I don't really believe that mechanism is sound. I mean, it likely has some sort of affect in that direction, but I don't really think that it's a strong one.
It is absolutely a strong one and one that startup's function as a result of.
If an employee couldn't get stock options in a startup, then there would be significantly fewer cases where they would choose to join a startup over a more stable, mature company. Sharing in the upside potential is critical. Sure, that isn't a public company but it still demonstrates the mechanism is sound.
> If an employee couldn't get stock options in a startup, then there would be significantly fewer cases where they would choose to join a startup over a more stable, mature company
That's possible, of course. I haven't seen any data to support it.
In my own experience (which is not statistically meaningful), this is a weak effect. I strongly prefer working for startups and very small companies, and most of the engineers I've worked with have stated that things like stock options aren't important to them (that's part of why options are so widely referred to as "wallpaper").
The attraction to working for startups, for both myself and most of the people I've worked with, is that startups offer better working conditions and more interesting projects.
However, I do feel the need to underline that this is just my subjective experience and it may not representative overall.
Every company in YC Winter 2019 issues half its ownership to a pool. Every company receives, in return, shares of the YCW19 fund. Employee stock options are 100% issued from the YCW19 fund.
Is this better or worse for non-founding employees? More or less attractive than receiving stock options that only apply to the member company that they actually work for?
It is definitely better for the employee. But it also doesn't necessarily align incentives.
For example, once you are fully vested at a startup, the reason to stay is primarily if you think you have a material impact on the share price. If you don't, then you should leave to go somewhere where you do have a material impact and treat your shares in the original startup simply as an investment. In contrast, if you have a material impact, you should stay to maximize the value of your shares. Pooling everyone's shares, while better for the individual employee from a diversification perspective, reduces the ability of the employee to have a material impact on their investment.
Consider that the overwhelming majority of startups don't make a positive exit/acquisition/IPO... but in a group as large as YCW19, some of them will. (That being the entire purpose of YC.)
Assume your prospective employees are economically rational. They have a couple of offers on the table, identical as to salary, benefits, and track record of existing founders. The only difference is that one is offering a tiny percentage of a lottery ticket that will pay out if they exit successfully, and the other is offering a tinier percentage of a lottery ticket that will pay out if any of their sister companies exits successfully. And there's little chance that you picked a unicorn, but a pretty good chance that somewhere in the cohort is a unicorn.
Being in that cohort becomes a hiring advantage if you get to share in their success.
>Every company in YC Winter 2019 issues half its ownership to a pool. Every company receives, in return, shares of the YCW19 fund. Employee stock options are 100% issued from the YCW19 fund.
I don't really believe that mechanism is sound. I mean, it likely has some sort of affect in that direction, but I don't really think that it's a strong one.