DataRobot is unusual in that the "money off the table" was geared for non-founder executives.
But the "secondary's for founders" is not that unusual - it's typically used as a tool by VCs who are in competition with other corporate development opportunities.
AKA Clubhouse had several suitors for acquisition (including Twitter it's rumored) but Andreesen added a few million bucks of liquidity for the founders to bridge the gap between "guaranteed liquidity" vs "non guaranteed but potentially greater upside" (1)
But then of course you have all sorts of eggregious examples over the past several years of Johnny Boufarhat @ Hoping taking $100m+ out or infamous Adam Neumann pulling out $700m+ from WeWork(2)
Definitely not unusual. I think it is pretty common for executive team in addition to founders. My feeling is that VCs and founders need to find a way to partially cash out rank and file employees along the way if they want start up model to succeed long term. Many senior engineers are reluctant to to join startups at this point as even if startup is successful it can be a long time before they have the money in their pocket. Employees at Reddit, Stripe, Instacart, Databricks, and many others have been waiting over a decade for company success to hit their wallet.
Sometimes the executive team gets stock options rather than RSUs so they own the stock and can sell to secondary parties. VCs and founders would like them to sell to known parties rather than sell on private market (Facebook crossing 500 investors threshold was one important reason for IPO timing [1]).
> My feeling is that VCs and founders need to find a way to partially cash out rank and file employees along the way if they want start up model to succeed long term.
They also need to adjust comp structure. I've had a few offers to be engineer #1 at this hot startup or that, some of which I thought had a good chance of success. Assuming the best case scenario I always found the following to be true:
1. Founders would outearn me 100:1
2. Given any reasonable assumptions around likelihood we fail, the E(V) of the offer was less than I make now.
3. Founders could, at any time before IPO, completely screw me out of my paper gains e.g. via an acquisition.
I've always pointed out it's possible to make me an offer I'll take, the resources are there, but no one bites. This is absolutely killing a lot of otherwise potentially great startups. I've seen some fantastic business ideas fall down in execution because neither founders nor investors could bear to let key employees share more of the spoils and be equally protected from the downsides.
Everyone feels this way. It feels like such a market inefficiency (which a company could arbitrage to get top talent). But the fact that this inefficiency never goes away makes me think I’m missing something. I usually just chalk it up to the majority of engineers not understanding the basics of startup equity (or expected value and failure risk… idk). Regardless, the end result seems to be that there’s an adequate supply of labor. So much so that the pressure which would correct this inefficiency is sufficiently mitigated. It makes no sense from a risk/reward perspective that an “founding” engineer is making 1/100th of a founder. They both have the same level of risk.
I think it's worth remembering that these kinds of inefficiencies can last for years, maybe decades before correcting, this post has some good examples: https://danluu.com/nothing-works/
I think there are a few things that explain the phenomena:
1. You're asking rich and powerful people to give up control. Everyone hates giving up control, but my experience is that people accustomed to control hate it more.
2. It's not familiar, which means it feels risky.
3. It objectively lowers total payout in the best and worst case scenarios for power, and it's not actually clear the E(V) for the capital class goes up. It might, but no one knows apriori, and it's expensive to test.
This mix of low information, a small number of potential actors, and feelings of anxiety around uncertainty and loss of control is a pretty potent mix for inefficiencies like this to persist IMO.
Alternatively (which is probably a variant of 3), you’re asking someone to give you 10x or more the shares of what they have reason to think their next-best alternative is.
If an employee #1 share grant isn’t for you (as it isn’t for me), there are plenty of other capable engineers out there who are willing to take a lower stake for a variety of reasons.
> you’re asking someone to give you 10x or more the shares of what they have reason to think their next-best alternative is.
I don't think this is an accurate representation of my views. I'm happy to take more in the 2-3x range so long as I'm protected from the founders cashing out while screwing me out of my paper gains.
> there are plenty of other capable engineers out there who are willing to take a lower stake for a variety of reasons.
Maybe, but they can't always find them! Businesses rarely fail for one reason but maybe 1/3 of the startups that approached me and failed were bogged down by poor technical decisions made early on (what's that? your engineering lead with 3 years of experience set up a totally custom kubernetes cluster and it's slowing down your execution? Man that's rough!)
Investors and founders hate down rounds. You want a pricing to be as beneficial as possible to all involved. Startups are extremely risky and getting a deal done at any price is an accomplishment.
