If the company can afford to offer competitive and attractive salaries to its employees, why would they offer equity? If I am a business owner and can afford to pay my staff well, why would I give up a portion of my company to the employees when I don't have to?
This is not some great injustice or a company acting in any kind of morally questionable way. In fact, it would be more accurate to say that in the grand scheme of things (not just the tech bubble), offering equity to employees is the exception, not the norm.
Giving employees equity can help to keep everyone aligned to the same goals. Early on in my career, I worked at a startup that paid its employees very well but did not give them equity. When the sales team pushed through a monster deal with some vaporware in it, we technical people hated it, because for us it just meant more burning the midnight oil to deliver overpromised shit, and no additional compensation. Churn among devs was huge, the codebase eventually became weighed down by technical debt, and the company cratered after a few years.
If they would've been more generous with equity (even at the expense of base salaries), I think we would've been high-fiving each other when the sales team closed a huge deal instead of cursing them under our breath and plotting our escape.
I think there's a valid question here, but it's framed as if the only standard is, 'what can I get away with'? Where do you see the nuances and what do they lead you to?
While it's nice to hire great employees, Mailchimp provides an API to send email. It's not like they're trying to solve cold fusion. Actually, wait, how many employees does Mailchimp even have? Let's check the press release...
>Founded in 2001 and based in Atlanta with offices in Brooklyn, Oakland, Vancouver, London, and Santa Monica, Mailchimp has 1,200+ employees
Mailchimp isn't an API to send emails. It's a WYSIWYG email marketing newsletter creator. If you've ever made an email newsletter that looks nice you'll understand how that is very valuable to a lot of companies.
Add in all the usual ops, customer support, business to business client management for bigger accounts, marketing, and so on and its not hard to see how it can need quite a lot of people.
Not giving equity to employees is fine by me - but it can certainly be “questioned” from a moral standpoint. (Though I think you mean “morally questionable” as euphemism for “morally wrong”)
Selling to Intuit is not fine by me - and i consider it morally questionable in both senses of the term.
OK, I'll bite. I am one of three owners of a roughly £1-1.5M pa t/o company in the UK (depends on the wind direction.) We've operated for 21 years now - it's IT Services, mainly consultancy. We've always offered a few Class B shares to time served employees in addition to salary. Not many shares but some.
I'm not too sure what on earth "late stage capitalism" means but I do know that my little firm trundles on quite happily and works slightly better for the extra incentive that directly contributing equals directly earning. We have never insisted that shareholders need work extra hours or whatever. I kick people out of the office if they work too late. Work life balance is important.
Is offering or not offering equity something that can be considered within the realms of "morally questionable"?
A business is a business and a contract is a contract. When you take up employment within a business, you engage with a contract. If the contract offered is not one you like, you are not obliged to accept it. The last two sentences are rather polarised and I accept that the real world is rather more nuanced when you consider individual cases.
Can you really call a mutually agreed equity arrangement as "morally questionable"? You might as well describe working for a salary as morally questionable too. Anyway, whose morals are we considering and what standards do they espouse? Morals don't live in a vacuum nor do morals stay attached to a single concept. Your "morals" may well not be the same as mine!
We (my little company) are quite boring, rather small and won't ever feature in a how to take over the world, unless 10^-3 unicorn suddenly becomes exciting.
I wasn't criticizing people like you (although this thread does seem to have hit a nerve). I was critizing the assumption that you are morally culpable (or indeed praise worthy) for how you run your company.
You are able to be a good boss and that's great. In fact it's probably good business to be. But you could just as easily have been born the inheritor of a sweatshop garment factory in Bangladesh and unable to make a profit unless you employed children under appalling conditions.
The economic conditions dictate the possible relationships with employees. As profits decline (late stage capitalism) in different economic sectors the options narrow.
In the future your economic sector may become the target of a wave of consolidation. If a competitor starts buying up all the competition and adopting a more aggressive business model with lower prices you will be forced to adapt.
"In the future your economic sector may become the target of a wave of consolidation."
It's called Microsoft 8) Oh well, this MD rocks Arch Linux on his laptop and workstation. I put up with Exchange thanks to Evolution (and recently: Kmail.) I login via winbind-nss and leave a trail of Kerberos tickets wherever I go.
"I was critizing the assumption that you are morally culpable (or indeed praise worthy) for how you run your company."
