Ask HN: Why are employee-owned tech companies so rare?

[VieEnCode]

It seems odd to me that employee ownership is not more commonplace in the global tech world. Especially for companies that serve a small niche with a useful product that won't necessarily scale massively, why try and chase VC funding instead?

Particularly for techies outside the major global funding hubs, employee ownership seems to be a model much more aligned with building a sustainable business with the potential for greater employee satisfaction and a healthier culture.

[JohnFen]

> Especially for companies that serve a small niche with a useful product that won't necessarily scale massively, why try and chase VC funding instead?

Those aren't the only two options, though. None of the companies that I've started have been employee-owned, but equally, none have taken any VC money either.

> employee ownership seems to be a model much more aligned

It certainly is, but it's also not the only possible model to get those benefits.

My companies have not been employee-owned because setting that up is itself expensive and time-consuming. It's something I'd consider once the business is mature, but while it's ramping up, my hands and funds are tied up with more urgent things.

[illuminant]

The cash to pay workers and rent must come from somewhere. Either an investor cash infusion (VC) or some exotic shell dance of market survival until everyone gets reliably paid.

Consider it is the art of keeping money flowing that allows companies to survive. While employees owning stock is in no way rare, employees managing cash reserves (especially in the first three year viability phase) is a different matter.

Someone else owning the company you're paid to work for is the convenience tax for keeping business alive.

Try doing anything with anyone involving money and responsibilities and you will throw your rosey glasses away and get back to making your own value even if commoditized by another!

[eigenvalue]

Because very few developers want to take actual personal risk beyond letting some portion of their compensation ride in the form of lottery ticket like stock options. Most would rather earn enough to support themselves comfortably from their base salary. So much so that you have a very real risk of adverse selection if you try to find developers who are willing to take those kind of risks.

[mo_42]

One reason I can think of is the amount of capital required. So basically when Microsoft or Apple started out, you didn't need a lot of capital to build a minimum viable product. There were not many tech products.

Nowadays, it's it's obviously different. To come up with something innovative, you need to develop something for a longer time so that it's better than everything that's already out there.

[eigenvalue]

Can't say I agree with this. Seems to me that it's never been easier, faster, or cheaper to make a useful tool or service. Obviously the world is a lot more competitive now, with a lot more people trying to make stuff. But a skilled developer could certainly make a project on the side while holding down a good job at a bigger company and release it independently and bootstrap it.

[colesantiago]

It's because of VCs. It's always the VCs.

[VieEnCode]

Do you mean VCs work undermine employee-owned businesses in some way? Why would they bother if we're talking about businesses servicing tiny niches?

[colesantiago]

Most current founders now go to VCs rather than an have employee owned model because VCs wouldn't be happy with employees owning the size of the pie. The changes they would want aren't in line with their goals.

VCs would want founders to restructure the company and would not invest for future rounds for Series A, B, C, etc, (unlikely to happen since employees own the company) or tell founders to dilute employee owned shares for funding (also unlikely), employees would rather make more self-fund the company with profits than go to VCs for funding.

[VieEnCode]

What you say makes sense for the kind of business that wants to scale quickly to try and build a moat and dominate a given market (that is, before it frequently goes downhill once the investors and founders have exited and the cheap money ends).

On the other hand, it doesn't seem like the best move for some product that solves a very specific problem for a very specific group of clients. Why would such a product necessarily even need multiple rounds of funding to be profitable?

[fsflover]

See also: https://news.ycombinator.com/item?id=41065227, https://news.ycombinator.com/item?id=41066698

[VieEnCode]

Very helpful, thanks for sharing the link.