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Wouldn't this have the effect of changing the risk/return balance? For those joining your company early on, the risk would remain the same, but the return would

Wouldn't this have the effect of changing the risk/return balance? For those joining your company early on, the risk would remain the same, but the return would fall sharply (by ~50%), while for those joining late in the game, the risk would remain the same, but the returns would increase a lot. If everything else remains the same, people would be less willing to take risks and join early stage companies, instead trying to join near-IPO ones, where you can get a disproportional payout from minimum risk. To maintain the same risk/return profile, you'd need to pay much higher fixed salaries to early employees and lower to late employees, which would probably drive the startup bankrupt on the early stage page.

hkmurakami 12y ago
The thesis/argument in support of "Progressive Equity" would be that the risk/reward balance is still skewed strongly towards founders (and to a much less extent early employees). One's position with respect to this thesis would determine whether you believe this equity structure is a step forward or not.
ryandrake 12y ago
Where is it written that returns should necessarily so heavily be tied to risk? Many enterprises are structured this way, but there's no law that says it must be so.
- harryh 12y ago
  Because people won't generally buy high risk low return investments.
  - venomsnake 12y ago
    Zynga?
- cauterized 12y ago
  Because it's the only way to incentivize people to take that risk?
- ucaetano 12y ago
  Because if they are not tied to risk, they will be flooded by candidates, who will drive returns down to the same risk-adjusted levels again.
andrew 12y ago
I recommend setting the financial independence threshold high enough that normal people will feel like anything beyond it is useless anyway. So there's no real downside unless you have your heart set on spawning a couple of Foxcatchers. And there's tons of upside.
- ucaetano 12y ago
  And how much would that be? $100M? Which would generate a few M USD per year of disposable income?
  - deleted 12y ago
    [deleted]
- baddox 12y ago
  It's not just that the reward for joining early is smaller than it used to be. It's also smaller compared to joining later. The marginal utility of money is actually what's causing the problem. If I can join a company late with very little risk and a much higher chance to make a few million, I'm probably much less incentivized to join a company early with the risks associated with that.
  - droopyEyelids 12y ago
    But in this system the incentive to join early is still several multiples, mind boggling multiples, of what it is to join later.
    - ucaetano 12y ago
      Just as the risk is much, much higher. People just hear about those few who became bi/millionaires out of IPOs, not the thousands that never made it.
largote 12y ago
Definitely agree, one way to balance this would be to have each person be counted for each day/week they have worked there, so If I've been around for 2 years before the IPO I'd have 104 weeks that would get distributed to, whereas someone who joined a month before the IPO only has 4.
plumtucker 12y ago
It's impossible to determine risk in a startup. Later participants may be entering a higher-risk situation than early participants. Startups are too volatile http://www.slicingpie.com/the-magic-of-mutipliers/ http://www.slicingpie.com/the-magic-of-mutipliers/

hkmurakami 12y ago

The thesis/argument in support of "Progressive Equity" would be that the risk/reward balance is still skewed strongly towards founders (and to a much less extent early employees). One's position with respect to this thesis would determine whether you believe this equity structure is a step forward or not.

ryandrake 12y ago

Where is it written that returns should necessarily so heavily be tied to risk? Many enterprises are structured this way, but there's no law that says it must be so.

harryh 12y ago
Because people won't generally buy high risk low return investments.
- venomsnake 12y ago
  Zynga?
cauterized 12y ago
Because it's the only way to incentivize people to take that risk?
ucaetano 12y ago
Because if they are not tied to risk, they will be flooded by candidates, who will drive returns down to the same risk-adjusted levels again.

andrew 12y ago

I recommend setting the financial independence threshold high enough that normal people will feel like anything beyond it is useless anyway. So there's no real downside unless you have your heart set on spawning a couple of Foxcatchers. And there's tons of upside.

ucaetano 12y ago
And how much would that be? $100M? Which would generate a few M USD per year of disposable income?
- deleted 12y ago
  [deleted]
baddox 12y ago
It's not just that the reward for joining early is smaller than it used to be. It's also smaller compared to joining later. The marginal utility of money is actually what's causing the problem. If I can join a company late with very little risk and a much higher chance to make a few million, I'm probably much less incentivized to join a company early with the risks associated with that.
- droopyEyelids 12y ago
  But in this system the incentive to join early is still several multiples, mind boggling multiples, of what it is to join later.
  - ucaetano 12y ago
    Just as the risk is much, much higher. People just hear about those few who became bi/millionaires out of IPOs, not the thousands that never made it.

largote 12y ago

Definitely agree, one way to balance this would be to have each person be counted for each day/week they have worked there, so If I've been around for 2 years before the IPO I'd have 104 weeks that would get distributed to, whereas someone who joined a month before the IPO only has 4.

plumtucker 12y ago

It's impossible to determine risk in a startup. Later participants may be entering a higher-risk situation than early participants. Startups are too volatile http://www.slicingpie.com/the-magic-of-mutipliers/ http://www.slicingpie.com/the-magic-of-mutipliers/