For those who don't know, Fred is a VC with a reputation for pushing founder CEOs out. Most famously when he conspired behind Ev Williams' back while Ev was on paternity leave to bring in Dick Costolo as CEO of Twitter.
At best, the advice is something obvious. More often, it's transparently self-serving and/or based on extremely skewed anecdata.
Of course management at these companies claims they will give you "more" in the new hire grant and yearly refresher, which may be technically true in terms of the dollar value they are granting, but what they fail to mention is that if the stock doubles one year, the next year your refresher is half the size (because it's based on valuation at the time of grant).
It's especially disgusting for a VC to pitch this as the majority of young workers don't even know to think about this. Just another example of how being close to the money lets the investor class pull the wool over the eyes of the rest of us rubes.
Same thing can happen with RSUs, those are usually granted based on price. 4 year vesting of $100k worth of RSUs could be worth significantly more than $25k worth of RSUs granted with a one year vest each year for 4 years.
Let's say one company offers you $400k of equity vesting over four years. On your start date, they'll use the current price of the stock to translate that into a number of stock units (RSUs, typically), and then you'll get those stock units according to your vesting schedule. Let's say, for ease of calculation, that this $400k translates into 480 RSUs. So you'll vest 30 RSUs every quarter (let's ignore a cliff). If the price of the stock is rising, the 30 that vest in those later quarters will be worth more than the 30 that vested in your first quarter. Your last 30 units will be worth _a lot_ more than your first 30 units.
Now let's say a company offers you $100k for your first year, and promises to refresh you another $100k each year thereafter. Your first year, they give you 120 units for the $100k. But your second year, the stock price has gone up, so $100k doesn't translate into 120 units anymore; it translates into maybe 100 units, or 80 units. Your second year, the stock price has gone up even further, and $100k translates into even fewer units. Likewise your fourth year. These per-year refreshes "reset" the value back at $100k each year, when a four year refresh would "accrue" more value, year over year, if the stock keeps going up in price, which tech stocks typically do.
For a concrete example, at a former employer (GOOG) I was granted $150k of stock in 2019, vesting quarterly over four years. When I left in 2021, the value of the remaining shares of that grant was...$155k! The stock had more than doubled in price from the time of the grant, but it was still vesting according to the _original_translation from value to units. So the unvested value of _half_ the grant units were worth _more_ than the original grant, even after I'd already vested half the units.
If you calculate the number of shares determined by the price when you join you're locking in more shares earlier. If you are forced to negotiate that each year then you lose the growth you would have gotten from locking in the cheaper shares earlier - and that's where the vast majority of growth exists.
Imagine you worked at Tesla and joined at $250/share and five years later it's $2500/share. If you locked in 5 year vesting at $150k/yr calculated at the $250/share mark then in year 5 that's now worth over 1.5M a year!
If you're forced to renegotiate every year there's no way they're going to grant you 1.5M worth of shares for another year (unless you're pretty high up the chain).
It screws employees from capturing that growth. It's framed in a twisted way as employee favorable because in theory if you were granted 5 years worth of equity in 1 year it would be better, but nobody is doing that.
We the former you total payout is rebased each year. With the later you get to reap the growth in rsu value.
Fred is a fantastic writer and really pulls you in. However, he also uses his platform to do things like shill a shady ICO from one of his portfolio companies:
Three things in particular stand out to me:
* Most of them have had one success as an entrepreneur, and somehow think that everything that applied to their one success also automatically applies to every other company on the planet. This makes their "advice" almost completely worthless.
* Most of them have absolutely monstruous egos. One of our partners would start every meeting with the founders of a potential investment with "Well, you've got two founding partners of a $200M investment fund sitting here with you, let's not waste any time". They literally treat everybody like it is a privilege to just be in their presence.
* The incredibly vast majority of them are sheep...they refuse to lead rounds, and only commit to "maybe" decisions just to not lose out in case some other VC decides to jump the gun. They talk a big talk about taking big risks, but almost all of their decisions are "we will if you will", because they don't want to be the only one that investors can point at when something bombs.
There are exceptions to each of those points, BTW...but I've never met one that was an exception to all of them. And consequently, I can't help but roll my eyes whenever one of them decides to spread their "wisdom".
Fred is a prolific VC with a lot of investments. At scale, eventually any investor is going to have companies that have outgrown their CEO.
I think two things are simultaneously true:
1) Founder-run companies are, on average, better performers than companies that have replaced their founders with career CEOs. This only works if the founder can grow into the CEO role as the company scales.
2) Not every founder is capable or even interested in transitioning to the CEO role of a growing company. If the founder is unable or unwilling to grow into the CEO role, it’s better for everyone to replace the founder with a more qualified CEO.
I’ve worked at two startups where it was obvious that the founder only retained the CEO title because they wanted to remain top dog at their own company, but they didn’t really want to do the work of being a CEO. In both cases (one <$100m startup, one >$1b unicorn) it was painfully clear to everyone that their was a leadership vacuum at the top. Other C-levels and VPs were constantly exiting the company because they were forced to do the jobs of the CEO while someone else took the credit. In one case, the CEO was ignoring important business meetings to come work alongside the engineers, “just like the old days”. But he had long since fallen behind the technology curve and was trying to force engineers to do things like he did 10 years ago. It’s not fun to be forced to choose between obeying your CEO or doing things the right way. We all wished he’d just let us do our job and go back to filling the leadership void at the top of the company.
Honest question: why didn't you tell him directly? I feel like for the right person, this could turn things around? Or maybe I'm just naïve
Disagreeing with him meant the end of your employment. One of several reasons why most of us left.
Not disputing (I hadn't heard that before) just adding.
Though I will note that the chances a good founder won't make a good CEO are probably higher at earlier stages, and getting "pushed out" isn't always the wrong thing for a founder who isn't a good fit as bigco executive.
In one case, the founder was simply a rich kid who started the company with his family's money, fundraised from VCs, then everyone involved realized this person was luckier than skilled. It makes complete sense in this scenario for the VCs to remove the CEO but still like the business idea.
That's the whole point of the charade, of course, but it makes reputational information valuable, especially when a founder is deciding whether or not they want to get in bed with a particular VC.