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.
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.
That is why when the 83b bonuses start making you choke, that its time to start converting into RSUs, and delivery of those RSUs happen at first liquidity, which means after the 6 month lock up period of an IPO, not at IPO.
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.
>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.
> 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.
What happens if you have an underperforming employee and end up having to fire them in the first 3-6 months? Do you really want to give them permanent equity in a company before they've proved at least some value? Some sort of clawback structure would be necessary here.
In the case of 83b, the unvested shares are returned. Even the bonus-to-cover can be returned contractually—- the bonus-to-cover never even has to hit the employee’s bank account.
RSUs are probably better but the equity games are set up right now such that startups issue options.
Great points...believe it or not it happens, but privately, in a case by case manner. Also why do you think companies and founders are in the business of making employees wealthy?! What is the specific reason for all of these being implemented?
Your trying to recruit people who can go work at a FANG and or have been burned by or have researched about startup equity shenanigans, so they have high requirements before they would even consider talking to you.
There are 2 key tax advantages: Qualified Small Business, and avoiding AMT. (But should both be considered playing on expert mode, higher risk/reward.)
The number of startups that IPO and 2x or better is strictly less than the number that even make it to IPO. The 10 year window is certainly better than 90 days, but options just increase your chance of being a bagholder.
In the case of an acquisition, options also can screw you. In my view, it’s always better to have either shares or equity most comparable to what the founders have. Be ready to sell early at any time.
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.
Every currency has onshore and offshore rates. For example, you can buy dollars or Eurodollars, which is simple US currency kept offshore.
Eurodollars have different exchange rates because they don't have the reserve requirements from the Fed. i.e: it's less regulated.
The RMB has a heavier regulation whereby the exchange rate isn't allowed to fluctuate. This does increase the difference in value for the onshore and offshore currencies.
But having that distinction does not by itself make it a currency manipulator.
In terms of financial products, you can « buy » it through futures contracts (or options on futures). It's a pretty common product AFAIK, at least as far as FOREX goes.
Yes this was very surprising. The system was working fine after the cluster restart. There was no need for an emergency rollback.
Doing a large rollback based on a hunch seems like an overreaction.
It's totally normal for engineers to commit these errors. That's fine. The detail that's missing in this PM is what kind of operational culture, procedures and automation is in place to reduce operator errors.
Did the engineer making this decision have access to other team members to review their plan of action? I believe that a group (2-3) of experienced engineers sharing information in real-time and coordinating the response could have reacted better.
Of course, I wasn't there so I could be completely off.
I think the GP means that as far as incidents occurring, so far as care is (or was) taken to prevent them and learn from them, then that's all one can really reasonably ask for. The first incident falls under that heading and 'is fine' in a 'life happens' sense.
The following incident comes across as reckless and avoidable as there should have been procedures to safely test the rollback (and perhaps there were, but a perfect storm allowed it fail in prod). Lacking details about how the second incident came to be or how they will be prevented going forward places the second incident as 'not fine'.
This information is what the GP comment is asking for.
Compare this PM with Cloudflare's PM, where they detail how they tested rules, what safeguards were in place, how the incident came to be, and how they intend to prevent similar incidents; the impression given here is that they will put up more fire alarms and fire extinguishers but do little fire prevention.
One imperfect but helpful technique is to use release notes for your application.
Ask the team to write good commits when changing code, and aggregate all code changes done to the application into a page that describes what went in that release. GitHub releases do that for you automatically. When a release is pushed that breaks something, it's easier to scan the release notes and find who changed what.
Another technique is to use explicit feature flags to protect all code changes. Then use a dashboard that shows recent changes to feature flags – again this helps tracking down the culprit.
