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by notbitter
5295 days ago
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Startups are risky to begin with, but raising a big round shifts the risk from founders to employees. Based on the emails I get from recruiters bragging about how much money their companies have raised, it's clear that most engineers don't understand this, even if it's obvious to founders. |
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No; the reality is that the "employee risk" is complex and has as much to do with revenue growth and market conditions as with capitalization. Some firms capitalize on spectacular growth, and some huge capitalizations also create strategic leverage for the whole company that improves outcomes for employees.
But in every case, equity in a financed startup is freighted with enormous risk. The fundamental issue is simple: corporations are managed by boards of directors chartered with looking after the good of the shareholders, but, in virtually every financed startup in the world, the actual board puts employee outcomes low on the list, invariably below investor outcomes.
This is actually as it should be. You could no more demand a more "protective" board for employees as you could a 50% increase in valuations; market conditions and pricing are what controls board makeup.
One of the few gratifying memes emerging on HN over the last two years (just after "use bcrypt") is the notion that startup employee options are very risky. I'm writing noisily to combat any implication on this thread that you can mitigate that risk by picking undercapitalized startups to work for. If you want to avoid the conflicting interest risk with startup boards, avoid financed startups.
Or, don't; financed startups are also the ones that (rarely, very rarely, but still) return huge rewards.
† Imprecise, but let's have it stand for "risk that employee stock options are worth zero".