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by tomp
738 days ago
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I think you're confusing a few things. First of all, we're talking about pre-IPO startups, so you can't just sell the stock. Second, talking about "company loses money because it gave equity to employees" is as non-sensical as saying "company loses money because it gave equity to investors". You're not giving away equity, you're exchanging equity (at present value) for cash (from investors) or labour (from employees). They're both investors (investing either their money, or their time/skills), and by investing, they're taking ownership of any potential future gains or losses (and by letting them invest, the company is giving up that potential). |
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This is often but not universally true - about 40% of companies allow you to do so, and about 40% of those that allow you to do so allow those sales on secondary markets [1]
>company loses money because it gave equity to employees is nonsensical
You lose money in the sense that the gains beyond the strike price which you would have realized had you not sold the call option are your losses: you could’ve not sold the option and profited on that rise instead. You have lost the difference in the profit between these two investment plans.
> You're not giving away equity
I was responding to someone asking “why don’t they just give the equity instead as compensation?”, as opposed to writing call options against it - assuming that as a company you want to incentivize workers to work by setting aside some fraction of your equity which they may receive, these are the reasons a company might prefer to “give” employees that equity with options, instead of discounted equity or stock grants
[1] See page 8 footer of https://www.gsb.stanford.edu/sites/default/files/publication...