Would issuing RSUs instead of options avoid this issue?
Avoids some of the issues, creates more particularly limiting upside potential.
Strong recent article https://medium.com/@chamath/spending-money-to-make-money-aka...
The Lack of Options for Startup Employees’ Options
11–20 of 125 posts
Re: The Lack of Options for Startup Employees’ Options
#12Earlier quoted context omitted.
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.
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.
Re: The Lack of Options for Startup Employees’ Options
#13Earlier quoted context omitted.
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.
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.
Public companies can be a drag.
Re: The Lack of Options for Startup Employees’ Options
#14This 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.
Re: The Lack of Options for Startup Employees’ Options
#15Christ, 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 work is just grating.
Re: The Lack of Options for Startup Employees’ Options
#16This article states that former employees are "lining their pockets" at the expense of current employees who are "build[ing] future shareholder value" (i.e. creating value for VCs). But it ignores the fact that those former employees already built shareholder value when they were working. And by joining early on they took a much larger risk than employees who sign on during the growth stage - often receiving less salary and certainly holding more uncertainty over the future value of their equity.
A longer exercise window is a benefit that accrues to all employees, because it applies to all of them.
The author's proposed solution feels quite absurd to me - to prevent exercise of stock options by any employee who departs for a liquidity event. I wouldn't join a startup that had these provisions.
Re: The Lack of Options for Startup Employees’ Options
#17Christ, 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 value."
In short, Kupor believes that even if you chose a lower-salary, higher-options/equity package, you should be stripped of your options if you leave. To him, it's only fair if only investors and employees who remain get to keep equity. Instead, you, who have been directly responsible for making the stock price rise so much that your options are costly to exercise, deserve nothing.
Re: The Lack of Options for Startup Employees’ Options
#18Christ, 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…
exactly. if you want people to stay at your company and add value, try not fucking them over. people who know that you have and will treat them fairly are more likely to add value to your business. people who know that they have 90 days to access the benefit of working for you will look for shortcuts to make sure that their interests are maximized.
Re: The Lack of Options for Startup Employees’ Options
#19Would issuing RSUs instead of options avoid this issue?
No, it wouldn't, they come with their own problems, which is why tech companies switched to greater option packages to begin with.
There are financial instruments that could solve this problem, or simply any set of conditions, colloquially called a contract in some circles. It is difficult to introduce financial instruments in the US due to a variety of onerous regulations between the IRS, FASB, SEC and the associated capital structures companies take to comply with them. I have seen financial instruments that solve this problem, in Europe.
I forget the name of them but German companies offer them to employees, they are functionally similar to a hybrid stock bond, as they are 'granted', I think they represent shares, and they also give coupons for several years, until maturity.
But don't fawn over the possibilities of glorious Europe, because the grants are pitifully small. If you think the privilege of coughing up $7,000 for your worthless options is not good enough, well you'll get like 1/10th of that out of a European company, so lets focus on the issues that matter and try to culturally appropriate something that seems like it could work better.
Re: The Lack of Options for Startup Employees’ Options
#20Would issuing RSUs instead of options avoid this issue?
Avoids some of the issues, creates more particularly limiting upside potential. Strong recent article https://medium.com/@chamath/spending-money-to-make-money-aka...
Nice article! Good graphs. Of course, not having stock at all because you can't afford your options may limit the upside potential even more than RSUs. Maybe it could be choice.