| Even a 1X liquidation preference is screwing the founders. Here's my opinion: Dollars are fungible. If a redneck gives you a dollar for your beanie baby, that dollar is as valuable to your bank or to walmart as a dollar coming from a lawyer in an expensive suit. It should be no different whether that dollar is a dollar in cash from an investor or a dollar in salary that an engineer gives up. So, If an engineer gives up $70k a year in salary to work for a startup, the "options" should have an intrinsic value of $70k a year (the numbers that vest in that given year.) So should the RSUs. Anything less is cheating that engineer. Those options or that stock should have the same participation as the venture capitalists. I will accept preferred having some narrow advantageous rights, but it should be only a few that are essential and make sense. Right now these deals are loaded down with double dipping that screws entrepreneurs because it is "standard practice "and "VCs need to cover their risk" -- but this is BS -- VCs have less risk. The VC is in many deals, the entrepreneur isn only one. If anyone should get LPs it is engineers. So the company I'm founding next will have one class of stock, or if it has two it will be the founders and employees with preferred stock. (and sure VCs will balk, until they are desperate to get in on the deal-- but you should be raising money not when you have an idea or because you want to be able to pay yourself, but when your investors are desperate to get in on the deal. If that sounds unrealistic, then you're following the standard startup model, which is designed to screw founders, and now I'm getting circular so I'll get off this train.) RSUs can be granted, with no cost, as a form of compensation. I think that's the better way to do it. Options require an exercise price which is the source of a lot of hassle. For instance an early employee gets pushed out because someone wants his equity, so he has 90 days to come up with $35k/year (so $70k if he's been there 2 years) to exercise his options he's already effectively paid $70k a year (in lost salary) to get. Options are very tenuous- they can be cancelled or adjusted in acquisitions (according to many terms) etc. RSUs have none of these problems. (Though the tax situation might be worse for them, but that's showing the IRS or the people who lobbied the IRS for the rules, setting it up to screw employees.) I could go on. Founder Shares are just shares with special rights for founders. Google and Facebook had them. |