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Comment by hellisothers | Hacker News Reader

Honestly it could be worse, I worked at a company that gave equity and years later it came out that the founders never intended to sell or take VC money. In that case employees “took below market salaries” thinking the stock is worth something but in reality it’s worthless. At least in this Mailchimp situation if you’re not getting equity I assume you’re happy with your cash comp, I’d you’re not, that doesn’t make sense.

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Yeah, if you don't intend on selling then you should say so and not offer equity so the employees can make a better decision.

Things may change and you might sell after all, but that is not "withholding" anything, that is just things changing.

I can only imagine this story was spun by employee who saw the founders selling and getting bunch of money and now think they should have reaped some of the benefits.

Money and greed make people stupid.

> Yeah, if you don't intend on selling then you should say so and not offer equity so the employees can make a better decision

What's wrong with offering equity and staying private? I don't see any deception there - say if Valve gave equity to it's employees, that'd be perfectly fine.

It would be perfectly fine, but if you join a company A because they offered equity instead of company B which offered more money BECAUSE you wanted the equity to materialize, but the founders never intended to sell, then you are taking objectively worse offer because you were under the impression equity meant something.

Of course any company can give out equity to their employees, but if it never turns into money then who cares?

Equity is always worth _something_ if the company doesn't fail. At some point investors want to make some money back, whether that's through a sale of some sort or just through dividends.

I do agree those are quite different beasts and you want to have an idea of the relative likelihoods if you're making a decision based on them.

Equity in some companies means actual voting power, especially when one party doesn’t retain 50%+ control.

Minority equity in a company means nothing.

Let's vote on the $20mil bonus to the CEO or distribute it amongst the owners of the company. Oh, the CEO (and majority owner) gets it all.

Dividends are taxed at a lower rate than salary and other forms of ordinary income. If a company has surplus money, it should eventually be remitted to the equity holders as dividends. I guess it doesn't need to be, though.

Unless the CEO literally owns >50% I don’t see how it means ‘nothing’. Voting blocs come and go I imagine, that’s definitely something.

Employee options pools tend to be maintained at 10-15% of the company. Unless you are a cofounder, very-early employee, or recruited-big-exec in a growth phase, your equity, AND importantly, ALL the equity from your employee peers sums to less than whatever the VCs+Founders want. Ideally your interests are aligned, and any gain they get your share-in (albeit in a much smaller amount). But things like preferred shares getting liquidation preferences screw with this calculous, as to differing investment horizons.

When any of the above mentioned have disagreements, won’t they try to recruit support from the remaining shareholders?

Almost all equity given to employees is a totally different class of shares than held by the founders.

What company gives out >50% of their company to their employees?

> [...] or just through dividends.

What if the company never pays dividends?

Like Google?

Or any company that prefers buybacks over dividends.

Economically, they are the same. But they are taxed differently in many jurisdictions.

(Though in the case of buybacks, the shares you got as an employee are worth something, if the buyback is done as something like an auction.)

Because the founders likely won't issue any dividend distributions, they'll just likely borrow against their holdings for decades or even until the end of their lives.

I completely disagree. Equity ownership in private companies can be a fantastic thing, and create tremendous wealth, even with no contemplated liquidity event.

Just ask partners in law firms or consultancies, or ask yourself if you’d like to own stock in Cargill, IKEA, Mars, Brown Brother Harriman, Bloomberg, Chik-fil-a, fidelity, etc.

If the private company is set up with the culture and explicit governance that makes sure minority shareholders get a cut of profits, then sure.

But the average private tech company isn’t like that. There’s probably 2-4 founders who pay themselves extravagant salaries and control all voting shares. Minority equity never gets a payday.

The type of consultancies and firms which actually pay out profit based on equity are usually LLP's / partnerships (part of the reason why "Partner" is a title in finance, law, etc.

Tech companies are usually corporations (often C corps in the startup world.) What equity gets you in the two scenarios is completely different.

Sorry, the company type has (LLC, LP, LLP, c-Corp, s-Corp, etc) has literally nothing to do with that.

Tech start-ups are typically incorporated as c-corps as their structure makes it easier to grant options, startups don’t want to make tax distributions if they make money, LLCs can’t issue preferred shares, and s-corps can’t have more than 100 shareholders, etc. just to name a few.

