founders and employees both had common stock and would sink or swim together. Then over the decades information asymmetry started to chip away at this with investors realizing they really only needed to keep the founder happy, and they could steadily chip away at the outcomes for the rank and file given those young engineers would keep coming in based on the mythology of getting rich from the previous generation. It took awhile, but now that trust has been fully eroded, and simultaneously FAANG have recognized the value of top engineering talent, paying salaries to ICs that would have been unthinkable in the 20th century. It's going to be very difficult for investors to win back trust because now the information asymmetry works the other way, with young talent just assuming ISOs are worth nothing. Even if founders make an effort to do right by early employees, it's very difficult to demonstrate this to someone who is suspicious but not seasoned enough to know what questions to ask.

jaz46 7y ago
This information asymmetry is also solvable at the company level and IMO, good founders have a obligation to fight to educate engineers who are thinking of joining a startup. I'm not saying you're wrong at all -- most typical startup ISO offerings suck and are not good situations for employees. That said, as a founder who custom designed our stock plan to be as employee-friendly as we could, there is a better way when actually done right and not just "following the standards". Stock plan improvements like super long post-termination exercise, offering RSAs instead of just stock options, and most importantly in my opinion, adequately educating your employees on the risks and return possibilities of their equity! While many employees' eyes will glaze over a bit if you start citing tax code, helping them get the basics and fully internalize the risk/reward tradeoff is both doable and necessary!

jaz46 7y ago

This information asymmetry is also solvable at the company level and IMO, good founders have a obligation to fight to educate engineers who are thinking of joining a startup. I'm not saying you're wrong at all -- most typical startup ISO offerings suck and are not good situations for employees. That said, as a founder who custom designed our stock plan to be as employee-friendly as we could, there is a better way when actually done right and not just "following the standards". Stock plan improvements like super long post-termination exercise, offering RSAs instead of just stock options, and most importantly in my opinion, adequately educating your employees on the risks and return possibilities of their equity! While many employees' eyes will glaze over a bit if you start citing tax code, helping them get the basics and fully internalize the risk/reward tradeoff is both doable and necessary!