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Idea is risk management for early stage employees,as a mechanism to make it hard for the company to later write a deal where they are entirely (or nearly) shut
by ska 7y ago
Idea is risk management for early stage employees,as a mechanism to make it hard for the company to later write a deal where they are entirely (or nearly) shut out of an event that has at least some decent return for founders and late investors.
I was just musing, haven't thought about it deeply.
I suspect we agree on the real solution, which is work out your business plan so that you can pay real market rates (and give them a chance to participate in early rounds)
- tptacek 7y agoI suspect you're thinking about this in generalities, like "everyone is taking some risk so everyone should have comparable risk protections". But preferred shares for investors address a specific kind of risk, involving management's incentives, one not shared with employees. The rest of the protections VC gets for their shares are simply a result of market power. They have it; employees won't organize and don't.
- ska 7y agoMore specifically perhaps that very early employees should organize, and push for this. In particular, to counteract management incentives that may otherwise throw them under the bus. Agree it’s not identical to VC case, but similar enough that as a mechanism it could work.