No one at Cargill or Bloomberg thinks twice about whether the equity is in a c-Corp to LP (all else’s being equal)

> I can only imagine this story was spun by employee who saw the founders selling and getting bunch of money and now think they should have reaped some of the benefits.

Perhaps they should have. After all, without the employees' help Mailchimp wouldn't have been worth 12 billion today.

Founders of a company carry the risk. If you want to reap the benefits then you need to start a company. That is the risk and reward.

It is sad when people see others succeed and get angry.

All employees at a startup carry substantial risk. If you're working as a customer service rep at a startup which folds, you in all likelihood don't have the connections or financial stability that the founders and software engineers and data scientists and scrum masters have to gracefully transition to another job. If you're planning on having a kid, losing your job 3 weeks before you expected to be able to take paid parental leave is going to really throw a wrench in the works. &c &c

I don't like the argument I am about to make when used to attack minimum wage, but I think it applies here.

When you accepted the job, you knew the terms. Those included not getting equity, and those included carrying some risk with known reward.

I don't see how the owners selling retroactively makes the risk-reward balance different. Unless you consider it a risk/downside that someone else gets a windfall and you don't get to share. That seems silly to me tho. How rich someone else is does not affect how much money I need to live, with a few exceptions (inflation, friends, power dynamics in pre-existing relationships).

> How rich someone else is does not affect how much money I need to live, with a few exceptions (inflation, friends, power dynamics in pre-existing relationships).

Many people cannot afford to even own a home in the Bay Area because everyone else around is so rich. Relative wealth is important because "other rich people" drive up prices of everything, from housing, to groceries, to health care.

If my salary doesn't change, but the people around me get a 10% raise, my buying power decreases.

That holds if everyone else gets richer. It does not hold if 2 founders get richer. You barely compete with them for the same items, so it shouldn't affect your buying power at all that your founders got a windfall.

That CSR’s work is worth a certain amount. The discussion is whether that amount best serves the CSR if paid all in cash or divided into a mix of cash and equity. In Mailchimp’s case, they were clear that it was all cash and no equity and I suspect that was the preference of the CSRs as well.

Not responding to the article or the good or bad of it (frankly it bores me), but this is a strange view of “success”. There’s this strange malaise where people see something like this as their aim in life: to sell to some other guy for the big bucks as if this buyout was “the success” and as if this inducted then into Valhalla. It’s the mysticism of money.

Apart from that, if people were serious about not selling, they’d make employees meaningful shareholders. Salary entails zero loyalty and zero stake in the company on the part of the employee. In the latter case, why would you believe that they wouldn’t sell? That’s what people do.

Genuine question, what's the risk? Usually owners aren't liable for corporation debt, which I would imagine reduces financial risk, are there other types of risk?

From what I recall, the service was spun out of another company though, it didn't become its own thing before it was profitable. There was some origin risk in the original business, but MailChimp itself was arguably a low risk endeavour on the part of its founders.

and what risk is that? if the company goes under, they need to get a job like everyone else. the only “risk” is that they no longer get to be the big boss. cry me a river.

meanwhile they get to reap (in this case) 100% of the rewards from everyone else’s hard work. if that doesn’t make you angry, perhaps you should reevaluate whose interests your ideology serves.

Then again, it seems Mailchimp was always clearly communicating to their emplyees that they didn't give equity and offered great compensation so no one was actually fooled.

Regardless, Mailchimp's engineers still sold their labour for way below its value, whether they were fooled or coerced.

> for way below its value

I fail to see how. If you are compensated at the market value of your work, that seems fair and Mailchimp gave generous compensation.

You could argue that the gap between wages and capital gain has become too big, a point on which we will be in agreement but to be honest with you, I think the surprising part is that someone would want to pay 12 billions for a company with $700 million of revenue. Still I have found the market to be surprising for a long time so maybe it's time I reassess my expectations.

> I think the surprising part is that someone would want to pay 12 billions for a company with $700 million of revenue

Since the founders didn’t really want to sell, they probably had to up their offer into ridiculous range.

MC paid me way above value. My friends moved to SF and still rent and live paycheck to paycheck.

MC paid off my house in 4 years, and I retired after another 4.

Is this because of how different col is between SF and Atlanta? Because I'm looking at https://www.levels.fyi/company/Mailchimp/salaries/Software-E... and the compensation doesn't seem outrageous.