Now you want to give a lot of small shareholders liquidity. The pricing is far more often. The whims of the world plus poorly negotiated deals can make a small sale be far below the last investment price. Psychologically this is bad even for wealthy investors and investing is heavily based on psychology.
No one wants to let that happen except the employees. The founders, the board, and the earlier investors don’t want anything that can jeopardize their argument for what their shares are worth.
I don't think there is really a correctable inefficiency here for a number of reasons.
In regards to the very first 1-2 employees, from what I have seen is that they are either a) fairly inexperienced (and therefore willing to take lower compensation), b) very excited about the technology and willing to work for less compensation, or c) very experienced and compensated well and/or given a ton of shares to the point where they may even be considered a founder.
So if you are employee #1 and you are very experienced and can negotiate for a nice chunk of shares, you almost always will get pulled into the founding team. It is not uncommon for startups to have minority founders that have 5-10% of the shares.
And that means when you hear about an early employee complaining about their compensation, they are most likely going to be from category a or b. You aren't going to be hearing from category c, because they were treated well and might even consider themselves founders.
"Employees at Reddit, Stripe, Instacart, Databricks, and many others have been waiting over a decade for company success to hit their wallet."
And to add to that, should they decide to leave and have to exercise their options, they'll be on the hook for a huge tax bill had they not been allowed to early exercise and file 83b letters.
What has surprised me recently is how little equity founders have in mature startups. Its not unusual for heavily funded startups to have founders with under 10% equity between them. In India, so many startups that IPOed or raised late rounds are at 2-5% equity.
This is a side point to the article, but but important for anyone running an enterprise business:
> The article brought attention to other things not going right at the company. For example, DataRobot sent its top salespeople on a lavish trip to The Virgin Islands just days before laying off 7% of employees.
This trip is not necessarily a bad thing to have done, and more likely than not a good thing. You need your sales team properly motivated.
Sales people have their own culture, and if you don't understand it you'll have a hard time recruiting and retaining an effective sales team. Actually you'll have a hard time recruiting the VP of sales who will build and manage that team for success. The good ones are ultracompetitive. You didn't make top producer for the quarter? Well I'm still excited at the number that person made because it shows how great our company is, but fuck, I'm gonna blow that shit out of the water next quarter.
I've been to the sales meeting junkets as CEO. They love to hear from the CEO...briefly. Rev them up and get them excited that this company is going somewhere BIG. Then get off the stage, give it back to the VP of sales, and leave. The VP is their boss, their protector, and makes sure the comp and commissions are paid. The CEO has to balance all sorts of things. The VP has to...bring in the revenue!
Obviously people like that would hate to work in engineering, and you wouldn't want to work with someone like that on your engineering team. Different worlds.
It's very common in tech companies for engineering to shit on sales (why won't they just go sell what we've got?) and marketing (our product is so great, what do this assholes do anyway?) sales to shit on engineering (those shits just say no all the time and never work on what the customer really wants). The effective companies are where they respect each other and realize that their cultures are different but that they need each other. I'm surprised how infrequently I see that.
> Sales people have their own culture, and if you don't understand it you'll have a hard time recruiting and retaining an effective sales team.
Every time I hear something like that, I can't think of a positive comparison. Feels like the stereotypes like "boys will be boys, that's just how they behave", "of course soccer will always involve fights", etc. When I hear about ultracompetitive sales I'm reminded of all the sales people that try to scam you, promise things that are not possible, and chase with multiple follow ups to private comms.
> when I hear about ultracompetitive sales I'm reminded of all the sales people that try to scam you, promise things that are not possible, and chase with multiple follow ups to private comms
This is in the same bucket as those who write off several personalities that do well as coders as some combination of neurotic, antisocial and/or weak. Can you find humorous or even personal anecdotes matching the stereotype? Sure. Will carrying that stereotype harm your ability to interact with those people, even biasing your interactions to the worst in their lot? Obviously.
first of all, it's not literally "boys will be boys" -- female sales people are the same. I don't think you were implying otherwise, but I want to be clear.
> I'm reminded of all the sales people that try to scam you
Yep, there are a lot of people like that and you need to get rid of them as soon as you realize you hired one. You experience them in the company too. Build your comp plan so that you pay out for the successful deals (to the degree that is within the salesperson's control -- it's not their fault if engineering does actually screw up.). Pay out more for long term customers (often companies pay less, figuring it's less work to renew, but this incents the sales person to sign a good deal and make sure the customer is happy).
