Protecting startup company workers from Investor / Founder greed
Having lived in the startup world for 20+ years now, I’ve come to the following conclusions about the startup company employee compensation / stock option disparity problem that was so well addressed in Buzz Anderson’s piece
The VC / Board and founders have far too much power with respect to employee compensation and working conditions.
Employees fundamentally do not understand that they “ARE” the company that is being purchased. They are being massively exploited and unfairly compensated.
The solution is collective bargaining. Yes, unions. They may not look the same as unions in the “industrial age” but it is the missing piece of the puzzle that will reduce ( not eliminate ) the egregious and abusive behaviors widely reported in the current round of VC backed companies. Board representation, real grievance processes. What a concept…
The VCs will bitterly fight this, as employees are really seen as naive tools to be exploited, but it is such a tragedy to see an entire generation of young, eager and bright people get abused, too early cynical and burned out, never to have experienced a healthy working environment.
Imagine the implications to the VC model if just one company were to IPO and all of the employees simply walk out the next day demanding a larger piece of the pie.
Options vs. Real Shares
As discussed in Buzz’s article, companies really, really want people to leave before their options vest, and if they do, to not exercise their vested shares.
There is actually another big reason for this. People who own real shares of the company are all required to see any corporate documents that impact the value of those shares. If there are any transactions that might dilute the value, they have to cast a vote. The last thing that the VCs / Board wants is for current or former employees to get word of a major transaction, and have all the terms spelled out before they can close, but this is what happens when employees actually own stock.
I always try to get at least a few real shares when I join a startup for this exact reason.
Third party option acquisition
I have not seen it, but it would seem clear that an interesting financial opportunity would be for a third party to “buy out” vested options of employees as they leave companies. An investor interested in acquiring shares could simply pay the employee to exercise the option, and pay the tax balance as part of the investment. Not sure why I haven’t seen this… hmmm..