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One of the jobs of C-suite people is to run the optics.

The way the company is perceived; both in and out; is really up to them.

I remember the company I worked with (a highly reputable Japanese company) made a deal with an SV startup. It was a great startup. The people behind it were the "real deal." Some of the most brilliant people I've had the honor to work with. The tech was risky as hell. I think a number of mistakes were made by the beancounters and executives that inked the deal. The Japanese company basically became VC shareholders of the startup. They paid several million dollars, in a few tranches.

We worked our asses off, in that deal. People in all parts of the relationships were burning themselves out. Like I said, risky tech. Things ended up not working out as planned.

After one of the tranches, one of the founders went out and brought a top-of-the-line Model S. Pissed off the Japanese, something fierce.

Things went south, fairly quickly, after that. I don't think it was the cause for the breakup, but it lost the startup some powerful friends, in Tokyo, when they really needed them.

They got pissed about a multi-million dollar investment because a founder spent (financed?) $100k on a car?

It was the optics. I suspect he ordered it long before the payment, and it would not surprise me if he could afford it (way more than $100K, with his trim package), without the money from the deal. Several of the principals were independently wealthy.

However, Japanese executives make a fraction of what US execs make, and work in more difficult conditions. VPs that control billion-dollar budgets have desks that schoolteachers would sniff at.

Like I said, optics.

It’s not a good idea to piss off people that sign the checks, or will have your back, when you report failure.

Yeah he could buy that car at a different moment after a significant success, in that case no problem. It looked like squandering all the work the Japanese put into the deal.

I mean, yes. If everyone else is nose the grindstone to get something out door and feels on the verge of failing, then buying a new car is a leadership failure. Not because it's necessary bad in and of itself, but because it makes everyone else feel bad.

Why does an executive deserve to de-risk more than other employees? If anything, that's backwards. Who the hell doesn't want to de-risk? Why is that option only given to certain people, as opposed to offering everyone at the company a chance to sell 10% of their shares?

I'm sure it's legal, but it absolutely is fucking the employees over. Saying "the employees could have negotiated better" is kinda just playing the thunderdome card. Employees can't reasonably prevent company insiders from fucking them over with stock shenanigans. That's part of what makes the practice so insidious, and why public stock markets are so highly regulated.

> Why does an executive deserve to de-risk more than other employees?

Yes. The SEC used to prevent insiders from selling stock until two years after the IPO. That ended some time around 2006, I think.

lock up periods are still fairly common, did the sec really require 2 years at one point?

Yes. It took me six years to cash out of Autodesk, since the first stages went to getting enough cash to pay the taxes on the next stage.

You can blame the execs, but the real question is, where was the board of directors who were supposed to provide governance during this time. Ultimately they approved it and you don't hear anyone calling for their ousting.

I'm not going to bat for the executives at all, but given the opportunity to take $22m off the table ala Dan Wright, why wouldn't you? Shame on him but he'll wipe his tears with hundred dollar bills. Why did the Board approve this sale — that's the real question.

it is not an executive's fault to want to de-risk. THis is capitalism, and everyone looks out to himself only.

it is venture capitalist's fault for signing up for this deal, that KILLED a company. Sure, they bribed executive to sign term sheet by allowing him to cash out, but now the entirety of DataRobot is going to be worth 0. VCs basically destroyed value of their LPs.

next time, VCs should think about employees who put hard work and keep company operating, not only executives.

Without people - any startup is just a worthless legal entity.

> THis is capitalism, and everyone looks out to himself only.

Absolutely not, Capitalism required democracy a system of justice and many other attributes of modern state. 'Law of the jungle' is niot capitalism and does not produce functional society.

The only thing that capitalism requires is stable full property rights (including transfer) on capital. It most certainly doesn't require democracy; most authocracies today are capitalist.

"stable property rights" can become a rather large number of rights.

Corruption is probably a bigger threat to these rights than nominal form of government; I'd say what is really needed is a strong tradition of rule of law.

The issue is the principal-agent conflict that cash-out opportunities create. The executives have a fiduciary duty to shareholders, including their employees. Cashing out not only reduces the alignment of incentives between executives and shareholders, it also frequently causes executives to accept funding deals that are suboptimal for other shareholders. E.g., they may accept funding at a lower valuation or with otherwise less favorable terms in exchange for a partial cash out.

Of course, you're correct in saying that everything is a negotiation. Rank-and-file employees should have accounted for the risk that they'd get screwed over by the founders and required more cash or equity to compensate for that risk. But I worry about a future in which the best talent refuses to work at private startups because the risk of getting screwed renders employee equity next-to-worthless. Arguably we're already there.

Are we not already there? Any equity grant I’ve been given has always seemed like a lottery ticket to a lottery ticket to a lottery ticket.

The company not only has to do well, it has to decide to actually IPO, and then there are lockout dates, and it’s always given as options instead of straight grants, and the vesting, and all the other constraints that I’ve forgotten. I’ve just valued them as zero when considering offers and only consider the salary portion which has the insidious(for employers) effect of making me unaligned with the companies best interests beyond the end of the week.

