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Why are you making moral judgements on a business decision? The investors didn't HAVE to take a write down, they chose to. The early employees didn't HAVE to

Why are you making moral judgements on a business decision? The investors didn't HAVE to take a write down, they chose to. The early employees didn't HAVE to join this company, they chose to. Why do you deem it immoral for a founder to do what is best for himself within the bounds of the agreements he has made? This kind of calling-out is common in HN and quite distasteful. Comments like this all amount to saying "X is immoral because they refused to give a charitable donation to Y". Charity is not a moral requirement and arguably it's not even a moral good.

matthewmacleod 6y ago
We all make moral judgements like this all the time, and it’s totally normal to do so. Morality isn’t defined by what is legally permissible; it’s possible to be simultaneously entirely compliant with your legal obligations, and an absolute raging arsehole who has acted in an immoral manner.
- imgabe 6y ago
  It's not that it's legally permissible, it's that it's within bounds of what all parties agreed to. If I agree to sell you my car for $5,000 then you show up with the money and give it to me and take the car, I don't get to change my mind later and get mad that you didn't give me more and call you immoral.
  - Jochim 6y ago
    For startup employees it's more like they agree to help fix a car you intend to sell in return for payment and a take in the profits of the sale. A lot of startup exits seem to take the form of you then selling the car to someone for a break even amount, who just happens to also pay you individually an extra $5,000 on the side. Is it a good deal for you? Yes. Is it a scummy move? Yes.
    - coward8675309 6y ago
      The reality is that many startup employees may have stacked Stanford STEM degrees yadda yadda yadda, but they can’t do basic math, don’t have a good intuitive grasp of probability, have outlandish expectations, and/or don’t ask clarifying questions about the cap table. One of my startups sold for about $25-40MM depending on whether you count pre- or post-earnout. The typical engineer got maybe a quarter of a percent of options on common stock. You’d think that would net out to $62.5K but we had a messy cap table. Various investments’ preferred status ate deeply into what remained for common stockholders. Even if there were no cap table issues, the engineers wouldn’t have been happy, because they hung their hopes and dreams on a multi-hundred-million dollar exit. We experienced 90%+ engineer turnover over the next six months. (We got by just fine.) Rule of thumb: do not join a startup for the money.
      - Jochim 6y ago
        Agreed on not joining a startup for the money. Although it seems like a lot of damage has been done in setting a cultural expectation that joining a startup early will see you become a multi-millionaire, to the benefit of startups everywhere I suppose. Correct me if I'm wrong here, but isn't another major issue faced by early employees that the math might look good when they join the company, but further rounds dilute their stake so much that it becomes meaningless?
        coward8675309 6y ago
        Yes, though the expression “an up round is an up round” has a lot of truth to it. Dilution is important if you care about control, but as long as the stock is worth more on a per-share basis, you’re doing better. The problem is when people anchor their calculations about their future lottery winnings to the current float. I try to tamp down expectations when I’m hiring by trying to sketch out a wide range of plausible scenarios (basically the Drake Equation for startups) but I’m going to go out on a limb and guess that a lot of hiring managers and HR departments set new hires up for disappointment by not throwing cold water on their very optimistic math.
        6y ago
  - matthewmacleod 6y ago
    I don't get to change my mind later and get mad that you didn't give me more and call you immoral. But on the other hand, if you’d agreed to sell me your car at a price under what you might be able to get elsewhere—maybe because I was financially struggling and you were doing me a friendly favour—you’d probably be pretty miffed if I won the lottery and still demanded you stick to your offer…
    - imgabe 6y ago
      If I were miffed, I could rescind the offer or ask for more. Just like the investors could have demanded their money back if they wanted too. They chose not to, which would seem to indicate they weren't miffed. Nobody forced them to do anything. It's not immoral to ask someone for an accommodation and accept it. The investors didn't give him the money as a friendly favor to help him it out. It was an investment. Presumably they make a lot of them and understand the risks involved in doing so. If you're going to get hurt feelings whenever one of your investments doesn't pay off, you're not cut out to be an investor.
maxniederhofer 6y ago
Arguably charity is the primary moral requirement.
remote_phone 6y ago
The founder couldn’t have done anything without his employees. And yet he takes $3.7M, leaving almost nothing for his employees. It certainly sounds like the employees got royally fucked and he got the lion’s share of the payout.
Jochim 6y ago
> "This kind of calling-out is common in HN and quite distasteful." Frankly there's nothing distateful about recognising that in a hierarchical system such as a corporation those higher up the tree have a duty of responsibility to protect the interests of those below them. Quite how modern capitalists have managed to convince people that this shouldn't be the case I'm not quite sure, but the results are hostile to a functioning society.
t0astbread 6y ago
Can you elaborate how charity is not a moral good?
- caffeine 6y ago
  In this case, charity would distort incentives by softening the outcome of bad decision-making. Each of those employees signed up for a salary and equity. That equity turned out to be of very little value to them in the end, probably less than they were hoping for. If they all got paid out anyway, they would not have learned that small equity stakes can turn out meaningless, and that exits are way less profitable for employees then founders. Some of these employees might now go on to be founders because they learned the dangers of working hard on something in which there is no equity. In the end they might create something of massive value, which the world never would have had if they simply benefited from charity. I think the lesson of this exit is also more valuable for all HN readers than it would've been if he had just paid out the employees, for the same reasons.
  - Jochim 6y ago
    A counterexample I'd offer is that upon being treated charitably those employees could then be incentivised to use that windfall to pursue their own ideas, seeing the success of their founder benefactor and being empowered with a financial cushion they would not have otherwise had. They might then go on to create something of massive value which the world never would have had if they simply did not have the financial means to do so. Remembering the "charity" they received in helping build the business that enabled them to succeed as founders they then pass that same "charity" on to their own employees upon a successful exit, kickstarting a cycle of innovation that spreads much farther. There's an argument that "that's not the way the world is" but the world is as compassionate or dispassionate as we make it. Personally I'd like to see it move towards a point where taking everything just because you can isn't viewed as acceptable.
    - fairity 6y ago
      > Personally I'd like to see it move towards a point where taking everything just because you can isn't viewed as acceptable. It's not clear to me what you're actually suggesting. You think that when someone takes more than they need, they deserve to be shamed? How do you determine how much one can take? We all want the world to be more loving and compassionate, but rules and financial incentives drive productivity in our economy. If the financial incentive to start a company is reduced, there will necessarily be a cost to innovation. Imo, the goal should be creating a system where the rules are fair and clearly outlined. The rules and incentives for employment were very clearly outlined in the employment contract these people signed. And, the founder does not seem to be the type of person who over-promises. So, I see nothing wrong here.
deleted 6y ago
[deleted]
samtp 6y ago
> Why are you making moral judgements on a business decision? On what planet are "business decisions" not bound to moral judgements? That's one of the craziest things I've ever heard.

