5 ms·

The problem with the 10%/20%/30%/40% thing is that if the company shoots way up in value, an employee could theoretically be fired after two years and not captu

by birken 13y ago

The problem with the 10%/20%/30%/40% thing is that if the company shoots way up in value, an employee could theoretically be fired after two years and not capture much of the value they helped to create. It also doesn't necessarily need to be malicious [1], sometimes companies change and a person's skills aren't as valuable anymore. If I were a prospective employee I would never take a deal like this, because it is really difficult to have that much trust in a company and founders that you likely don't know that much about. I can't say the standard 4-year vest with a 1-year cliff is the most optimal situation, but from an employee perspective it is way better than 10/20/30/40. 1: Though it could be, I know there was a story about something happened at Zygna like this

johnrob 13y ago
Great point. In dollar terms within the respective vesting years, 10%/20%/30%/40% might look something like 5k/100k/200k/500k, which is extremely back loaded (and could help explain the Zynga 'scandal').
brudgers 13y ago
The scenario is little different from any other where someone lacks a controlling interest. Controlling interests can sell the company to another company they control at a price that suits their interests. They can issue shares to dilute equity and use the shares to acquire a company which they also control. Any legal action agaist such practices can be defended on the company's dime. In other words, if scumbags control the company, scumbags control the company. Fortunately, most people aren't scumbags.
- michaelochurch 13y ago
  In other words, if scumbags control the company, scumbags control the company. Fortunately, most people aren't scumbags. Most people aren't, perhaps. Most people who have the connections to be VC-funded startup founders are scumbags.
  - 603techguy 13y ago
    Read: I am not one of them or have the social skills/drive to be one of them therefore they are scumbags.
    - michaelochurch 13y ago
      You don't know what the fuck you are talking about. If you have actually lived in the society that actually exists, rather than the one entirely in your own head that you wish to believe in, you'll recognize that there is a positive correlation between social position and being unethical. (1) Power corrupts, (2) power attracts bad people, (3) bad people are more willing to make moral compromises to get power, (4) good people in power (it does happen) are usually not cynical enough to tell when they're being lied to by their lieutenants. It's completely understandable that you'd rather live in your Pollyanna fantasy world, and that's fine. If you want to believe that the world is 6,000 years old, that is likewise OK with me (even if you're wrong). What I won't let you do is spread delusion to the young and gullible. If you don't know what the fuck you're talking about, then kindly quiet down and let the adults talk.
      - mikeg8 13y ago
        Damn dude, I think you forgot to take your Midol today.
        dang 13y ago
        Personal attacks are not allowed on Hacker News, regardless of how wrong you think someone is. Mixing in a gender slur makes it worse. This is the kind of thing we ban people for, especially when they don't have a history as a positive contributor on the site.
        mikeg8 13y ago
        Understood. Will not be commenting like this again. Thanks for the warning dang.
- kamaal 13y ago
  >>Fortunately, most people aren't scumbags. No one is. But money changes things. Let's there are two best friends, you offer the first person some money to back stab the other. The guy may not agree. However keep raising the offer and at some point of time when the figure hits a $X0/$X00 million I bet the guy's intentions will change. Every one sells, its just the number that differs.
  - hga 13y ago
    No, some people are "scumbags". I once worked for a company that suddenly ran out of it's startup money source and was forced to do a deal with a couple of "angel" investors ... who turned out to be devils. They wrote into the agreement certain metrics that the company would have to meet after launch, and did everything they could to prevent it reaching those, e.g. firing the guy would would have made the sales, our multi-talented lawyer stepped up and made them. When Kleiner Perkins, who's connections could have been a make or break for the company, cold called us, these devils blew them off. Their attitude was they'd rather have 100% of nothing (well, they probably thought it would have been something), and the company essentially died when 13 of us resigned en masse from the CEO down to all but one most junior engineer. (And then we had to go to the state to get our back pay for that partial pay period.) I was in some of the last minute, try to save things face to face negotiations; these guys were malevolent. Not sure how they achieved net worths of 100 million and 500 million, but if they retained any control, they sure didn't use that money for good.
ritchiea 13y ago
Thinking about this another way, if the company shoots up in value immediately even 10% of your equity grant could mean a significant payout if the company is following the rest of Sam's advice by offering above market percentages and being exercisable up to 10 years after the grant date.
bcherry 13y ago
If you were committed to more equity though, this might make sense. Right now it's 25/25/25/25. An employer might want to offer above-market equity but backload the extra, so it's more like 25/50/75/100 compared to market (this example gives 2.5x the market equity rate). At year 2, pre-grant another 25/25/25/25 refresher to start after year 4.
malandrew 13y ago
Thought exercise: If you get 4x the equity/options, you only need to work 1/4 as longer as you would under the old regime. This means that if you get fired after the first year, you're in the same boat as if you had stayed for all four years under the old equity split. What's important to solve to make this work is some clause like the 10 year exercise window.
jonnathanson 13y ago
It's important to note that Sam also suggested an increased equity grant on top of the 10/20/30/40 schedule. The expected value of 10/20/30/40 only matches 25/25/25/25 if the overall equity grant under 10/20/30/40 is higher to begin with. Depending on the time value of money, and upon one's personal opportunity costs year over year, that equity award might need to be significantly higher. Alternatively, as Sam suggests, there are compensating mechanisms (new grants, vesting acceleration based on performance, etc.). All things being equal, I wouldn't take a 10/20/30/40 over a 25/25/25/25, because it would be economically irrational to do so. But all things aren't supposed to be equal under the two structures.