I've seen all sorts of screwy attempts: contract contains development terms not signed off by engineering ("hey, the prospect already signed it, how can you refuse to sign it???). Don't book a deal until you have both a signed contract (by both sides) and a signed purchase order. I've seen plenty of sales people send in one or the other, or both but with a signature missing ("they guy went home but will be back in the morning") on the last day of the quarter in the hopes of hitting their target or getting into the escalation zone. Refuse to put up with that crap.
It's like having a child. Any pretty much any of the good sales folks, if you told them that they'd probably nod, say "yeah", and laugh. And then go earn more money than the CEO.
> to the degree that is within the salesperson's control -- it's not their fault if engineering does actually screw up.
In a previous role, I was the engineer who had to install what the salesperson sold (regardless of whether it fit the customer's actual needs). Even when it was the salesperson's fault, the engineer got the blame.
Engineering should never sign off on the salesperson's contract without believing it's worth it.
And a principle of good management is that the situation symmetrical: if the engineering is impossible it's the responsibility of the person who signed off on it, not the team trying to deliver.
What if they can have an engineer work 60h/week to try to deliver the promises, and not being able to say no (someone else signs off) and also gets to take all the blame if things too long? Wouldn't that be great
I grew up hanging around a Ford dealership where my best friend's dad was a salesman, and I later worked alongside various sales teams in other businesses. It was all as you describe.
>This trip is not necessarily a bad thing to have done, and more likely than not a good thing. You need your sales team properly motivated.
You need the rest of your team motivated, too. Optics are a thing. I understand your point and don't wholly disagree, but send them to something within the country or even within the same state. If you weather the layoffs and right yourself as a company, then send them to the Virgin Islands again.
Instead, now you've got a company whose sales team is motivated, but every other department is confused, nervous and anxious. Hell, there's probably even some animosity being built up towards the sales team, which will add to the interdepartmental bickering that you alluded to.
Edit: In the context of the article/DataRobot specifically, I'd argue that the trip only adds to DataRobot's existing pile of shit in a way that overshadows any potential benefits. Morale seems to have been really low pre-trip.
> You need the rest of your team motivated, too. Optics are a thing. I understand your point and don't wholly disagree, but send them to something within the country or even within the same state. If you weather the layoffs and right yourself as a company, then send them to the Virgin Islands again.
If everybody respects each other they'll understand (I say this from experience). It's more like, "yuck, I'd hate to be one of those people but wow, I'm sure glad they are bringing in the money that pays everybody's salary". Frankly I was glad I've never been asked to / had to attend n entire sales meeting. It's really not my thing (I have "carried a bag" -- i.e. lived off my commission, when I had a mortgage and a wife who didn't have a work visa to support).
And remember a sales person's job is far more precarious than a developer's, or almost anyone else's. Miss a quarter and you can be canned on the spot. Miss a big deal you've been working on for 18 months can mean the same. Actually, depending on the company's sales cycle, being too far behind after the first month of the quarter can get you ejected.
From that article, the new management of datarobot weren't trying to build a solid business, but rather extract the maximum amount they could.
It's not just the trip, it's what the trip means, and what it doesn't mean. In these situations people are trying to read something into anything they hear, and this one is a powderkeg.
Everyone thinks you can get large trips refunded at the last minute and it's common for someone to point out that's not how the world works. But what they'll be missing here is how far out were the reservations booked, and if we're doing layoffs now, what does it say about the executive team's ability to forecast? At least they weren't yet willing to admit to themselves that next year was going to be tough, or someone has been lying to the rest of the team about how things are, in an effort to... what? Get one more bonus? Keep morale up?
If people get demotivated by that, then they were one incident away from demotivation already and you fucked up a long time ago. Which is unpleasant to do and so people will procrastinate.
If you promise a lavish trip to the Virgin Islands to your sales staff for hitting certain numbers, you must deliver that lavish trip when they hit those numbers.
Imagine if you were promised a specific bonus check if your team hit certain goals. Your team works hard to hit those goals. Then management tells you times have changed and you won’t be receiving that bonus check despite keeping your end of the bargain. Most people would start looking for a new job immediately, or at least lose motivation altogether. Nobody wants to continue working somewhere after a bait and switch like that.
