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What are, in your opinion, things that startup founders should do to make things more financially rewarding for employees? Any low hanging fruits you suggest w

by cetico 6y ago

What are, in your opinion, things that startup founders should do to make things more financially rewarding for employees? Any low hanging fruits you suggest we look at first?

bagels 6y ago
Pay more money? Allow employees to include their shares in a round?
- brianwawok 6y ago
  The more you pay, the shorter your runway. It’s a balancing act like most things in business.
  - dnhbt 6y ago
    >The more you pay, the shorter your runway. The horror of asking a company to charge customers to finance their operations rather than running the VC treadmill. I don't get how more founders don't realize it is in the VC's best interest to keep you on the treadmill, burning their money and giving away your equity.
choppaface 6y ago
I am certainly biased but I would like to see the minimum employee comp package include: * 83b election standard with employee on-boarding paperwork. * Bonus of up to one year salary to cover 83b early exercise costs. * Employee equity pool size disclosed along with 409a. Ideally contractual protection for the employee equity pool. * Offer documents must include a 409a valuation and share price. (I have gotten multiple offers with just a number of shares. And in one case the company was literally peddling a false valuation in my offer). * 401k with company match, even for a small company. Lottery ticket is not a retirement plan. Ideally in my mind: * Employees get convertible debt that is either as senior as investor debt or pays a 5% dividend. * Double standard employee pool to 20%; keep 30% founder pool size. * No ISOs or non-quals ever. Extremely tax toxic, and employees can actually get driven into debt from the job. Options should be outright forbidden for comp packages under $1m / year. The tax games are absolutely not worth it. The main way any positive change can happen is for employees either to negotiate for it during offers or for founders to just start doing it to be more competitive. One might argue that Carta has made 83b easier by chasing a private stock marketplace... perhaps there are other mechanisms for change.
- jasode 6y ago
  >Ideally in my mind: - Employees get convertible debt that is either as senior as investor debt or pays a 5% dividend. I don't think this is financially realistic. Most employees (especially non C-suite executive employees) do not want to loan money to a startup to receive a "convertible note/debt". Even if employees wanted to loan money, most don't have the discretionary play money in their bank account to risk on a startup. It's the investors that have the money and risk appetite to pay for convertible notes. If you meant that employees should receive convertible notes even without paying anything (no loan)... then I think "convertible debt" is the wrong label to describe this transaction that you're proposing.
  - lukeschlather 6y ago
    > If you meant that employees should receive convertible notes even without paying anything (no loan)... then I think "convertible debt" is the wrong label to describe this transaction that you're proposing. How would you describe it? Note that the OP said "employees get convertible debt notes" not "employees buy convertible debt notes." Practically speaking the notes are indistinguishable from convertible debt that investors get, but they're compensation for employment rather than bought.
- amb23 6y ago
  https://www.harnesswealth.com/articles/promissory-note-program-a-financial-employee-benefit-for-early-stage-startups/ https://www.harnesswealth.com/articles/promissory-note-progr... What about a system like the one proposed here? This is the only tech startup I’ve heard of that uses an alternative equity system. Agree with your point about 409(a) disclosures. As an ex-employee with outstanding options in two tech startups I find it crazy that nothing requires firms to annually disclose this information to options holders. And while I was working at these companies there was no mention of the #of shares outstanding and the % allocated to employees—even if you knew your personal percentage stake, you didn’t know how much was diluted with each subsequent round.
- sfkdjf9j3j 6y ago
  Rather than pay for early exercise costs and cover the tax burden, I think it makes more sense for early companies to extend the period employees can exercise options to 5-10+ years after they leave. Several places actually do this already, I've been offered it without asking in fact! Small companies probably can't afford to pay taxes for everyone's 83b elections, nor can they afford the 401k match or the other missing perks. After all, if they could afford to compete on cash comp with big tech cos, surely the founders would rather do that and preserve their own equity stake. But with exits taking longer and longer, such an exercise scheme lets rank and file employees preserve some small upside that they have earned themselves, and not worry about hurting their career by being forced to wait for an exit. I think I generally agree that employees get a pretty bad deal. I think it used to look better, but these days you can make so much more money so much faster working at Google than you can at a random startup.

