If this doubles the chance of a unicorn, then everyone involved comes out ahead. Nice system
What does "the chance of a unicorn" mean?
Introducing Progressive Equity – Increase employee ownership as company grows
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Re: Introducing Progressive Equity – Increase employee ownership as company grows
#12If anyone has questions about how this works, let me know!
I guess you give the same amount of kickers to every employee. Wont the kickers then be too diluted to be worth anything? I haven't done the math, just a feeling.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#13If this doubles the chance of a unicorn, then everyone involved comes out ahead. Nice system
What does "the chance of a unicorn" mean?
Unicorn usually refers to a company valued at >$1 billion[1].
So if a scheme like this increases the odds of massive success enough, then the average return to everyone (even those 'taxed') under this progressive scheme would be higher than with a normal equity scheme and the reduced chance of a world-changing exit.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#14Okay this is a really cool concept. I'm going to read over the paperwork to make sure I understand this but if it's what I think it is I love it and will totally use it when I start my startup. Thanks!
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#15[deleted]
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#16I don't know if the mechanics work out (designing legal structures like this is super-tricky), but the idea is wonderful. Do you think it's possible to implement this in an existing (post-series A but pre-unicorn) company, or does it have to happen before the company takes on significant funding?
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#17Wouldn't this have the effect of changing the risk/return balance? For those joining your company early on, the risk would remain the same, but the return would fall sharply (by ~50%), while for those joining late in the game, the risk would remain the same, but the returns would increase a lot.
If everything else remains the same, people would be less willing to take risks and join early stage companies, instead trying to join near-IPO ones, where you can get a disproportional payout from minimum risk.
To maintain the same risk/return profile, you'd need to pay much higher fixed salaries to early employees and lower to late employees, which would probably drive the startup bankrupt on the early stage page.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#18Wouldn't this have the effect of changing the risk/return balance? For those joining your company early on, the risk would remain the same, but the return would fall sharply (by ~50%), while for those joining late in the game, the risk would remain the same, but the returns would increase a lot. If everything else remains the same, people would be less willing to take risks and join early stage companies, instead try…
The thesis/argument in support of "Progressive Equity" would be that the risk/reward balance is still skewed strongly towards founders (and to a much less extent early employees).
One's position with respect to this thesis would determine whether you believe this equity structure is a step forward or not.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#19That's a great idea! You're in kind of a unique situation, so I'm trying to figure out to what extent this idea can apply to your average startup. What were the reasons the Groupon board opposed your original proposal to redistribute equity? This time around, what type of pushback did you get from your lawyers and investors? Second, consider the "median" startup raising a series A or B--not necessarily a rocket ship…
If Mr. Mason had proposed the progressive equity plan to the board at Groupon, the board may very well have agreed (it doesn't really impact the investor), but he would have had to get buy-in from the rest of the employees too (or risk revolt and lawsuits).
It's fine that everyone agree to this up front as they join the company, but it's difficult to go back in time and re-write the employee stock plan.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#20This is really interesting, and I always like rethinking of equity distribution--since it's so lopsided currently. Some questions off the top of my head - Since employees leaving don't receive from the kicker pool. Doesn't this incentivize people who are unhappy and want to leave to stay? There are some benefits to this, but seem like a ton of costs too (and part of what Pinterest's change was addressing) - How is th…
> Doesn't this incentivize people who are unhappy and want to leave to stay? So does any other kind of "golden handcuff" stock option or time-vested stock grant.
Agreed. But to different degrees. In its current form this would be the strongest--since you can never leave if you want any of those shares.
Also, consider this. Someone who joined one month before IPO would get more from the kicker than someone who worked for years and then left 1 month before IPO.