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I think it's more along the lines of "the old way we used to value and award options/equity isn't very compelling for employees these days. We need to think of

I think it's more along the lines of "the old way we used to value and award options/equity isn't very compelling for employees these days. We need to think of better ways to give employees ownership." That's a real problem for people trying to start a company without a lot of cash. If it's to be useful as compensation, equity should be valuable, but it's not because the payout is so uncertain and so far away. Throw in terms that leave multiple opportunities to kiss the whole payoff goodbye just because of life (or worse yet, get screwed over by the IRS), and it's no wonder employees don't particularly value equity. Typical option agreements are not terribly effective, so you may as well just pay cash unless there is a better way to distribute ownership in today's environment. It's not a simple problem to solve. Saying "give more equity" doesn't really do it if the problem is that the likelihood of seeing a payout is too small. And making the payout more certain is not easy.

ChuckMcM 11y ago
If that is the problem, to make it more compelling, then you're simply advocating a pay raise. Equity is called compensation but anyone who is working at their second startup should understand that calling that is misleading at best. Since the average tenure at the 'first startup' is about 2 years, consider it a 'masters program' in learning about what is and what is not compensation. So if you're going to take equity in lieu of cash you need to understand how to compute the expected value of equity. And in early stage companies its almost always zero. In an acqui-hire sort of situation it is zero and your retention package is based entirely how important you are to making the eventual use of the technology successful. Doesn't matter if your a founder or not, if you're not useful you get nothing, if you are you get something. But lets step back and ask the question again, if "equity" is the deciding factor in your decision as an employee to join a startup, then you are clearly doing it wrong. If you want equity to mean something, join a company that is already publicly traded, then those ISO options or RSU have real dollar value that you can compute using Black-Sholes or any other method. Stock in a pre-series B startup exactly equivalent to the collected wishful thinking of the founders and investors. And all of them know that if they get their money back they will count themselves lucky. What is broken then is not how we compensate people coming into startups, it is the misconceptions they have about how startups work, and the fundamental fact that "stock in a startup" is even on the list of things they want. All you can ever ask for is interesting work, people that are fun to work with, and enough salary to pay the bills and put money into a 401k. If you have all of those as an employee than any stock you get that happens to become valuable is all bonus.
- damoncali 11y ago
  A pay raise would do it. But actual money is hard to come by in an unprofitable high growth company. What is really desirable is a way to distribute equity in a way that is not so complex from a legal and taxation stand point, is manageable for employers, and is understandable by employees without a finance degree. That's a pretty hard problem, and the shift in exit patterns over the last 10 years has made it even more difficult. The realization of the ideal that you can just get a percentage of the company for putting in your time working hard is largely elusive. I think that is the problem to solve. I'm not terribly optimistic there is a way to solve it outside of "don't give as much equity since nobody wants it", but I like to think there are smarter folks out there who can come up with something.

ChuckMcM 11y ago

If that is the problem, to make it more compelling, then you're simply advocating a pay raise. Equity is called compensation but anyone who is working at their second startup should understand that calling that is misleading at best. Since the average tenure at the 'first startup' is about 2 years, consider it a 'masters program' in learning about what is and what is not compensation. So if you're going to take equity in lieu of cash you need to understand how to compute the expected value of equity. And in early stage companies its almost always zero. In an acqui-hire sort of situation it is zero and your retention package is based entirely how important you are to making the eventual use of the technology successful. Doesn't matter if your a founder or not, if you're not useful you get nothing, if you are you get something. But lets step back and ask the question again, if "equity" is the deciding factor in your decision as an employee to join a startup, then you are clearly doing it wrong. If you want equity to mean something, join a company that is already publicly traded, then those ISO options or RSU have real dollar value that you can compute using Black-Sholes or any other method. Stock in a pre-series B startup exactly equivalent to the collected wishful thinking of the founders and investors. And all of them know that if they get their money back they will count themselves lucky. What is broken then is not how we compensate people coming into startups, it is the misconceptions they have about how startups work, and the fundamental fact that "stock in a startup" is even on the list of things they want. All you can ever ask for is interesting work, people that are fun to work with, and enough salary to pay the bills and put money into a 401k. If you have all of those as an employee than any stock you get that happens to become valuable is all bonus.

damoncali 11y ago
A pay raise would do it. But actual money is hard to come by in an unprofitable high growth company. What is really desirable is a way to distribute equity in a way that is not so complex from a legal and taxation stand point, is manageable for employers, and is understandable by employees without a finance degree. That's a pretty hard problem, and the shift in exit patterns over the last 10 years has made it even more difficult. The realization of the ideal that you can just get a percentage of the company for putting in your time working hard is largely elusive. I think that is the problem to solve. I'm not terribly optimistic there is a way to solve it outside of "don't give as much equity since nobody wants it", but I like to think there are smarter folks out there who can come up with something.