Giving employees equity is a form of funding. If a company is bootstrapped and profitable, they can just pay employees money instead. In theory this should mean Mailchimp employees were paid more money than employees doing similar work where they were given stock options.
Giving early employees equity is often a form of incentive.
If giving an employee 1% of equity improves acquisition valuation by 2%, then it was probably a good move, as the remaining shareholders got 1% more than they would have otherwise.
It gets less intuitive with multiple people: what to do if one founder owning a valuable small business adds a salesperson and a UI guru, each of whom adds 10x the valuation to the company?
The main problem with equity is that it is extremely difficult to value how much a person will increase a future valuation by (ignoring complications with voting rights etcetera).
It’s like funding in the sense that you can get an engineer who demands (for example) $200k in comp for $100k cash and $100k in stock options, saving the startup lots of cash in the beginning.
An aside as an engineer founder, I have always thought of accepting stock instead of wages is more like gambling.
1. You are concentrating your risk instead of diversifying.
2. As a minority shareholder in a private company you have virtually zero choice over any critical decisions, and the other shareholders have financial incentives to screw you.
3. You may influence technical outcomes, but even there you often realistically have limited financial incentive to improve profits. Unless you are an early employee, the amount of work you need to do to increase valuation by 10% is probably actually not worth the extra effort you put in for the $ you might get out.
4. Most people grossly misprice equity - ordinary shares are worth much less than the preferential shares an investor gets. Even though you are investing the equivalent of cash, you don’t get preferential shares. This is misrepresented everywhere, and certainly a startup has no financial interest in telling you the truth.
5. It is a high risk investment. That is fine for a VC which can spread their risk over many investments to get the industry average. It is a bad bet individually because even if you could invest your time in 10 startups, your variation in profit is still high. (Assuming one in ten startups is successful, which I highly doubt). Even VC funds are OK with ‘high’ variance because LPs are usually looking for diversification (especially non-correlated diversification with the rest of their portfolio), and the VC partners still get their tidy 2% even if the fund tanks.
6. Engineers usually seem to believe that they can pick a winner to join. VCs with decades of experience fail all the time, so the majority of engineers are just fooling themselves (or more truthfully, being fooled).
Everyone that thinks taking equity for a lower salary needs to compare the difference with DCAing (dollar cost average) the extra salary into TQQQ,UPRO,SOXL. Might be higher profit and less risk.
All good points. Which is why the stock comp would have to be multiples of $100k to equal $100k in cash in my eyes.
Of course, if the startup ever goes public, you'll make out like a bandit on that amount of stock! But more likely, as you say, you'll be left with only the cash component.
Except that’s explicitly not how the free market works. Employees would be paid at the rate their services clear at in the open market. If you’re paying more than that, it’s because you want to attract people above the average/ clear.
Suppose you could pay an employee $200,000 or $150,000 + stock options.
If the two options were rationally considered equal that would mean the missing $50,000 NPV of the employee’s salary would be paid by future investors once they bought the shares. Either in an IPO or in this case by the acquiring company.
Options are also a method to retain and incentivize talent, but they’re certainly a form of funding.
I'm not sure why I'm supposed to be upset about this. If they chose to work for a "startup" which didn't offer incentive equity, they don't have equity. Presumably they had good salaries to compensate.
There are other ways of structuring bonus and non-salary compensation besides "equity" which honestly can get employees just as stuffed in an acquisition as firms without any equity. The silicon valley model is not the only way to frame success.
Ellen Pao still chasing clout, I see -- no better way than riling up the Twitter masses. So what if employees have no equity? The business was profitable enough to pay them a fair market salary, it's not like they were indentured servants. What stops them from building their own $12B exit?
I hate this selective criticism; for goodness' sake, she was the CEO of reddit -- a company with ethical controversies every other week, but she attacks MailChimp? Give me a break.
Ad homonym attack against the messenger doesn't address the substance of the objection. In this case, I'd rather get $3 million vs *not* getting $3 million (which seems like a not-unreasonable payout for an early senior engineer at a startup with a $12b exit). You can argue that they knew what they were getting into, but that's still gotta leave a bitter taste for some.
The objection barely warrants addressing. A founder says "I'm keeping the equity and I'll pay you X salary." Employee says "OK." Nobody's exploiting anyone in that exchange.
