3 ms·

The incentives aren't the same because in previous system I can't try and hold out for a personal advantage,in yours I can. I agree with your basic premise of

by ska 6y ago

The incentives aren't the same because in previous system I can't try and hold out for a personal advantage,in yours I can. I agree with your basic premise of some of the problems, I just don't see this as a practical way of addressing them. I can imagine explicit buybacks etc., as you suggest, but all those mechanisms will probably the funding side in similar ways to getting rid of liquidation preference. Keeping a reserve stock for future investment is plausible (may give accounting headaches) but anything you do can't plan for all eventualities; when you are running out of money and all stock is committed you have a problem.

Groxx 6y ago
Probably worth pointing out that both stock buybacks and holding reserve stock occur in practice. Especially reserve stock - that seems to be fairly common, as otherwise every new offering of stock to employees means a fresh round of dilution. Which it sorta means regardless (it's less reserve for future investment to use without dilution), but I'd be willing to bet that explicit ~annual dilution along with your bonus is probably less palatable on an emotional level. (whether or not that equals "founder-only dilution", I dunno. kinda? it's earmarking, it's at least mentally/structurally different) Buybacks... I haven't personally seen them occur except to take more control back from investors or employees (e.g. to pay off the one(s) that won't agree to dilution), but either way that's the opposite of receiving funds / dilution as it costs the company money. --- I agree entirely that the argument for non-dilutable stocks is "... otherwise the value of the rest of your shares may go to $0". But unless they get voting power proportionate to their stock (like normal) or can be forced to accept buyouts, one person can decide to risk everything for everyone. Or do nothing, and benefit from non-dilution while everyone else gets diluted. Again: it's possible to do this! Founders often have exactly this kind of power! But I don't see that working in most cases for larger groups.
- ska 6y ago
  Both points true; I find it hard to imagine reserve stock suitable for all future investment though. Regardless, mostly these schemes end up in a similar place, so how you get there probably doesn’t matter. If employees were the largest voting block it would probably look different...

by ska 6y ago

Groxx 6y ago

Probably worth pointing out that both stock buybacks and holding reserve stock occur in practice. Especially reserve stock - that seems to be fairly common, as otherwise every new offering of stock to employees means a fresh round of dilution. Which it sorta means regardless (it's less reserve for future investment to use without dilution), but I'd be willing to bet that explicit ~annual dilution along with your bonus is probably less palatable on an emotional level. (whether or not that equals "founder-only dilution", I dunno. kinda? it's earmarking, it's at least mentally/structurally different) Buybacks... I haven't personally seen them occur except to take more control back from investors or employees (e.g. to pay off the one(s) that won't agree to dilution), but either way that's the opposite of receiving funds / dilution as it costs the company money. --- I agree entirely that the argument for non-dilutable stocks is "... otherwise the value of the rest of your shares may go to $0". But unless they get voting power proportionate to their stock (like normal) or can be forced to accept buyouts, one person can decide to risk everything for everyone. Or do nothing, and benefit from non-dilution while everyone else gets diluted. Again: it's possible to do this! Founders often have exactly this kind of power! But I don't see that working in most cases for larger groups.

ska 6y ago
Both points true; I find it hard to imagine reserve stock suitable for all future investment though. Regardless, mostly these schemes end up in a similar place, so how you get there probably doesn’t matter. If employees were the largest voting block it would probably look different...