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The Lack of Options for Startup Employees’ Options

a16z.com

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Re: The Lack of Options for Startup Employees’ Options

#71

Post by hkmurakami »

arciini wrote: post #17
andrewvc wrote: post #15

Christ, 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…

That quote is almost verbatim what Ben Horowitz said in his "one management principle" Stanford lecture. A16Z is fully onboard with Scott Kupor writing this piece.

Re: The Lack of Options for Startup Employees’ Options

#72

Post by [deleted] »

abcampbell wrote: post #29
andrewvc wrote: post #15

Christ, 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…

[deleted]

Re: The Lack of Options for Startup Employees’ Options

#73

Post by a13n »

andrewvc wrote: post #15

Christ, 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 read it completely differently. I'm pretty sure he is empathizing with those employees. He's saying it sucks that people must decide between leaving their pre-IPO company or forfeiting their valuable options. (looking at you Uber)

Re: The Lack of Options for Startup Employees’ Options

#74

Post by [deleted] »

andrewvc wrote: post #15

Christ, 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…

[deleted]

Re: The Lack of Options for Startup Employees’ Options

#75

Post by acslater00 »

a13n wrote: post #70
acslater00 wrote: post #68

Earlier quoted context omitted.

Because the 10-year employee will be granted additional shares after her initial option grant is fully vested. And in a world where both have the option of leaving and preserving their option value, the follow-up grant will likely be larger than it is in the status quo, because the company will have to incent B to give an additional 6 years of her life to the startup.

Sure but if you join on day 1 then the refresher grants could be peanuts compared to your initial offer? Why wait 4 years to find out you won't get any more equity instead of baking it into the original offer with a longer vesting period? Longer vesting periods + more equity guarantee that employees get more equity. 4 year vesting lets the board decide what happens.

No one is going to 2.5x their 4 year early grant and vest it over 10.

Re: The Lack of Options for Startup Employees’ Options

#76

Post by encoderer »

This is a joke. Dual basis of options should be fixed. That is the solution to the problem. It's not the cash for exercise, it's the AMT payment due at time of exercise. At least today we have credits which is better than it once was. But just fix this and this whole issue of 90 days or 10 years is way less important.

Re: The Lack of Options for Startup Employees’ Options

#77

Post by Zigurd »

akkartik wrote: post #47

Just 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.

It's only a problem if you quickly get stingy about options. And then your early employees, expecting to get topped up, leave. In a well-managed company, with a CFO who is prompting the right moves, it isn't a problem.

Re: The Lack of Options for Startup Employees’ Options

#78

Post by a13n »

acslater00 wrote: post #75
a13n wrote: post #70

Earlier quoted context omitted.

Sure but if you join on day 1 then the refresher grants could be peanuts compared to your initial offer? Why wait 4 years to find out you won't get any more equity instead of baking it into the original offer with a longer vesting period? Longer vesting periods + more equity guarantee that employees get more equity. 4 year vesting lets the board decide what happens.

No one is going to 2.5x their 4 year early grant and vest it over 10.

You could do 1.5x over 8. Employee gets more equity in the long run if they stay and still a great payout if they only stay 4 years. It's similar to what I plan to do for my company.

Re: The Lack of Options for Startup Employees’ Options

#79

Post by taneq »

velominati wrote: post #16

This 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 sal…

This is how I read it. He only feels that the employee is owed anything while they have something to offer the company. As soon as they're no longer working for the company, the amount they're owed becomes wasted 'dead money' that should be spent on keeping the remaining employees motivated, rather than given to someone who no longer matters.

Re: The Lack of Options for Startup Employees’ Options

#80

Post by encoderer »

a13n wrote: post #70
acslater00 wrote: post #68

Earlier quoted context omitted.

Because the 10-year employee will be granted additional shares after her initial option grant is fully vested. And in a world where both have the option of leaving and preserving their option value, the follow-up grant will likely be larger than it is in the status quo, because the company will have to incent B to give an additional 6 years of her life to the startup.

Sure but if you join on day 1 then the refresher grants could be peanuts compared to your initial offer? Why wait 4 years to find out you won't get any more equity instead of baking it into the original offer with a longer vesting period? Longer vesting periods + more equity guarantee that employees get more equity. 4 year vesting lets the board decide what happens.

In this scenario you give those employees a new 4 year refresher grant every single year. Not one at hire and one four years later. You pile them on both as a form of performance based compensation and to prevent the exact situation you describe.

In your example the guy who leaves after 4 years of low salary makes a lot less than the guy who gets incremental grants and a growing salary who is a vp at the end making 500k a year.

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