Employee Equity: Too Little?

57 点作者 arnauddri大约 11 年前

16 条评论

tptacek大约 11 年前

The other problem with large equity grants to employees is that employees discount them irrationally, why by "irrationally" I mean things like "by trying to value them without doing the math or research". Employees are usually at a sharp disadvantage when it comes to valuing equity, which means that when you allocate it to employees, you're paying a premium to do that.My sense of it is, it's good to give generous equity to keep the team's skin in the game, so that the ups and downs of the business are meaningful to everyone. And, key team members that really want equity and are willing to do the work to value it, also good. But pro-forma "competitive" equity grants? Pay cash instead.Incidentally, the odds that the "best" engineers getting 10% of startups at signup are actually the best developers is, I don't know, something like 𝛆.

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claudiusd大约 11 年前

Stop taking advice about equity from VCs. If you've ever read a term sheet or a SPA, then you know that VCs have a huge incentive to encourage founders to increase the size of their option pools: your typical term sheet requires the existing shareholders to take the dilution of the option pool rather than the investors. Because of this, the bigger your option pool is the lower your price-per-share becomes, and as such the investor gets a bigger cut. It requires founders to budget their option pool up front and divvy it up carefully until the next round of funding. These terms ENCOURAGE founders to keep their option grants tight.Sam Altman and others need to put their money where their mouths are - if you want bigger option pools for employees then remove this clause from your term sheets and encourage other investors to do the same. If you think that more employee equity is good for business, then give us more flexibility with the option pool and share the dilution with us. Don't blame us when the real change starts with you.

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balls187大约 11 年前

"Let’s say that you want to hire a top software engineer and are competing with equity grant offers from Facebook and Google where the value of the grant is $1mm. If you have a current valuation on your company of $10mm, then you have to offer 10% of the company to compete for that engineer. I am not saying the engineer isn’t worth it."I totally disagree here.I don't think you compete with Facebook on comp in this manner. Facebook stock is as good as cash. Stock at a ~A/post A company isn't. Even if you say you'll give this employee $1mil worth of stock, there is a high likelihood that stock isn't going to be worth it.Don't go after Facebook's top engineers trying to compete with comp until you have the resources to get them, take the money ball approach and find talented people who aren't having the world thrown at them yet, and lure those people away.

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7Figures2Commas大约 11 年前

> Let’s say that you want to hire a top software engineer and are competing with equity grant offers from Facebook and Google where the value of the grant is $1mm. If you have a current valuation on your company of $10mm, then you have to offer 10% of the company to compete for that engineer. I am not saying the engineer isn’t worth it. She is.1. Facebook and Google are publicly-traded. $1 million in equity at a publicly-traded company is not the same as an equity grant at a startup that is theoretically worth $1 million based on the valuation given to the startup by venture capitalists in its last round. The startup's equity might never be liquid and it's far more vulnerable.2. Most startups do not have to compete with Facebook and Google on compensation. Most of them can't really afford to. The truth of the matter is that as a startup, if you can't get folks excited about working for you without matching the dollars offered by the richest tech companies, there's something wrong with your value proposition or you're trying to recruit the wrong people.3. What's the difference between a "top software engineer" and a "software engineer"? Different companies have different needs. This idea that all startups need the best of the best (i.e. the person who Facebook and Google are battling for) and that you can't put a limit on the worth of an engineer ("I am not saying the engineer isn’t worth it") is ridiculous.

kenjackson大约 11 年前

Fred seems to ignore that it costs less to create a viable company now. Hence the amount they need to raise from VCs is smaller. In the past I may have needed $30m from VCs, now I need $5m.Additionally, as hapless notes, the cost of good engineers is the price of business. You could flip it the other way and say that VCs should pony up the $30m and founders give the engineer $1m signing bonus with market wages and no equity. But I think founders would be more squeamish about that then giving up equity that really has little cash value 90% of the time.BTW, I've never seen a non-founder engineer get 10%. Maybe it happens, but I think its still pretty rare.

chasing大约 11 年前

I find it weird that the only discussion about this seems to be coming from the founder/VC side of things.Any offer has two sides. The one who offers and the one who accepts (or declines). And I feel like employees need to fully understand what they're getting themselves into. Then they can decide whether what they're being offered is worth it.The last time I was offered a chunk of equity to work with a start-up, I ran the math and decided it wasn't enough to compete with other opportunities. The start-up wouldn't agree to raise the equity to a point I was comfortable with, so I walked and went on to other projects.If more employees negotiated -- and negotiated seriously from a place of knowing both their value and the value of the offer -- I feel like we'd quickly get a better sense of how much equity is fair.

