If anyone has questions about how this works, let me know!
I am a little confused. Why would you continue diluting the employees? don't they get heavily diluted by subsequent VC rounds already ?
Introducing Progressive Equity – Increase employee ownership as company grows
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Re: Introducing Progressive Equity – Increase employee ownership as company grows
#22I like the innovation here. If it catches on it will be interesting to see how the market values a company where a far larger slice of the employees are going to be financially independent. This arrangement doesn't really seem to be in the shareholders' interest.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#23How do you think this idea would combine with the Pinterest 7 year stock option idea? Both seem like good ideas that benefit the employees.
I assume that the Progressive equity would only be applicable to current employees of the startup.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#24Wonderful to see this new idea.
But Andrew: instead of inventing this new model, why not achieve the redistribution by changing the percentages of the well-understood system. So instead of, say:
50% founder, 35% investors, 15% option pool (i.e., all employees combined)
20% founder, 35% investors, 45% option poolRe: Introducing Progressive Equity – Increase employee ownership as company grows
#25This is great, though one key practical challenge: in most cases only founders will really be "taxed" in a meaningful way, so it requires that founders want to and decide to do something that loses them some serious $$ (as noted in answer to the second FAQ).
While I believe the additional upside presented to employees will have a positive impact re: incentive alignment and motivation, it is TBD if the gains realized by the founders will exceed the cost to the founders - I think that will be required before massive adoption (probably the biggest challenge here is measurement of that impact).
Still, hopefully some just-plain-nice founders do this, and I hope it gets them a great team and great success.
Even without mass adoption, it would be awesome to see this get adopted by other companies who (like Detour) were started by already-exited founders who are on a second (or third/fourth/fifth) project - there are actually a lot of them, so hopefully enough are gracious enough to experiment with this AND achieve success so that there is a sound basis for adopting this more widely (of course the trade-off might not be in the progressive equity’s favor – and while I’m making caveats, serial entrepreneurs generally do better than the first time entrepreneur for a bunch of other reasons like experience/connections, so it will be hard to determine/quantify what portion of success can be attributed to progressive equity and not to other factors…still hope they give it a shot anyhow).
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#26Wouldn'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…
Where is it written that returns should necessarily so heavily be tied to risk? Many enterprises are structured this way, but there's no law that says it must be so.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#27What about people who joined early vs those who just joined?
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#28That'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.
> it's difficult to go back in time and re-write the employee stock plan.
As well it should be.
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#29If anyone has questions about how this works, let me know!
If I'm an employee above the distribution threshold, doesn't this incentivize me to leave early (ideally right before the distribution event) rather than get my shares redistributed?
Re: Introducing Progressive Equity – Increase employee ownership as company grows
#30If 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.
It doesn't seem like it. My read is that 50% of the windfall is distributed evenly and 50% is distributed according to the existing equity disbursement. It's like a basic income. It's designed so that in a company of N employees, no one gets less than 1/2*N of the payout.
It's a great idea because it means that average employees will actually be motivated by the equity; let's be honest, 0.05%, vesting over 4 years, of a 100-person company isn't enough to motivate anyone except for a starry-eyed young kid on his first startup.
If Silicon Valley ever wants to grow up and remain innovative, that's the sort of thing we'll need. A 0.05% slice is just a bonus and, compared to Wall Street, a pretty weak one.