matthewmacleod 6y ago

We all make moral judgements like this all the time, and it’s totally normal to do so. Morality isn’t defined by what is legally permissible; it’s possible to be simultaneously entirely compliant with your legal obligations, and an absolute raging arsehole who has acted in an immoral manner.

imgabe 6y ago
It's not that it's legally permissible, it's that it's within bounds of what all parties agreed to. If I agree to sell you my car for $5,000 then you show up with the money and give it to me and take the car, I don't get to change my mind later and get mad that you didn't give me more and call you immoral.
- Jochim 6y ago
  For startup employees it's more like they agree to help fix a car you intend to sell in return for payment and a take in the profits of the sale. A lot of startup exits seem to take the form of you then selling the car to someone for a break even amount, who just happens to also pay you individually an extra $5,000 on the side. Is it a good deal for you? Yes. Is it a scummy move? Yes.
  - coward8675309 6y ago
    The reality is that many startup employees may have stacked Stanford STEM degrees yadda yadda yadda, but they can’t do basic math, don’t have a good intuitive grasp of probability, have outlandish expectations, and/or don’t ask clarifying questions about the cap table. One of my startups sold for about $25-40MM depending on whether you count pre- or post-earnout. The typical engineer got maybe a quarter of a percent of options on common stock. You’d think that would net out to $62.5K but we had a messy cap table. Various investments’ preferred status ate deeply into what remained for common stockholders. Even if there were no cap table issues, the engineers wouldn’t have been happy, because they hung their hopes and dreams on a multi-hundred-million dollar exit. We experienced 90%+ engineer turnover over the next six months. (We got by just fine.) Rule of thumb: do not join a startup for the money.
    - Jochim 6y ago
      Agreed on not joining a startup for the money. Although it seems like a lot of damage has been done in setting a cultural expectation that joining a startup early will see you become a multi-millionaire, to the benefit of startups everywhere I suppose. Correct me if I'm wrong here, but isn't another major issue faced by early employees that the math might look good when they join the company, but further rounds dilute their stake so much that it becomes meaningless?
      - coward8675309 6y ago
        Yes, though the expression “an up round is an up round” has a lot of truth to it. Dilution is important if you care about control, but as long as the stock is worth more on a per-share basis, you’re doing better. The problem is when people anchor their calculations about their future lottery winnings to the current float. I try to tamp down expectations when I’m hiring by trying to sketch out a wide range of plausible scenarios (basically the Drake Equation for startups) but I’m going to go out on a limb and guess that a lot of hiring managers and HR departments set new hires up for disappointment by not throwing cold water on their very optimistic math.
      - 6y ago
- matthewmacleod 6y ago
  I don't get to change my mind later and get mad that you didn't give me more and call you immoral. But on the other hand, if you’d agreed to sell me your car at a price under what you might be able to get elsewhere—maybe because I was financially struggling and you were doing me a friendly favour—you’d probably be pretty miffed if I won the lottery and still demanded you stick to your offer…
  - imgabe 6y ago
    If I were miffed, I could rescind the offer or ask for more. Just like the investors could have demanded their money back if they wanted too. They chose not to, which would seem to indicate they weren't miffed. Nobody forced them to do anything. It's not immoral to ask someone for an accommodation and accept it. The investors didn't give him the money as a friendly favor to help him it out. It was an investment. Presumably they make a lot of them and understand the risks involved in doing so. If you're going to get hurt feelings whenever one of your investments doesn't pay off, you're not cut out to be an investor.

