10-Year Exercise Periods Make Sense
Thank you for this Adam, as an early-stage startup guy who still hasn&#x27;t made his FU money, this really nails all the salient points for me.  Scott Kupor tries to decorate his article with references to employees&#x27; interests and considerations, but it&#x27;s clear the guy has spent his career on the on the management&#x2F;finance side where he doesn&#x27;t <i>really</i> understand what it means to be a ground-level early-stage contributor to a young startup. Consider Kupor&#x27;s &quot;solution&quot;:<p>&gt; <i>But, a way to truly compete for the very best and long-term oriented employees would be to offer even greater amounts of employee options grants. For example, why not offer stock option grants that are 50% more than the nearest competitor’s — but with the provision that a departing employee cannot exercise his or her stock options unless there has been a liquidity event? If you stay, you’re a serious owner, but if you don’t want to be part of the company for any reason you won’t be an owner. This solves all of the issues: cash rich vs. poor; competitive offers; and the bad incentive problem (e.g., encouraging employees to quit to build their own diversified stock portfolios).</i><p>I don&#x27;t even know where to begin with this.  First of all, unless you are a VC, you don&#x27;t have visibility into the market for options.  Even if you did, startups are not <i>commodities</i>, you can&#x27;t compare shares of early stage companies directly to each, particularly when you are a single-digit employee, you are going to be shaping the actual future of the company.  Not only should the offer you receive reflect the value that your particular skills and expertise will bring the company, but you also have to gauge the potential of the company itself.  1% of a $1B company is worth a lot more than 2% of a $100M company, and of course how much funding will you need to get there?<p>Obviously these things aren&#x27;t predictable, but as a prospective employee you have to <i>try</i>.  After all, unlike investing, you only have one working lifetime to spend as employee. That puts a different perspective on these things from the VC really <i>is</i> building a portfolio and playing the odds. Since the VC is not directly pulling the levers, startups <i>are</i> effectively fungible to them.<p>But the part that really burns me up about his &quot;solution&quot; and it&#x27;s purported comprehensiveness, is the idea that early stage employees who leave before a liquidity event don&#x27;t deserve any equity at all.  I&#x27;m sorry Scott, but that is absolute horse shit, and frankly it really will make me think twice about taking any investment from A16Z in the future.  The early stage employees who take a huge pay cut in order to build something <i>from scratch</i> which will most likely fail completely, are making a huge investment in the company.  They will literally pave the way for all the later employees to even have a company to work for.<p>Can you imagine if VCs made the analogous argument that angel investors should not be entitled to their returns unless they matched the later VC investments?  &quot;That would be preposterous!  Obviously those angels took a big financial risk and deserve their returns!&quot;  Financiers would never be this short-sighted, but somehow Scott thinks that someone putting their blood, sweat and tears into startup for a below-market salary are only as valuable as their latest month of work.  I respect the role of capital in startup creation, I really respect it because I don&#x27;t have it, but even so, money is <i>nothing</i> without execution, and A16Z would be nothing without talented founders and employees who are willing to sacrifice a lot more than them to bring a successful company into this world.<p>Even if you are a complete sociopath who is interested solely in the short-term benefits to the company, you <i>still</i> wouldn&#x27;t want to take this tack because (as Adam very aptly pointed out) then you end up with a lot of dead-weight in the company that&#x27;s just hanging around to cash in their options.<p>Startups are not fungible, employees are not fungible.  Treating employees like humans is not only the right thing to do, it&#x27;s how you cultivate reputation with &quot;cash-poor&quot; top performers.  The danger for VCs like Scott Kupor is there will always be an army of sycophants and yes-men ready to consecrate his every word just to get a piece of that juicy VC fund, but they are in real danger of having their lunch eaten by the expanding reach of angels that actually worked their way up out of the trenches themselves and understand the tech employee mindset.