> This trip is not necessarily a bad thing to have done, and more likely than not a good thing.
I find people often underestimate how much employees cost and overestimate how much things like a Vegas offsite cost.
Even if you send a team of 20 to The Virgin Islands at say $10,000 a head, that's only $200,000. That pays for what, 1-3 salaries for the next year?
Layoffs don't happen when companies are broke and cannot afford to spend money on anything. They usually happen to _prevent_ companies from going broke.
When a company sends me on a business trip in luxury transport in a luxury hotel so I can sit in meetings I have no reason to attend, then refuses to give me a 100$/month raise because there's no money, the only thing I'll be estimating is how many months I have left at the company.
> would you rather take a dip in morale of 20 people, or the rest of the company?
If a sales team taken on rev-em-up blows someone’s morale the company’s culture is broken. The reaction betrays a lack of trust in management. Suspicion they’re acting for non-company promoting reasons. Management needs to figure out why that trust gap is there and address it directly, not put forward another act where feel-good measures that compromise the company are taken because they’re easy.
Having been on the receiving end of their sales team, I'm not surprised. Approaching a clueless executive and feeding them all sorts of BS to get their product foisted onto the data science team I was with was very disagreeable.
> The effective companies are where they respect each other and realize that their cultures are different but that they need each other. I'm surprised how infrequently I see that.
Effective companies have compensation structures which incentivizes such respect.
Sales should make a tonne of money upfront, especially those hitting significantly higher than OTE. But a sales person's work is of very little use to the company after they leave the job. Engineers should be paid significantly more equity - their work has significant residual value to the company long after they leave the job.
When this dynamic is explained to both functions, they learn to respect the other:
* engineers are not rushing to implement whatever hack you are suggesting because they own significant equity in the company and want to see it grow in value; they are not getting a cut of your commission check.
* sales is being paid high because it takes a certain kind of person to close the deal, and us hitting those revenue goals is how your equity will grow in value.
> Sales should make a tonne of money upfront, especially those hitting significantly higher than OTE.
Sales should make a tonne of money for closing good, big deals. But actually I never pay it all out up front; I pay it out as the deal progresses, including renewals. I've even paid out after the sales person has left, because the payments were set up only to pay out as the customer and company continued to be happy.
The sales folks typically don't like that of course -- most are quite transactional. But if they make more money that way, they'll be happy (or will leave).
I'm always sorry when a dev leaves, even if it's for good reason. A lot of devs often feel an emotional investment in their employer, which often lingers to some degree after leaving. A sales person, on the other hand, thinks their company is the greatest until the day they depart, after which they often don't care at all. I am less often unhappy when a sales person departs, unless they were a huge earner.
Engineering (and even organizations in areas like marketing) also have very different hire/fire practices than sales. For all the griping about interview practices, engineering orgs are really trying to hire the "right" people. Sales is too, at some level. But it's also a fairly common observation that sales management has no problem firing people who don't make their numbers even if it's because their account had a major reorg and the new guy likes some other vendor.
Because they can't say, "Look, this might not be the best thing right now, but we do recognize that this is typically viewed as a performance incentive, so we're making it up this year by..."?
Direct-sales startups live and die by their sales people. Taking promised money away from the folks that have the least allegiance and most capability to move on is a quick way to make every employee redundant.
> The effective companies are where they respect each other and realize that their cultures are different but that they need each other. I'm surprised how infrequently I see that.
This is so very important. All of the teams in a business are critical to success. The best product in the world (engineering) is useless if noone knows about it (marketing), can't buy it (sales), or can't make it work (training and support).
There are multiple legs to the stool, and as I see it, it's the CEO's job to make sure all of these different personalities, tensions and constraints are balanced - and that everyone understands why everyone else is there.
Sadly, CEOs are often just sales people with a fancy title, which can lead to all sorts of nightmares.
If they've promised it, they have to give it, but they could always say "We're having to do a round of layoffs, the optics of a traip would look bad, so instead for this year we will give you a one-off bonus equal to the value of the trip of $Xk."
I wonder which came first though. Engineers shitting on sales, or engineers hearing about companies that laid off nearly all of engineering and kept nearly all of sales. Stories like that can darken an image pretty damned fast.
