Good critical thinking, Steven. I agree..and (as a 25-yr Silicon Valley serial entrepreneur) I am working on solutions.
The problem, in my analysis and conclusion, is the “2% ownership” outside of Silicon Valley — and even the 19% in SV is too low. Corporate profits end up: outside local communities, in hands of 1%, and driving poor operating decisions (why care?!).
The solution? Organizations owned 50% by employees, 50% by investors. Always!
Employee ownership needs to be shared equally (each share equals total shares divided by # of employees). Investor ownership can be split and diluted infinitely. (As-is…just crammed pro-rata into 50%).
This imodel scales in every scenario from startup to major public corporation. [and can and SHOULD be adopted by ALL entities]
I have personally managed 20+ cap tables in my career. It is VERY HARD as a CEO to balance the equation and motivate properly as an organization grows and changes. Implementing a 50/50 ownership model solves not only these managerial issues, but in the long run puts ownership in the hands of those that deserve it, the employees. Founders and investors can share and fight over their 50%…and finally stop taking the profits right out of the hard working employee pockets!
Such a solution has many other benefits:
- Self-policing org charts (adding another employee dilutes existing)
- Better decisions
- Motivated and caring employees.
Bottom line: it is the right thing to do!