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Who pays when startup employees keep their equity?
Who pays when startup employees keep their equity?
JD Maturen, 2016/07/05, San Francisco, CA
As has been much discussed, stock options as used today are not a practical or reliable way of compensating employees of fast growing startups. With an often high strike price, a large tax burden on execution due to AMT, and a 90 day execution window after leaving the company many share options are left unexecuted.
There have been a variety of proposed modifications to how equity is distributed to address these issues for individual employees. However, there hasn't been much discussion of how these modifications will change overall ownership dynamics of startups. In this post we'll dive into the situation as it stands today where there is very near 100% equity loss when employees leave companies pre-exit and then we'll look at what would happen if there were instead a 0% loss rate.
What we'll see is that employees gain nearly 3-fold, while both founders and investors – particularly early investors – get dilute
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What I Wish I'd Known About Equity Before Joining A Unicorn
What I Wish I'd Known About Equity Before Joining A Unicorn
Disclaimer: This piece is written anonymously. The names of a few
particular companies are mentioned, but as common examples only.
This is a short write-up on things that I wish I'd known and
considered before joining a private company (aka startup, aka unicorn
in some cases). I'm not trying to make the case that you should
never join a private company, but the power imbalance between
founder and employee is extreme, and that potential candidates would