by birken 13y ago

johnrob 13y ago

Great point. In dollar terms within the respective vesting years, 10%/20%/30%/40% might look something like 5k/100k/200k/500k, which is extremely back loaded (and could help explain the Zynga 'scandal').

brudgers 13y ago

The scenario is little different from any other where someone lacks a controlling interest. Controlling interests can sell the company to another company they control at a price that suits their interests. They can issue shares to dilute equity and use the shares to acquire a company which they also control. Any legal action agaist such practices can be defended on the company's dime. In other words, if scumbags control the company, scumbags control the company. Fortunately, most people aren't scumbags.

michaelochurch 13y ago
In other words, if scumbags control the company, scumbags control the company. Fortunately, most people aren't scumbags. Most people aren't, perhaps. Most people who have the connections to be VC-funded startup founders are scumbags.
- 603techguy 13y ago
  Read: I am not one of them or have the social skills/drive to be one of them therefore they are scumbags.
  - michaelochurch 13y ago
    You don't know what the fuck you are talking about. If you have actually lived in the society that actually exists, rather than the one entirely in your own head that you wish to believe in, you'll recognize that there is a positive correlation between social position and being unethical. (1) Power corrupts, (2) power attracts bad people, (3) bad people are more willing to make moral compromises to get power, (4) good people in power (it does happen) are usually not cynical enough to tell when they're being lied to by their lieutenants. It's completely understandable that you'd rather live in your Pollyanna fantasy world, and that's fine. If you want to believe that the world is 6,000 years old, that is likewise OK with me (even if you're wrong). What I won't let you do is spread delusion to the young and gullible. If you don't know what the fuck you're talking about, then kindly quiet down and let the adults talk.
    - mikeg8 13y ago
      Damn dude, I think you forgot to take your Midol today.
      - dang 13y ago
        Personal attacks are not allowed on Hacker News, regardless of how wrong you think someone is. Mixing in a gender slur makes it worse. This is the kind of thing we ban people for, especially when they don't have a history as a positive contributor on the site.
        mikeg8 13y ago
        Understood. Will not be commenting like this again. Thanks for the warning dang.
kamaal 13y ago
>>Fortunately, most people aren't scumbags. No one is. But money changes things. Let's there are two best friends, you offer the first person some money to back stab the other. The guy may not agree. However keep raising the offer and at some point of time when the figure hits a $X0/$X00 million I bet the guy's intentions will change. Every one sells, its just the number that differs.
- hga 13y ago
  No, some people are "scumbags". I once worked for a company that suddenly ran out of it's startup money source and was forced to do a deal with a couple of "angel" investors ... who turned out to be devils. They wrote into the agreement certain metrics that the company would have to meet after launch, and did everything they could to prevent it reaching those, e.g. firing the guy would would have made the sales, our multi-talented lawyer stepped up and made them. When Kleiner Perkins, who's connections could have been a make or break for the company, cold called us, these devils blew them off. Their attitude was they'd rather have 100% of nothing (well, they probably thought it would have been something), and the company essentially died when 13 of us resigned en masse from the CEO down to all but one most junior engineer. (And then we had to go to the state to get our back pay for that partial pay period.) I was in some of the last minute, try to save things face to face negotiations; these guys were malevolent. Not sure how they achieved net worths of 100 million and 500 million, but if they retained any control, they sure didn't use that money for good.

ritchiea 13y ago

Thinking about this another way, if the company shoots up in value immediately even 10% of your equity grant could mean a significant payout if the company is following the rest of Sam's advice by offering above market percentages and being exercisable up to 10 years after the grant date.

bcherry 13y ago

If you were committed to more equity though, this might make sense. Right now it's 25/25/25/25. An employer might want to offer above-market equity but backload the extra, so it's more like 25/50/75/100 compared to market (this example gives 2.5x the market equity rate). At year 2, pre-grant another 25/25/25/25 refresher to start after year 4.

malandrew 13y ago

Thought exercise: If you get 4x the equity/options, you only need to work 1/4 as longer as you would under the old regime. This means that if you get fired after the first year, you're in the same boat as if you had stayed for all four years under the old equity split. What's important to solve to make this work is some clause like the 10 year exercise window.

jonnathanson 13y ago

It's important to note that Sam also suggested an increased equity grant on top of the 10/20/30/40 schedule. The expected value of 10/20/30/40 only matches 25/25/25/25 if the overall equity grant under 10/20/30/40 is higher to begin with. Depending on the time value of money, and upon one's personal opportunity costs year over year, that equity award might need to be significantly higher. Alternatively, as Sam suggests, there are compensating mechanisms (new grants, vesting acceleration based on performance, etc.). All things being equal, I wouldn't take a 10/20/30/40 over a 25/25/25/25, because it would be economically irrational to do so. But all things aren't supposed to be equal under the two structures.