I thought the whole point of startups was that there was a chance to come out ahead. If you extend the liquidity window to 8-10 years and invent models that provide "fair value" then what is the draw for working long hours at below market salaries?
The Lack of Options for Startup Employees’ Options
31–40 of 125 posts
Re: The Lack of Options for Startup Employees’ Options
#32Christ, 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…
"Rationally, the now-former employee will hold off until the end of the exercise expiration window before deciding whether to exercise at all." 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…
Our take...
http://bit.ly/youshouldsellyourequity
Re: The Lack of Options for Startup Employees’ Options
#33Christ, 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…
I completely agree. I think the following quote really captures the argument of the article: "There is a more fundamental issue at the heart of this seemingly good solution: A 10-year exercise window is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value, to former employees who are no longer contributing to building the business/ its ultimate valu…
I found that to be a bad argument as well. The author is conveniently ignoring the fact that those options vested in the first place. By that logic, why should investors get a lot of the windfall when they didn't "work hard" for the life of the company?
Basically it is a disguised argument against shareholders who are not already wealthy. "Here have these shares of the company. Oh, but you don't really deserve them because you didn't buy it with cash like we did, you earned it through sweat. Your labor is worth less than our capital".
Re: The Lack of Options for Startup Employees’ Options
#34This piece is inane and I'm surprised to see it published by A16Z.
Options are a form of compensation, it's not as if the value created by the early employee goes away if they leave before a liquidity event. They created value and got compensated for it. To call the process of making it easier for departed employees to actually get access to this part of their compensation "optimizing for former employees at the expense of current employees" is disingenuous. If it were somehow possible to claw-back the salary of former employees to pay for the salary of current employees would A16Z actually support that with a straight face? I don't see how this is any different. This whole piece is hopelessly amoral.
Re: The Lack of Options for Startup Employees’ Options
#35Christ, 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…
I completely agree. I think the following quote really captures the argument of the article: "There is a more fundamental issue at the heart of this seemingly good solution: A 10-year exercise window is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value, to former employees who are no longer contributing to building the business/ its ultimate valu…
> Instead, you, who have been directly responsible for making the stock price rise so much that your options are costly to exercise
I agree with what you're saying, but to clarify, it'd be the taxes which are prohibitively costly, not the act of exercising the options themselves (your hard work doesn't change the price at which you exercise; it just changes the amount that is taxable).
You may still be unable to afford the money it'd cost to exercise your full grant, but that figure was determined before you started working at the company, based on the size of your grant and the price at that time.
(IANAL)
Re: The Lack of Options for Startup Employees’ Options
#36Are there realistic alternatives to options? The point of them seems to be to attracting employees at less than market rate with the incentive that if the company grows they will get a financial reward. And doing so in such a way that it doesn't cost the company too much upfront.
Perhaps the company could buy a financial instrument from a company (secured against a portion of shares) that paid out employees according to a certain formula. If the company made it big the finance company would pay the workers and then recoup the cost from it's shareholding. IF the company died then the workers lose nothing.
Re: The Lack of Options for Startup Employees’ Options
#37Christ, 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…
I completely agree. I think the following quote really captures the argument of the article: "There is a more fundamental issue at the heart of this seemingly good solution: A 10-year exercise window is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value, to former employees who are no longer contributing to building the business/ its ultimate valu…
Good summary.
Unfortunately, I'm not aware of anybody these days that actually is deliberately treating early employees well in this regard.
On the one hand, there's the wink-and-nudge that joining early will make you a millionaire--but then you've got folks like this who are undermining the entire mythos.
I think we are all interested in how this will play out.
Re: The Lack of Options for Startup Employees’ Options
#38Despite some painful implications of his argument, one aspect of his solution is ok: more options with a longer vesting period. This helps keep the best people around for longer, as they continue to accrue benefits of the career and comp risk they took by joining an early stage company. There would be a lot less incentive for people to leave at 4 years. (In most companies, the equity per employee handed out later on is tiny compared to what you can give early employees)
Re: The Lack of Options for Startup Employees’ Options
#39This is a really good read. It pisses me off to no end, but anybody who is an engineer (especially an early engineer, christ!) should read this to try and understand the mindset of investors and new founders. This article articulates what seems to be a common sentiment among founders I've met: early employees who want to do good work and cash out are a liability. The rhetoric proposed here of "early employees who lea…
> try and understand the mindset of investors and new founders. Marc Andresson is Reacher Gilt.
I had to look up the Reacher Gilt reference (Terry Pratchett novel) but I know a handful of people who had to scrape together cash to buy their Gilt Groupe options and subsequently lost a lot of money in the sale.
Re: The Lack of Options for Startup Employees’ Options
#40Alternatively we can imagine a world in which Series A investors always get wiped out in a re-cap by Series B investors, who always get wiped out in a re-cap by Series C investors.
“Are there any other management practices where one would optimize for former investors at the expense of new investors?”