4 ms·

Which will produce better companies.

by ojbyrne 16y ago

jamesaguilar 16y ago
That may be true but I am not certain that it follows. It's true that much of the economy is a positive sum game but not all parts of it are. In this case, if you model a startup as a product that has a relatively fixed market-value after some amount of work by employees, then it is entirely possible that shifting market power over labor to employees will make it more expensive to produce that fixed-value product. Perhaps this change will also spur employees to greater efforts or attract even more talented employees for a shorter duration, but that's not necessarily the case.
- lsc 16y ago
  The problem with employees losing interest because they've already gotten paid is one we've faced before, and one that's easily solved. Vesting. Hell, if you don't want your employees to sell out before the IPO, simply set your vesting schedule so that nobody vests pre-IPO. Really, the only difference here is that now it's /possible/ to let people vest and cash out before the IPO. To me, this seems like a simple work-around to the regulatory rules that make IPOs difficult. If the market was regulated like it was 1998, twitter, facebook, groupon, etc, etc... would all have IPO'd some time ago, and employees would have cashed out the old fashioned way. I guess this does mean that companies need to be more careful about vesting schedules... the article seemed to say that the guy doing the selling worked at facebook 6 months. It seems pretty funny to me that much anything would vest in that time period.
  - roel_v 16y ago
    "Hell, if you don't want your employees to sell out before the IPO, simply set your vesting schedule so that nobody vests pre-IPO." I think the whole point is that these employees are actually selling futures, not vested shares. The only solution is to prohibit that, and I don't think such things are contractually allowed (otherwise the lawyers mentioned in the article, who tried stopping these secondary markets, would have succeeded and this article wouldn't have been written).
    - lsc 16y ago
      I think vesting would still at least help the problem. If I'm a startup employee with options that are not vested and I'm selling you futures on my yet-to-be-vested stock, you're not only betting on the stock, you are betting that I'm going to stick around at the company and not quit or get fired before I vest. I don't think futures on un-vested stock options are going to be worth nearly as much as options on vested stock.
      - roel_v 16y ago
        Of course, and although part of that risk (from the pov of the broker and the buyer) could be hedged contractually, there is still the risk of dilution etc. That's why I'm interested in learning more about the exact mechanics of this 'cashing out' - it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. I haven't seem many details of how these deals are structured show up, though. Probably because it would reduce the numbers that employees actually receive much smaller, making for much less interesting headlines.
        lsc 16y ago
        > part of that risk (from the pov of the broker and the buyer) could be hedged contractually everything I can think of here (e.g. not actually paying the seller anything until their shares vest) ends up leaving the seller (the employee with the stock options) with strong incentives to not get fired at a place where doing the minimum required work really ought to get you fired. So I guess that could reduce an employee's incentive to work hard by reducing the upside, but it certainly wouldn't eliminate it. And all those things also reduce the investors upside, too; I mean, sure, you've covered the downside, but I get fired and you don't get any of that facebook stock you wanted. Do the deal with two unvested employees, and maybe you end up with more facebook exposure than you can afford. > it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. yeah, especially if the shares are unvested.

Which will produce better companies.

by ojbyrne 16y ago

Which will produce better companies.

That may be true but I am not certain that it follows. It's true that much of the economy is a positive sum game but not all parts of it are. In this case, if you model a startup as a product that has a relatively fixed market-value after some amount of work by employees, then it is entirely possible that shifting market power over labor to employees will make it more expensive to produce that fixed-value product. Perhaps this change will also spur employees to greater efforts or attract even more talented employees for a shorter duration, but that's not necessarily the case.

lsc 16y ago
The problem with employees losing interest because they've already gotten paid is one we've faced before, and one that's easily solved. Vesting. Hell, if you don't want your employees to sell out before the IPO, simply set your vesting schedule so that nobody vests pre-IPO. Really, the only difference here is that now it's /possible/ to let people vest and cash out before the IPO. To me, this seems like a simple work-around to the regulatory rules that make IPOs difficult. If the market was regulated like it was 1998, twitter, facebook, groupon, etc, etc... would all have IPO'd some time ago, and employees would have cashed out the old fashioned way. I guess this does mean that companies need to be more careful about vesting schedules... the article seemed to say that the guy doing the selling worked at facebook 6 months. It seems pretty funny to me that much anything would vest in that time period.
- roel_v 16y ago
  "Hell, if you don't want your employees to sell out before the IPO, simply set your vesting schedule so that nobody vests pre-IPO." I think the whole point is that these employees are actually selling futures, not vested shares. The only solution is to prohibit that, and I don't think such things are contractually allowed (otherwise the lawyers mentioned in the article, who tried stopping these secondary markets, would have succeeded and this article wouldn't have been written).
  - lsc 16y ago
    I think vesting would still at least help the problem. If I'm a startup employee with options that are not vested and I'm selling you futures on my yet-to-be-vested stock, you're not only betting on the stock, you are betting that I'm going to stick around at the company and not quit or get fired before I vest. I don't think futures on un-vested stock options are going to be worth nearly as much as options on vested stock.
    - roel_v 16y ago
      Of course, and although part of that risk (from the pov of the broker and the buyer) could be hedged contractually, there is still the risk of dilution etc. That's why I'm interested in learning more about the exact mechanics of this 'cashing out' - it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. I haven't seem many details of how these deals are structured show up, though. Probably because it would reduce the numbers that employees actually receive much smaller, making for much less interesting headlines.
      - lsc 16y ago
        > part of that risk (from the pov of the broker and the buyer) could be hedged contractually everything I can think of here (e.g. not actually paying the seller anything until their shares vest) ends up leaving the seller (the employee with the stock options) with strong incentives to not get fired at a place where doing the minimum required work really ought to get you fired. So I guess that could reduce an employee's incentive to work hard by reducing the upside, but it certainly wouldn't eliminate it. And all those things also reduce the investors upside, too; I mean, sure, you've covered the downside, but I get fired and you don't get any of that facebook stock you wanted. Do the deal with two unvested employees, and maybe you end up with more facebook exposure than you can afford. > it seems to me that the staff involved must be paying a hefty risk premium for their liquidity. yeah, especially if the shares are unvested.