Talking to my coworkers at every place I’ve worked it seems like a common feeling.

Granted I’ve never worked at a unicorn company or faang so it might just be a function of working for less competent employers who are cargo culting compensation and don’t understand how it’s supposed to bind the employees to the company having a good future

It seems like a lot of companies are so afraid of their employees gaining any sort of value out of the company that they’d rather risk failure than risk the situation being a win/win. The employers aren’t completely brain dead and they seem fine enough at negotiating and evaluating risk when it’s company to company negotiations. I can only assume it’s some cultural component of the wealthy class that leads to the continual self sabotage

For private unicorns I think the answer is no, I've seen plenty of good people join companies that are perceived to be likely to IPO soon. There's plenty of shady stuff that can still happen in late-stage startups, but I think the perception (which is probably somewhat but not completely accurate) is that at that point the equity is enough of a known quantity to be somewhat de-risked.

For earlier stage startups...yeah, I dunno. To be clear, I think the illiquidity and vesting period and all of that are basically fine, well-understood risks, and in principle startups can offer enough equity to compensate "true believers" for those risks. What gets me is the really shady unforeseeable stuff, like converting part of the acquisition price to retention bonuses avoid paying out ex-employees for their vested equity. Between that unquantifiable risk and the inherent risk and illiquidity of early startup equity, I'd personally discount the 409a valuation by something like a factor of 5 when evaluating a job offer from an early-stage startup.

I don't see a ton of people leaving FAANG or similar companies for early-stage startups, but obviously there are lots of engineers outside of FAANG companies, and I'm sure it helps that valuations are rich enough (or were until recently) to compete with non-tech companies on cash comp.

To me it seems “fine” in terms of everyone is doing it, but it doesn’t fit what I understood the goal of even granting equity in the first place. Namely trying to mitigate the principal agent problem. Every layer of risk or new rules added on makes it more and more likely that the equity is worth nothing but it costs companies a lot to set up these systems.

It would be a lot simpler and cheaper to just grant stocks and then the calculation for employees is easy, you get paid big bucks of the company succeeds. The employers that are not doing that signals to me that they value keeping compensation down over actually having the company succeed

You can’t “just grant stocks” though without subjecting employees to massive tax liabilities on non-liquid shares. That’s the primary reason options and RSUs exist. Unless I didn’t understand what you were saying

> You can’t “just grant stocks” though without subjecting employees to massive tax liabilities on non-liquid shares

Just pay their taxes then?

If you give an employee 100 stocks, valued at 100$ each, with a tax rate of 25% - 7500$ net wealth, you should rather give the employee 75 stocks and 1875$ (==tax on 75 stocks at 25%) - 7500$ net wealth.

I don’t think you’re wrong but that’s part of the trade off?

If you grant stocks that means the company makes you part of the investor class subject to investor class level regulation. That leads to having investor class level benefits if the company succeeds.

If you’re implying that the convoluted equity packages companies offer as standard to employees now is better for them, then why aren’t founders or investors taking similar deals? I think that’s really the heart of the issue. Founders and investors are taking one type of deal, but then telling their employees they need to take a deal so bad that they would be insulted if you offered it to them.

Founders generally do give themselves options instead of shares for tax purposes. The reason investors get shares directly is that they’re buying them, not earning them as income. There are plenty of ways to screw over unsophisticated minority shareholders in a funding round or acquisition even if they have the same class of ownership as the founders. The main disadvantage of options for employees is that they have to pay to exercise them, but the company can trivially make this a non-issue by setting the exercise period to 10 years.

If your executives start selling off shares before the employees who had been there waiting for their paper value to turn into real value get the same opportunity (as you said, with founders it depends on if its reasonable), then even if its legal its going to destroy any trust and the best people will stop believing in your company and move on to someone who hasn't demonstrated working against the employees interests.

In your last case, if someone wants to cash out equity but employees can't, then you've destroyed trust and your company may fail in the future because the employees can't trust you to protect their equity.

VCs who signed up for this deal are idiots. Now their DataRobot investment is practically worthless, because CEO cashed out and most important product people are going to leave the company.

VCs who sign up for these deals should think more than one step ahead.

"In fact, the executives had worked at DataRobot for a year and a half or less when the sales took place. And under their watch, expenses skyrocketed while revenue growth slowed, with the company missing one of Wright’s 2021 revenue targets by 75%."

There are necessary protections in place for minority shareholders in public companies. For example, I can't just buy up 51% of a company and then vote that the company is now going to give all of its profits to me.

The same situation should apply here. Employees are typically minority shareholders and as such, should get some basic protections. Early liquidity has significant value. I'd bet that plenty of employees would give up a percentage of their equity in order to cash out at least some of their shares early. Giving this ability to larger shareholders and not to smaller ones is very similar to saying that only large shareholders get to share in profits.

Selling before everyone else is putting yourself over others. It's a terrible move from a morale standpoint if it gets out. Doesn't matter whether it is "morally acceptable" or not.

If you want peak performance from your employees then leaders eat last.

It is ethically repulsive to exclude any shareholding employee when doing this.