No Exit

I like the comparison to Puritanism and delayed gratification. There is something there.<p>Even long after active religious beliefs are gone, there is a long trail of attitudes and habits which linger on. They just become part of culture.<p>Also those institutions or individuals (owners) who can tap into those attitude and play them against others can reap great benefits. There are a bit like settings and switches already there, just have to turn them on.<p>&quot;Work hard and you&#x27;ll be rewarded in the afterlife&quot;. In this case the &quot;afterlife&quot; like the article mentions is the exit event, or what used to be the IPO.<p>This belief is useful both to the owners (the ones who control the believers), but it is also useful to the believers as well. It provides comfort and a sense of mission. That last bit is readily discarded, but I think it is a very important part in the equation.<p>People will work 80 hour weeks at below market salary if they get to fantasize of being a multi-millionaires. Even people who think themselves beyond irrationality and silly biases (programmers in our case) will go for it.<p>Maybe the ability to fantasize, is actually worth something. Perhaps imagining oneself a little Zuckerberg or Mark Cuban, should be worth something. You are closer to that dream by working in a startup than say working for a big corp or sandwich shop. Is that dream worth the salary cut and uncertainty? That&#x27;s the question.<p>Comparing with other countries, I wonder if there are cultures where this wouldn&#x27;t work as well. And it might explain why startups just can&#x27;t take off there. Let&#x27;s suppose there is capital and talent but people there might ask &quot;Yeah what&#x27;s in it for me today?&quot; and if the answer is &quot;You can dream about being wealthy in the future&quot;. They&#x27;ll say &quot;No, thank you&quot; more readily. It could be because of a religious background or they simply have less faith in official institutions.

Great points. I don&#x27;t know about the 90s, but in this era, you either want founder-level equity or market salaries. There&#x27;s too much uncertainty about the outcome, too many circumstances that can affect it, and too long a time window in which these circumstances can play out, for anything else.<p>Time is an important factor here, more for employees than, say, investors because you don&#x27;t have a portfolio of multiple lives. Several years of your life count for a lot; be clear-eyed about where they&#x27;re going.

The bit about Gowalla&#x27;s Facebook &quot;acquisition&quot; is an important point for investors, and one I think the Crowdfunding excitement overlooks.<p>I&#x27;ve sold a couple companies and been an insider in a couple other acquisitions, and many of the knobs that get turned during the negotiations are about retention&#x2F;compensation plans. It&#x27;s hard --- like, it actually can be a problem when trying to close the deal --- to balance employee retention and the interests of investors. Even in the best case, every dollar you&#x27;re giving to current team members is an incentive for the management of the company to accept a lower sales price.<p>In some egregious cases, one of them pretty infamous in the security world and the reason I&#x27;ve promised myself I won&#x27;t spend real money to execute employee options, management and current team members got basically the normal proceeds of an acquisition and investors got zero.

There is another way for equity to have some value.<p>It&#x27;s an old approach, but still works surprisingly well, and it doesn&#x27;t even require anyone to buy the company or have an IPO.<p>You can earn a profit and then pay that profit to the shareholders in the form of dividends.

To push back on part of the post:<p><i>&quot;Many have blamed the decline of the IPO market on regulatory changes, such as the Sarbanes-Oxley Act.. There’s another important reason fewer and fewer startups go public these days, though: acquisition by an established company is a far easier, and, often, more lucrative, exit strategy.. A few extreme outlier exceptions such as Google and Facebook notwithstanding, acquisitions have been by far the most viable exit for small tech companies since the end of the dotcom bust.&quot;</i><p>Acquisitions have been more viable than IPOs for _precisely_ the same period we&#x27;ve had Sarbanes-Oxley. How the heck is this &#x27;another&#x27; reason, then?

As an employee the rational reaction to illiquid equity with uncertain value, would be to simply discount it and demand a higher cash compensation. This is a problem for founders and VC, but I can&#x27;t see why it&#x27;s a problem for employees. If comp is bad they just walk. It&#x27;s not like a good engineer can&#x27;t easily land a job.

<i>you’re never more attractive a target for firing than right before your one year anniversary [Disclosure: Tumblr fired me approximately one month before my vesting cliff.]</i><p>Ouch.