At a point in time before Mailchimp was clearly a success (and thus equity would actually be worth something), most engineers would jump at a salary-over-equity compensation scheme because it's common knowledge (at least around here) that equity is a lottery ticket that usually doesn't pay off.
> Ad homonym attack against the messenger doesn't address the substance of the objection.
There is no substance to the objection. They aren't entitled to anything, they didn't negotiate anything, and they shouldn't get anything. Her argument is akin to saying that the Uber driver that dropped me off at the gas station is entitled to part of my lottery winnings because the ticket I bought happened to have the jackpot numbers.
The position is both logically inconsistent and severely asymmetrical—we are only talking about this because MailChimp did have a successful exit, not because they failed miserably (as literally hundreds of startups do on a yearly basis). Even as a staunch capitalist, I'll be the first to say there are plenty of problems with corporate tax law, offshore tax havens, money laundering, etc.
You either get in as employee #3 with real equity, or you join as employee #5000 with good salary, benefits, stability, and work/life balance.
Anything else and you're a chump. Since there are a whole lot of employee #50, and #35, and #110s out there apparently many people really don't know what they are getting into.
I dunno if I agree with this. If you're early on in your career, jumping in as employee #20 can be an optimal time to learn a whole lot by working directly with all the key senior people in the company. If you're later on in your career, an employee #20 is likely jumping on board to work with people they know and trust.
From a strict compensation perspective, you are probably right, but even then, it is probably less stark than it was ten years ago, what with seed rounds and series A sizes being so massive that salaries are a bit more reasonable at this stage too.
I often see the comment on HN that "equity is worthless, make sure your cash salary accounts for that". So when that was done here, why the sour grapes?
As another commenter pointed out, there was obviously a fair agreement here: work for Mailchimp at X salary and no equity, or don't. Nobody was forced into anything, and if no equity was offered, then I'm sure the salaries had to be competitive in the market. Nobody would be stupid enough to work for them otherwise.
Clarification as my parent comment gets downvoted: there is a good HN rule - "assume good faith".
In my comment I haven't claimed that the parent comment was ad hominem, I just claimed that if it would be considered as ad hominem it would create what's called a "strange loop", which is amusing (as all strange loops are amusing IMO).
This isn't reddit. A reddit villain isn't automatically a HN villain. Also, she wasn't universally disliked there, and it's been a few years since she left.
Ellen Pao made a statement of fact, that rank and file “employees have no equity”. There was no criticism or attack fundamental to the factual statement itself.
What is the basis of the criticism? The employees of MailChimp knowingly and willingly entered into an employment relationship that did not include equity in its compensation.
They have no reason to be unhappy and MailChimp doesn’t owe them anything other than the salary and profit sharing that was promised. Regardless of who the new owners of MailChimp are.
There are multiple other possible motivations for Ellen’s post other than criticism.
>>The business was profitable enough to pay them a fair market salary, it's not like they were indentured servants. What stops them from building their own $12B exit?
That is the thing, we are seeing an extreme negative view of basic capitalism, people tend to believe founders and capital have no value believing in a socialist utopia where by all the workers get an equal share of the "means of production"
They were already making out like bandits. They have near zero capital costs and their company is essentially running itself (im exaggerating, but you get the point). Assuming each of the founders had 33%, it means they are each essentially taking in $100M/year in salary with no end in sight towards that either slowing down or it decreasing. This is a simple math formula for them - cash out $4B now, setup a family office and then never work again or never work again and just bring in $100M/year. They'd get to that exit by ~50 anyway.
Too bad they closed a bit too late.
The proposed tax plan now has QSBS benefits limited to 50% of gain (vs 75% or all) if AGI is > $400k.
Those founders will be happy, but not as happy as would have been a day or two ago.
It is up to $10 million or 10x your tax basis. Also, double that if you are married. More if you gift to children.
Hopefully their bootstrapped funding has been carefully crafted to track tax basis!
Not quite - many of their customers are paying $$ a month for medium to large marketing sends. Their biggest customers probably count for 30% of the overall revenue.
It's unusual seeing a company that sells goods and services for money be valued highly in silicon valley ;)
Mailchimp has ~13MM users and 800k paying customers. In 2019 they had revenues of $700MM. In 2020 they had EBITDA of ~$300MM.
They are fully bootstrapped and have taken on zero outside funding.