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mjmahone17大约 11 年前

If we take this article down the "slippery slope" it proposes, you'd end up with 8 people in the company owning ~80% of the total equity, with the "founder" only owning ~15-20%. But why this is a negative thing for the company is still up in the air: at that point, you might as well have a partnership, like consultancies, law firms or advertising agencies. There's no inherent reason a partnership couldn't make the next LinkedIn or Oculus Rift.

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hapless大约 11 年前

If it costs you 10% of your company to attract a top engineer, and it's not worth that much to you, you're going to make do with less than the top engineers. At best, you will be recruiting people not smart enough to ask important questions about equity.Fred Wilson seems to be suggesting that founders should indeed hire second-rate candidates if it means they get to keep more of the pie. Maybe he's right.

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fingerprinter大约 11 年前

This is dumb. There are at least three sides the equity equation: founders, VCs/investors and employees.I notice that only two are considered "variable" in this article: founder and employee.The fact is, VCs/Investors are becoming less needed than they were 10-20 years ago. Why wouldn't it be logical for their stake to take a hit for the money they put in?

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zacharycohn大约 11 年前

"...companies make very large grants to early employees and that ends up hurting the founder’s stake..."Isn't that the point? That early employees are worth more than they've historically been compensated?

brudgers大约 11 年前

[Preface: My assumption is that Altman is thinking about greater employee equity as something which will create value in YC's portfolio companies. I take it as a given that YC now has sufficient data points to perform regression analysis on this sort of thing among their portfolio companies (and perhaps others outside their portfolio), and that Altman's attention has been drawn by some trend in YC's data and the possibility of increasing YC's rates of return.]I doubt Altman is trying to make life easier for VC's like Wilson. My sense is that YC's business model is oriented to disrupt the traditional VC model and more closely align the interests of investors with those of people at the company. Pretty much every financial innovation YC has made has had the effect of pushing the transfer of power from the people working at the company to those providing capital further and further down the road - from YC's taking common stock, to connecting companies with Angels, to convertible note financing, each move has been toward getting capital into companies without payment always being made in board seats.YC's stated goal is to invest in people over ideas, while founders may be the first order investment, the employees of the companies they fund are still a critical part of that bet. Thinking on the bigger horizon, more equity for employees favors founders whose ability to get things done is less dependent on total control, which almost certainly correlates with the sort of leadership that benefits big companies - and big companies are the outliers that YC is looking for.To put it another way, a CEO who has experience building consensus among principle and minority shareholders is better prepared to deal with the diverse and competing ownership interests that exist after a company has taken VC.At least that's my theory of the day.

rch大约 11 年前

> I am not saying the engineer isn't worth it. She is. I am just pointing out how dilutive employee equity is becoming in silicon valley.Maybe this reflects the fact that it's so much easier to get by with less early capital these days. Those early employees are simply worth proportionally more to a startup than they might have been 5-7 years ago.

adambenayoun大约 11 年前

I am a bit disappointed no one actually addressed* an issue that every founder has to deal with when raising series A: the option pool (it's true most start with a small option pool long before series A but the friction start during series A fundraising).Most (if not all) VCs require the option pool to be formed before the series A transaction is completed and usually push for a very high option pool to avoid granting more options and dilute themselves in case the option pool is not big enough.This conflict of interest lead founders to fight the VC to form the smallest option pool possible while VCs want the biggest one. And the non-sense is that most of that option pool will be granted to employees that will be hired after series A.*Sam Altman actually wrote a short note but didn't expand on it and I think it's a shame.

caseyf7大约 11 年前

I would like to see more evidence of employees getting too much equity. What I see more often is the VCs getting the large option pool and then the founders try to issue as few options as possible to protect themselves from the dilution the large option pool created for them.

gavanwoolery大约 11 年前

I've been on both ends of the spectrum - as an employee who got very little equity and as a founder who had to distribute it. All I can say is that you don't fully appreciate the worth of equity until it is your own that you are giving away (and I consider myself a relatively generous guy). :)

malandrew大约 11 年前

I'm wondering why we don't make the vesting of the grant variable as well. Why four years?Why not allow an employee to negotiate for double the chunk for double the length of the grant? That's far more desirable than getting 4 years worth, arriving at year 4 realizing you've succeeded in building a company of true value only to discover that the amount you are re-upped is now at a strike price far greater (that you are responsible for achieving). i.e. you are punished for succeeding if you stay long enough to get re-upped.