I think the author is giving people too much credit for optimism, and too little credit for the kind of thinking that has kept gambling such a profitable venture...<p>...for casinos. I suspect anecdotally, with no hard evidence whatsoever to back it, that the people who get into startups a lot, are the types of people who are very aware that other people have made insane fortunes that way, and they want <i>that</i>.

Reminds me of: <a href="https:&#x2F;&#x2F;m.signalvnoise.com&#x2F;reconsider-41adf356857f#.56isp7plw" rel="nofollow">https:&#x2F;&#x2F;m.signalvnoise.com&#x2F;reconsider-41adf356857f#.56isp7pl...</a>

I should really stop being surprised at how much productivity and work is funded through fake money. &quot;This has value, trust me,&quot; would tip off anyone. When the &quot;trust me&quot; is simply replaced with a large cultural delusion it works like a charm.

&gt; “Equity is critically important because it is the thing that everybody has in common. Since everyone benefits from an increased share price, everyone tries to increase the share price.<p>I don&#x27;t understand this. I have equity. I don&#x27;t care about it, since I value it at ~$0.

I have a pet compensation idea: founder shares should be soft capped at some threshold (5m a head plus a quarter of anything above that?) with the part above the cap redistributed to employee stock holders such that mid sized exits (~100m), which are significantly more common are financially rewarding for more people in the company.<p>I don&#x27;t know if this is practical, but as an early employee at a startup it&#x27;s hard to not feel bitter about the massive disparity. Usually I try to avoid thinking about it.

I have limited experience with this, being in the Sacramento area, rather than the Bay Area.<p>However, my experience back in the late 90s &#x2F; early 2000s went reasonably well. I was working for a newer department in a firm owned by private equity (which had been turning modest profits in one division or other for 20 years). We were purchased by a fortune 1000 company. As a team lead and key contributor to some of the infrastructure around the place, I received a nice little bundle of options, which were actually worth a little something in a year or two. Anyway, I stuck around for a little while during the transition, eventually got fed up with the parent company&#x27;s stupidity, cashed out, and moved on. The options pretty much paid for a 6 month sabbatical while I retrained.<p>The numbers in my region sound tiny compared to SV numbers, but we bought a 3 bedroom house on an acre (in the foothills) for $140 K back in the late 90s, so you didn&#x27;t need a 200K &#x2F; year salary to get by.<p>Since then, I have worked at places that either offered some kind of pension, or had significant yearly bonuses. Show me da money! :-)

I&#x27;m an engineer at startup <a href="http:&#x2F;&#x2F;www.equityzen.com" rel="nofollow">http:&#x2F;&#x2F;www.equityzen.com</a>, which is a private secondary market that provides the alternative option of selling startup shares before an IPO or exit, rather than waiting or letting the shares go unexercised.<p>I believe that the secondary market is becoming a much more popular option to startup employees as companies start to take notice of the current issues with liquidity.

<i>RSUs are taxed as soon as they vest. This means that employees with RSU grants are continuously accumulating illiquid but taxable income based on the company’s current fair market value. This can prove disastrous for employees who have already paid taxes on RSUs whose values have declined precipitously.</i><p>I wonder if you could introduce a kind of &quot;Franked RSU&quot; where the company pays the tax obligation at vesting (for certain agreed taxation jurisdictions)?

As I&#x27;m entering the fourth decade of my life, I have actively started avoiding any company that 1) self identifies as a startup, 2) employs less than 50 people, 3) is VC funded in any capacity. It&#x27;s not because I have anything against them in particular, it&#x27;s just that my risk profile has been changing together with my age, and I&#x27;m not really willing to put in the same crazy hours as 5-10 years ago in return for the right to participate in a de facto lottery.<p>Many experienced engineers I know feel the same.

&quot;These industries are a rich source of e - KYC(know your customer) data. Airlines alone served 2.8 billion passengers in 2011. Every person who checks into a hotel has to supply&quot;<p>I don&#x27;t think this needs to be said but if my airline stats selling where I go to advertisers I&#x27;m not going to be using that airline anymore. It&#x27;s bad enough they are selling it to governments.

The thing about these is they are written by older folks who don&#x27;t realize that the risk&#x2F;reward calculation changes depending on how old you are. It makes sense to take on risk when you&#x27;re young, and not when you&#x27;re old. Pretty simple..