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Comment by thesausageking | Hacker News Reader

He glosses over an important point: it's now typical for founders to take money off the table as part of financing rounds, sometimes as early as the A round. Founders will request it as part of a funding round and, there's so much competition to invest in the top startups, that VCs go along with it. Decades ago, this wasn't the case. Founders waited for the IPO like employees.

If you're an engineer sitting on $5m of vested stock in a decacorn, it makes financial sense to sell some of it. Today, companies make that really hard to do.

If employees could easily sell their stock while the startup is still private, this would solve a lot of the problems.

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If early liquidity wasn't an option for founders, this massive pre-ipo/private-ipo market wouldn't exist.

Without early liquidity, a pre-ipo zuck/kalanick/etc. would be a paper billionaire with $0 in the bank and >$1bn "invested" in a risky tech startup. That's not financially or mentally sound, even by their risk lovin standards.

If investors demanded every penny go towards growing the business, those CEOs would just IPO earlier to get liquidity.

It's a necessary alignment of interests, if investors' interest is delaying the IPO.

Employee options holders can't just decide to take a company public, so their interests can stay misaligned.

Why do investors want to delay an IPO?

From the article:

Suster points out that the longer the company stays private, the more valuable it becomes. And if during this time VC’s can hold onto their pro-rata (fancy word for what percentage of the startup they own), they can make a ton more money.

The premise of Growth capital is that if that by staying private longer, all the growth upside that went to the public markets (Wall Street) could instead be made by the private investors (the VC’s and Growth Investors.)

I think the implication of the question may have been "why not just hold the stock after the IPO if you expect.

Further down, continuing the Sister quote:

three examples Suster uses – Salesforce, Google and Amazon – show how much more valuable the companies were after their IPOs. Before these three went public, they weren’t unicorns – that is their market cap was less than a billion dollars. Twelve years later, Salesforce’s market cap was $18 billion, Google’s was $162 billion, and Amazon’s was $17 billion.

If it stays private, not only do your existing shares appreciate (which would also happen if it was public), but as an existing investor if you have pro rata rights, you can buy more shares (vs them being sold in a public offering) increasing the number of shares you have that will appreciate.

A lot of VC funds are required to liquidate and return proceeds to LPs in the event of an exit, whether through IPO or acquisition.

Going to IPO doesn't mean investors can't invest.

It means they have more competition.

It also means the way the company operates is different. Public markets don't allow (at least they're currently extremely intolerant of) high risk-reward strategies in practice, or cultural weirdnesses.. especially in a major stock. See: Tesla's issues, contrasted with spaceX's "must not be listed if we want to go to mars" stuff.

So, in practice, buying 2015-ipo Uber stock is a different investment to what Uber investments actually were.

Also (possibly the real factor) it goes through different channels. VCs and PEs business is investing people's money in investments they can't just buy on an app.

Biotech companies are frequently public and are rolling it all on a single drug.

> Employee options holders can't just decide to take a company public, so their interests can stay misaligned.

Not for long, though. The standard HN advice of "value options at $0" came about from a generation of employees conned by this, as you call it, misalignment.

Also, when you trap employees into heavy golden handcuffs, abuses of power in line management thrives (as what happened at Uber).

Given tech workers complete inability to form a union or guild I wouldn't bet on it.

Tech workers now have a lot of power in negotiations and are using it to demand high salaries. If options were ever offered to me in lieu of salary I would simply say no.

Do we?

Having a look at the revenue generated per person in Facebook vs General Electric we seem pretty shit at negotiating. The revenue per employee at GE is 400,000 at Facebook it's ~1,400,000. I'm not hearing FB paying people ~4 times the wages that GE does. Most I've heard is ~1.5 times for similar positions in similar locales, having friends in both.

We have convinced ourselves we're special snowflakes while the lucky and ruthless laugh all the way to the bank.

Good companies will often let early employees cash out in whole or in part with a "Tender Offer". https://carta.com/blog/tender-offer-faq/

This can benefit the founders and major investors, because they take less dilution.

Personally, I think founders should do this any time they take money off the table.

It was mentioned about half-way through the article.

> And finally, in many high valued startups where there are hungry investors, the founders get to sell parts of their vested shares at each round of funding. (At times this opportunity is offered to all employees in a “secondary” offering.) A “secondary” usually (though not always) happens when the startup has achieved significant revenue or traction and is seen as a “leader” in their market space, on the way to an IPO or a major sale.

One problem with this is that later round investors usually want their investment to go into growing the business, instead of paying off employees. So the incentives aren’t aligned here to allow employees to sell their stock while the startup is still private.

Employees are also not usually invited to the investor meetings where these types of negotiations would take place. They would probably need the founders to vouch for them to make this happen.

It's not impossible for private companies to allow employees to sell stock in funding rounds. Tanium basically follows the recommendations in the article - employees get RSUs, and have been allowed to sell in every recent funding round.

No way they'll make it easier to sell. That's not solving a problem for the business. They need to keep the carrot dangling.

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