In what way? If they knew they didn't have equity and still took low paying job then that is 100% on them.

Why would any rational person sell their labour for way below its value if they weren't either coerced or fooled?

They wouldn't — and Mailchimp employees didn't. The market value of your labour is what you can get a company to pay you.

The hypothetical market value of employees in a world where Mailchimp did offer equity and employees stuck it out to reap that upside doesn't exist, so arguing the point makes no sense.

The value of one's labour is the value it generates - not what anyone is willing to pay for it. The value of the cumulative labour of Mailchimp's engineers is $12 billion which vastly exceeds the amount it was sold for.

> The value of the cumulative labour of Mailchimp's engineers is $12 billion

No, that's the value of MailChimp as a company. That includes the product, the branding, the management and the customer base.

> The value of one's labour is the value it generates - not what anyone is willing to pay for it.

The market value of anything is exactly the value that anyone is willing to pay for it and that's the only value that actually matters in this case. No one knows the exact value that anyone specifically contributes on a large project. How much of MailChimp value is due to its engineers and how much is due to its sales team? The only thing sure is how much the company agreed to pay its emgineers and that didn't include equity.

If you want to own parts of the company you work for, go work for a company giving equities. If you work for a company which doesn't, you are not entitied to a part of the company value when it's sold. That's literally the meaning of being an employee.

> No, that's the value of MailChimp as a company. That includes the product, the branding, the management and the customer base.

How did all these valuables come into existence? Through the employees labour. Thus the value of this labour must be equal to the value of these assets.

> The market value of anything is exactly the value that anyone is willing to pay for it

I never used the term "market value". Sorry if that is what you thought I meant, despite that I didn't use the term. And no, market value is not the only or the best way to measure value.

> The value of the cumulative labour of Mailchimp's engineers is $12 billion which vastly exceeds the amount it was sold for.

Yes, that's how employment works. Companies do not pay you exactly the same $$ you generate, that's just common sense? Why would they employ you if you cost just as much profit as you generate?

The question here is whether Mailchimp _exploited_ its employees by not offering equity. Unless an employee was lied to and told they might later receive equity, they all joined under the assumption that they were making a mutually beneficial agreement, and that the compensation offered by Mailchimp was worthwhile (as opposed to going and starting their own company or working for another startup that offered equity).

Every Mailchimp employee was welcome to start their own company if they wanted to capture 100% of the profits they generated.

> The question here is whether Mailchimp _exploited_ its employees by not offering equity.

No. The question is whether Mailchimp's employees would have worked for Mailchimp had they had a completely free choice and good knowledge of the value of their labour (e.g. valuation of the company).

Not everyone acts or is able to act rationally all the time

That is hindsight value.

If they hadn't sold, it'd still have a market value of (at least) $12B, and the employees still wouldn't have a claim to any of its assets or earnings.

That's what salary is for.

> the stock is worth something but in reality it’s worthless

What? How is it worthless? When they distribute profits, you'll get your share of them, or you can sell the stock to someone else.

In a privately-held company, you usually can't sell your stock without approval (from the board, a shareholder vote, or some other mechanism). That generally makes it quite difficult to sell.

Dividends are the main source of value from stock in a company that doesn't plan to sell. But dividends are also determined by the board. In a closely-held company, the majority owners may also be the board, and they may prefer to leave the profits in the company or take them out a different way.

"Worthless" is an extreme characterization, but the value you receive from owning a minority amount of private stock is much less predictable and controllable than publicly-traded stock.

Exactly this, there is no liquidity available for this stock ie it has no monetary value because you’re not allowed to sell it and it will never be sold. I think at one point a tiny dividend was paid, once, but it became clear the profits are intended for the principal owners. Which really is conceptually fine as long as that is clear up front.

You are correct. I was going to post a similar response.

Regarding worthlessness: I suppose some might place some value on access to company financials.

Most startups don't offer dividends, even when they do it doesn't amount to much, and if they indeed never sell/IPO/raise a new round, then you have basically no way to sell your stock, so it's indeed pretty much worthless. Only other way to sell would be with approval of the board, but even assuming you get it, who would buy that?

Stock and dividends are two separate agreements. One does not automatically guarantee the other

Blue Origin does something similar. I haven't seen indications it will ever go public.

Can you sell the stock on a secondary market?

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