maxniederhofer 6y ago

Arguably charity is the primary moral requirement.

remote_phone 6y ago

The founder couldn’t have done anything without his employees. And yet he takes $3.7M, leaving almost nothing for his employees. It certainly sounds like the employees got royally fucked and he got the lion’s share of the payout.

Jochim 6y ago

> "This kind of calling-out is common in HN and quite distasteful." Frankly there's nothing distateful about recognising that in a hierarchical system such as a corporation those higher up the tree have a duty of responsibility to protect the interests of those below them. Quite how modern capitalists have managed to convince people that this shouldn't be the case I'm not quite sure, but the results are hostile to a functioning society.

t0astbread 6y ago

Can you elaborate how charity is not a moral good?

caffeine 6y ago
In this case, charity would distort incentives by softening the outcome of bad decision-making. Each of those employees signed up for a salary and equity. That equity turned out to be of very little value to them in the end, probably less than they were hoping for. If they all got paid out anyway, they would not have learned that small equity stakes can turn out meaningless, and that exits are way less profitable for employees then founders. Some of these employees might now go on to be founders because they learned the dangers of working hard on something in which there is no equity. In the end they might create something of massive value, which the world never would have had if they simply benefited from charity. I think the lesson of this exit is also more valuable for all HN readers than it would've been if he had just paid out the employees, for the same reasons.
- Jochim 6y ago
  A counterexample I'd offer is that upon being treated charitably those employees could then be incentivised to use that windfall to pursue their own ideas, seeing the success of their founder benefactor and being empowered with a financial cushion they would not have otherwise had. They might then go on to create something of massive value which the world never would have had if they simply did not have the financial means to do so. Remembering the "charity" they received in helping build the business that enabled them to succeed as founders they then pass that same "charity" on to their own employees upon a successful exit, kickstarting a cycle of innovation that spreads much farther. There's an argument that "that's not the way the world is" but the world is as compassionate or dispassionate as we make it. Personally I'd like to see it move towards a point where taking everything just because you can isn't viewed as acceptable.
  - fairity 6y ago
    > Personally I'd like to see it move towards a point where taking everything just because you can isn't viewed as acceptable. It's not clear to me what you're actually suggesting. You think that when someone takes more than they need, they deserve to be shamed? How do you determine how much one can take? We all want the world to be more loving and compassionate, but rules and financial incentives drive productivity in our economy. If the financial incentive to start a company is reduced, there will necessarily be a cost to innovation. Imo, the goal should be creating a system where the rules are fair and clearly outlined. The rules and incentives for employment were very clearly outlined in the employment contract these people signed. And, the founder does not seem to be the type of person who over-promises. So, I see nothing wrong here.

deleted 6y ago

[deleted]

samtp 6y ago

> Why are you making moral judgements on a business decision? On what planet are "business decisions" not bound to moral judgements? That's one of the craziest things I've ever heard.