Equity: Time to change?
Startups, Companies, and Death
Startups are like a Boat full of holes, in the ocean. Very little chance of survival. The co-founders/investors try to patch the holes, but everyone knows, most likely the boat will sink.
Once the boat’s holes are plugged in, its time to grow to a bigger ship, and if luck favors, the boat slowly gets built into this giant ship that now is hard to steer, but hard to sink as well (read Company = Microsoft, Google, Facebook, LinkedIn, Amazon, Apple, …).
Equity is something that the people who fix the holes in the boat get as a reward. These people include initial co-founders, venture capitalists, friends and family. Once the boat turns into a ship, all these people are just blood suckers — they eat for free without work (or disproportionately compared to their contribution). They have no clue how to run a big ship (they do know how to patch holes in a boat — to some extent — but unfortunately, luck is still too big a factor — which means they probably have an equal chance to survive, if put in a boat with holes).
On the other hand, the people who work on these ships are slaves, slaves to the equity masters who earned their equities while the boat was being patched. This should have been illegal — aka — Ponzi Scheme — the largest legal ponzi scheme in the world, but unfortunately its not. I’ve no clue why any self-respecting human works for a ponzi scheme- aka- Apple, Microsoft, Google, Amazon, … — their earnings/revenues and their employee earnings have no correlation whatsoever (And please don’t think YC/VCs are any different). The employees make money for the masters, who probably are at that particular moment, sitting on a cruise ship, or hunting a mansion in London (you know who I talk about)!
Startups are encouraged to fix pains, inefficiencies. Perhaps someone here has a brilliant idea of how to fix the startup of startups? Equity being the first pain point. Money being second, and introductions being third. Kickstarter was a good step, but 10% of collected money for a website? Are you kidding me? Dynamic Split of equity does not seem like a good idea either (too complex to implement). Perhaps there is a simpler model in which everyone who works has a fair share of what they produce — over time — not independent of time?
Time — 2 — Change? Hope this sparks a discussion and we learn from it.
A Simple Model
What if we made equity and revenue related to each other. We know that if the boat becomes a ship, revenue increases at some point (investors want to delay this these days as much as possible — for weird reasons). Here is one recommendation:
This formula should be applied to only those who are not actively contributing to the company’s productivity (YC/initial VCs included). The number 5 means that within 10 years, the equity goes to zero if the contribution is none (making Bill Gates no-body in 10 years?). How do we determine contribution — using what we know best — Democratically (every employee votes). One problem with this model is that current employees have no incentive to hire new ones and grow the team. But that should be taken care of, since they have a big incentive — that the ship does not sink.