by cetico 6y ago

What are, in your opinion, things that startup founders should do to make things more financially rewarding for employees? Any low hanging fruits you suggest we look at first?

bagels 6y ago

Pay more money? Allow employees to include their shares in a round?

brianwawok 6y ago
The more you pay, the shorter your runway. It’s a balancing act like most things in business.
- dnhbt 6y ago
  >The more you pay, the shorter your runway. The horror of asking a company to charge customers to finance their operations rather than running the VC treadmill. I don't get how more founders don't realize it is in the VC's best interest to keep you on the treadmill, burning their money and giving away your equity.

choppaface 6y ago

I am certainly biased but I would like to see the minimum employee comp package include: * 83b election standard with employee on-boarding paperwork. * Bonus of up to one year salary to cover 83b early exercise costs. * Employee equity pool size disclosed along with 409a. Ideally contractual protection for the employee equity pool. * Offer documents must include a 409a valuation and share price. (I have gotten multiple offers with just a number of shares. And in one case the company was literally peddling a false valuation in my offer). * 401k with company match, even for a small company. Lottery ticket is not a retirement plan. Ideally in my mind: * Employees get convertible debt that is either as senior as investor debt or pays a 5% dividend. * Double standard employee pool to 20%; keep 30% founder pool size. * No ISOs or non-quals ever. Extremely tax toxic, and employees can actually get driven into debt from the job. Options should be outright forbidden for comp packages under $1m / year. The tax games are absolutely not worth it. The main way any positive change can happen is for employees either to negotiate for it during offers or for founders to just start doing it to be more competitive. One might argue that Carta has made 83b easier by chasing a private stock marketplace... perhaps there are other mechanisms for change.

jasode 6y ago
>Ideally in my mind: - Employees get convertible debt that is either as senior as investor debt or pays a 5% dividend. I don't think this is financially realistic. Most employees (especially non C-suite executive employees) do not want to loan money to a startup to receive a "convertible note/debt". Even if employees wanted to loan money, most don't have the discretionary play money in their bank account to risk on a startup. It's the investors that have the money and risk appetite to pay for convertible notes. If you meant that employees should receive convertible notes even without paying anything (no loan)... then I think "convertible debt" is the wrong label to describe this transaction that you're proposing.
- lukeschlather 6y ago
  > If you meant that employees should receive convertible notes even without paying anything (no loan)... then I think "convertible debt" is the wrong label to describe this transaction that you're proposing. How would you describe it? Note that the OP said "employees get convertible debt notes" not "employees buy convertible debt notes." Practically speaking the notes are indistinguishable from convertible debt that investors get, but they're compensation for employment rather than bought.
amb23 6y ago
https://www.harnesswealth.com/articles/promissory-note-program-a-financial-employee-benefit-for-early-stage-startups/ https://www.harnesswealth.com/articles/promissory-note-progr... What about a system like the one proposed here? This is the only tech startup I’ve heard of that uses an alternative equity system. Agree with your point about 409(a) disclosures. As an ex-employee with outstanding options in two tech startups I find it crazy that nothing requires firms to annually disclose this information to options holders. And while I was working at these companies there was no mention of the #of shares outstanding and the % allocated to employees—even if you knew your personal percentage stake, you didn’t know how much was diluted with each subsequent round.
sfkdjf9j3j 6y ago
Rather than pay for early exercise costs and cover the tax burden, I think it makes more sense for early companies to extend the period employees can exercise options to 5-10+ years after they leave. Several places actually do this already, I've been offered it without asking in fact! Small companies probably can't afford to pay taxes for everyone's 83b elections, nor can they afford the 401k match or the other missing perks. After all, if they could afford to compete on cash comp with big tech cos, surely the founders would rather do that and preserve their own equity stake. But with exits taking longer and longer, such an exercise scheme lets rank and file employees preserve some small upside that they have earned themselves, and not worry about hurting their career by being forced to wait for an exit. I think I generally agree that employees get a pretty bad deal. I think it used to look better, but these days you can make so much more money so much faster working at Google than you can at a random startup.