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Not a bad investment per-se, but regarding "there is a clear mismatch between how founders and employees value equity" - The founders have more control, and the

Not a bad investment per-se, but regarding "there is a clear mismatch between how founders and employees value equity" - The founders have more control, and therefore their equity is worth more. e.g. Founders raise, selling off some of their shares as part of the raise. Everyone else has an illiquid asset, Founders can negotiate a payout. The major shareholders can authorise issuance of new shares, different classes of shares, issue new shares with anti-dilution clauses. You're correct though, it's easier to value shares with a secondary market. There are lots of schemes that an unscrupulous founder has at their disposal, so one has to be their own advocate and value their shares appropriately.

Eridrus 3y ago
Not to deny that founders are in a privileged position, but they are still beholden to other investors and have clear incentives (and legal obligations) to not screw over current employees. Even when founders control the board, the company has to sign binding documents with investors that govern what can be done, and the investors have a lot of leverage to ensure that the terms do not allow wiggle room for founders to screw them over. No major investor is going to agree to anti-dilution terms for founders, and you better believe they are not going to give additional grants to founders for the sake of it. Founders will definitely cash out some stock if they can, but generally it is a small part of their total holdings at fundraising time (e.g. 5% of their holdings per round) since that is both meaningful downside protection for them and not so much that investors believe the founders are no longer aligned. This is definitely a real benefit, but I don't think most employees would be moved by being able to sell 5%/round. Either all or a vast majority of founder stock is still common stock alongside employees though, so they're generally fairly aligned with employees IMO. Which is all to say; I think it is actually pretty tricky for a founder to create an outcome that makes themselves disproportionately rich beyond what the ownership%/strike price combo should imply and I don't think founders can generally turn a given % of a company into meaningfully more money than an employee can if there is any sort of liquidity event. There are situations (acquihires, recapitalizations, etc) where founders get bigger forward looking grants for themselves than employees, but I think this is less about the stock itself and more about what they can convince investors/acquirers about the forward looking value they provide and are generally all symptomatic of a startup that is failing in some way.

Eridrus 3y ago

Not to deny that founders are in a privileged position, but they are still beholden to other investors and have clear incentives (and legal obligations) to not screw over current employees. Even when founders control the board, the company has to sign binding documents with investors that govern what can be done, and the investors have a lot of leverage to ensure that the terms do not allow wiggle room for founders to screw them over. No major investor is going to agree to anti-dilution terms for founders, and you better believe they are not going to give additional grants to founders for the sake of it. Founders will definitely cash out some stock if they can, but generally it is a small part of their total holdings at fundraising time (e.g. 5% of their holdings per round) since that is both meaningful downside protection for them and not so much that investors believe the founders are no longer aligned. This is definitely a real benefit, but I don't think most employees would be moved by being able to sell 5%/round. Either all or a vast majority of founder stock is still common stock alongside employees though, so they're generally fairly aligned with employees IMO. Which is all to say; I think it is actually pretty tricky for a founder to create an outcome that makes themselves disproportionately rich beyond what the ownership%/strike price combo should imply and I don't think founders can generally turn a given % of a company into meaningfully more money than an employee can if there is any sort of liquidity event. There are situations (acquihires, recapitalizations, etc) where founders get bigger forward looking grants for themselves than employees, but I think this is less about the stock itself and more about what they can convince investors/acquirers about the forward looking value they provide and are generally all symptomatic of a startup that is failing in some way.