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Stop taking advice about equity from VCs. If you've ever read a term sheet or a SPA, then you know that VCs have a huge incentive to encourage founders to incre

Stop taking advice about equity from VCs. If you've ever read a term sheet or a SPA, then you know that VCs have a huge incentive to encourage founders to increase the size of their option pools: your typical term sheet requires the existing shareholders to take the dilution of the option pool rather than the investors. Because of this, the bigger your option pool is the lower your price-per-share becomes, and as such the investor gets a bigger cut. It requires founders to budget their option pool up front and divvy it up carefully until the next round of funding. These terms ENCOURAGE founders to keep their option grants tight. Sam Altman and others need to put their money where their mouths are - if you want bigger option pools for employees then remove this clause from your term sheets and encourage other investors to do the same. If you think that more employee equity is good for business, then give us more flexibility with the option pool and share the dilution with us. Don't blame us when the real change starts with you.

tptacek 12y ago
The option pool issue is obviously a hot button here, but remember that Sam Altman's commentary on it ends with "Option pools are complete fiction; boards can increase them whenever they want. It should never be used as a reason for not making a grant.".
- claudiusd 12y ago
  I do agree with him on that, but ask any founder if they feel like that's a real option. Any VC pre-closing will certainly give the impression that it is not.
  - malandrew 12y ago
    Unless YC goes out on a limb here and starts pushing to make it a condition for getting face-time with YC companies on demo day. IANAL, I would expect it's collusion if the startups get together and start agreeing to terms they will accept collectively. But if instead YC, a single entity, uses entrance into its demo day event, as a bargaining chip that can change the conversation around term sheets for the entire industry. i.e. make this rule: Every investor YC allows into demo day may only offer term sheets that does not require the size of the option pool to be raised until after closing the financing. Instead the size of the equity pool will be negotiated after funding closes and will be based on the amount of dilution both the founders and employees and the VCs think okay with relative to the benefit they receive from a larger pool. Individual YC companies would still be free to engage with investors outside and after the demo day event and take the less favorable terms where the option pool is negotiated ahead of time.

tptacek 12y ago

The option pool issue is obviously a hot button here, but remember that Sam Altman's commentary on it ends with "Option pools are complete fiction; boards can increase them whenever they want. It should never be used as a reason for not making a grant.".

claudiusd 12y ago
I do agree with him on that, but ask any founder if they feel like that's a real option. Any VC pre-closing will certainly give the impression that it is not.
- malandrew 12y ago
  Unless YC goes out on a limb here and starts pushing to make it a condition for getting face-time with YC companies on demo day. IANAL, I would expect it's collusion if the startups get together and start agreeing to terms they will accept collectively. But if instead YC, a single entity, uses entrance into its demo day event, as a bargaining chip that can change the conversation around term sheets for the entire industry. i.e. make this rule: Every investor YC allows into demo day may only offer term sheets that does not require the size of the option pool to be raised until after closing the financing. Instead the size of the equity pool will be negotiated after funding closes and will be based on the amount of dilution both the founders and employees and the VCs think okay with relative to the benefit they receive from a larger pool. Individual YC companies would still be free to engage with investors outside and after the demo day event and take the less favorable terms where the option pool is negotiated ahead of time.