When an employee leaves, you should also claw back all of the pay you've ever given them. I mean, they're no longer helping the company grow. That's just lost money, flying out the door.
The Lack of Options for Startup Employees’ Options
41–50 of 125 posts
Re: The Lack of Options for Startup Employees’ Options
#42Well the actual issue is paying taxes on equity which can't be sold on either public or private markets. Founders don't have to do that (surprise) and neither do VCs. Suggesting that early employees who are sold lower relative salaries and a dream are "taking away" from future employees is rather suspect.
> Founders don't have to do that (surprise)
Founders do, but the taxable amount is zero. You can do this too as an employee, by early-exercising your entire grant on the day you join (assuming your company allows it). However, it's probably not advantageous to do this unless you're an early employee, because you're exposed to all the risk, and that money is now completely illiquid.
> and neither do VC
Correct, but VCs aren't getting their shares at a below market price (which is the whole point of options - you generally exercise them when they're "in the money", ie, cheaper than the market price).
Re: The Lack of Options for Startup Employees’ Options
#43This 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…
I really don't understand why employers don't allow the employees to exercise the options right in the beginning when the value is much much lower.
Employers need to get an independent valuation prior to issuing options. If you're hiring employees at a later stage, your hands are tied.
Re: The Lack of Options for Startup Employees’ Options
#44This is absolutely crazy. What is earned is earned. And it is, in fact, distinctly possible that early employees at t(0), now gone, have done more to contribute to shareholder value than the subset employed at t(1).
Re: The Lack of Options for Startup Employees’ Options
#45> That doesn’t seem very fair at all. 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.
Options with vesting seem little different from pensions in this respect.
Re: The Lack of Options for Startup Employees’ Options
#46Christ, 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 thought from the title this article would be about the myriad of ways that startup employees can get screwed. Remarkably, all he does is propose another way to screw them.
Silicon Valley with its sky-high cost of living is nothing more than a lottery. Those who have won the lottery mistake their luck for "smarts" and become "venture capitalists" who exist simply to grease up their fellow winners.
Re: The Lack of Options for Startup Employees’ Options
#47Just one addition to all the other critiques in this thread.
"The challenge in broadly adopting the 10-year exercise rule for all employees at the outset of the company as a solution is that it disadvantages employees who choose to make a long-term commitment to the company relative to those who leave."
Employees who stay longer get more options than employees who leave early. I don't see the problem.
Re: The Lack of Options for Startup Employees’ Options
#48Are 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…
Don't do options, just give the employees the stock and you eat the tax bill.
If that tax bill becomes too large to be worth it, then it's time to give your employees RSUs.
But you say, how about vesting and such? It's a waste to pay those taxes if the guy leaves after 2 years. You just paid 2 years of taxes for no reason!
That means in practice you'll be giving RSUs around the series A or B funding point.
Another option is you give the employees a non-recourse loan to 83b purchase their options on hiring. The loan is due on a liquidity event when it's higher than the price of the options. This makes it a tax optimal and zero-cost way to give stock to your employees. I don't know if that is legal although.
Another option is to make your options just expire after 100 years.
Re: The Lack of Options for Startup Employees’ Options
#49Despite 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…
The best people will stay around because they are doing their best work. Longer vesting periods will just keep the best from working at that company.
Re: The Lack of Options for Startup Employees’ Options
#50Christ, 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…
> Christ, I can't seriously believe this argument.
Capitalism!