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> Are there any other management practices where one would > optimize for former employees at the expense of current > employees?
As a founder, you aren't optimizing for either case. The unexercised options were granted to former employees, based on the work they did. Extending the exercise window is a policy specifically to help all employees (current, former, future) in making financial decisions.
No where does this investor even mention investors in the mix. It's only about how bad 10 year vests are for employees, which is laughable. It's bad for the investor class who gets diluted in this model.
Exactly the same for startup stock. The company granted the stock to investors for cash and employees for their service as part as a compensation package, and as the employee fulfills their service, they earn the equity as well as their salary.
>Are there any other management practices where one would optimize for former employees at the expense of current employees? I can’t think of any.
This is exactly backwards. You don't offer the 10-year clause ex post, you do it when the employee signs. That's optimizing for new employees, not old ones!
Earlier quoted context omitted.
I really don't understand why good employees work in startups instead of going to an IPO-ed company. Most of the time in the current climate they are worse off.
Ask the good employees of Facebook, Google, AirBnb, etc. who joined those companies early on. The upside for the employees where the company IPO-ed is just insane. Another reason might be the product/technology that the startup is working with that might be of interest to a good employee. Money is not everything.
Suggesting that early employees who are sold lower relative salaries and a dream are "taking away" from future employees is rather suspect.
Christ, I can't seriously believe this argument. As I understand it, the author believes that employees who have earned their options but can't afford to exercise them are a problem? Such arrogance, A16Z should really have thought twice about what such a blatantly anti-employee piece would do to their reputation. The gall of them to insinuate that this is a good thing because the true believers get paid for their wor…
The author's argument seems to be that it's better/easier for investors to wipe out employees who vested their options but couldn't afford to exercise. Well, no kidding.
I would like to present a corollary argument: early investors need to keep pumping money into the company in order to preserve their preferred shares, for as long as necessary until the company IPOs.
Christ, I can't seriously believe this argument. As I understand it, the author believes that employees who have earned their options but can't afford to exercise them are a problem? Such arrogance, A16Z should really have thought twice about what such a blatantly anti-employee piece would do to their reputation. The gall of them to insinuate that this is a good thing because the true believers get paid for their wor…
Classic example of good maths, bad thinking.
This is nonsensical. For employees where these options represent 90% of their wealth, the benefit from marginal time value in these options is trivial when compared to getting liquidity and diversification.
"The bottom line is that if companies are going to continue to stay private longer, we need to fundamentally re-think the stock option compensation model. We need better, careful, and more thoughtful solutions."
Seems like the simplest solution is just for the investors to force the company to go public.
Going public creates the liquidity that solves this problem. It might be at a lower sticker price, but at least employees can arrange financing to pay for excercize and tax needs.
That and they might be able to actually diversify from a portfolio no self-respecting LP would tolerate.
I don't get how this is any different from advocating for clawing back already-exercised options from former employees in order to issue them to new employees. It would be a convenient thing to do, but who in their right mind would want to work for a company like that?