What always pissed me of most about 'sales vs. engineering is':
Engineering: Works hard (45 hrs/wk), knowledgeable and experienced at their craft, specialized skill-set, net compensation... $150,000.
Sales: Works hard (55 hrs/wk), knowledgeable and experienced at their craft, specialized skill-set, net compensation... $600,000.
That always felt like bullshit to me. Two hardworking, skilled people, but just because the sales people are closer to the money, they get paid a shitton more.
In fact, (and I say this knowing that I'm biased, but it's still keenly, emotionally felt), it often felt like thee engineer is far more skilled, rare, and value-producing than the salesperson. They just, again, aren't the ones directly bringing in the money.
Money doesn't lie. If that $600k is what you want, then stop developing and start selling. The fact that you either can't or don't want to will answer the question.
I also lack both skills and desire to sell. The job sounds like a nightmare to me. So I don't begrudge those that are good at it and earn those commissions. I envy the comp, but it'd be silly to be jealous when I wouldn't actually switch places with them. $150k is great money in its own right.
And that's not normal comp for salespeople. It's the sort of thing top performers can make (or more). Not a top performer? Even because of factors totally outside your control? Too bad. Good luck finding a new job.
Yeah, it's a meat grinder. I've been on countless calls where Sally–who smashed records last quarter—is being called on the carpet for small miss this quarter. Miss 2 in a row? Nice knowing you, good luck in your future pursuits.
Another thing I forgot to mention, your best sales people can and will take their customers with them if they go across the street and work for your competition. I've also seen that happen with disgruntled high-performers. We basically lost an entire region a few years back when the star sales rep there decided to go independent and steer her enormous client base to a rival provider.
Everything is extreme in sales. The best earn more, the worst barely make rent.
> your best sales people can and will take their customers with them
And this has been validated by multiple court cases: the sales person owns their "rolodex" (that shows how long this has been the case).
Want to know why every company has a CRM? The CRM companies will tell you about all the integrations etc but the real reason is that they can keep their hands on all the contact info when the sales person leaves.
I suspect for a lot of engineers, the fact that it isn't about how hard you worked or how great a product you created, but what revenue income/it generated is tough. And don't meet those metrics and too bad is tough.
100% agree on that. I forgot in my original comment that I also agree it feels like bullshit. What I wrote above is what I have to constantly remind myself.
The variance in sales compensation is huge. The variance in engineering comp is compressed. At my previous firm, the sales base salary was $60k and the highest earner earned 12x that. The lowest earner earned $60k.
And was probably fired in a year or two for not making their numbers. Whereas assuming a reasonably financially stable company, the lower end of band engineer is probably trundling along.
A sales person making $600k probably has a base salary of $50-100 the rest is all commission. Sales can be a grueling slog that requires wit, emotional intelligence and significant research into your target. It's both strategic and tactical in a way that can only be practiced through repeated failure. To be bringing in a revenue that justifies a $600k salary is a rare person indeed. We all tend to oversimplify other people's work or problems. This is a good example.
Well, we don't reward engineers who find a way to increase sales or decrease overhead by half a million either. Maybe both teams could copy some habits from the other and delete a few.
As an engineer, your $150k is pretty much guaranteed. In sales, though, it's entirely possible to spend several years wheedling the large client that would get you the $600k payday... and the day before the board is supposed to sign off on the deal, their CEO changes and the new guy puts everything on ice. This happens a lot, and it's brutal.
Of course not. Parent comment is certainly cherrypicking based on whatever anecdotal experience they heard or experienced.
Even if the Sales team happens to hit a home run in a particular quarter, you can bet that Finance will raise targets for the next cycle, and it'll be twice as hard to hit it again. So on a functional company you won't be hitting all goals every time, and the annual income for sellers evens out.
Worth mentioning that, depending on the pay arrangement (individual vs. team-based goals), one specific individual may make a lot more than the average, but the team as a whole won't be making the same.
Ultimately the main difference is between being on a Sales plan (with lower base + higher variable/risk), vs. a more traditional plan with base + stocks + performance bonus.
Also, the average "$150K engineer" is more like a "$300K engineer", at least in the US [1].
E.g.
You spend a week optimizing the database. How much is that worth? Does it allow the front end designers to abuse the db more to push more in features?
It's clear that without you the features couldn't be written, because the frontend folk haven't understood query optimization to save their lives. Meanwhile the sales team skipped the infrastructure planning meeting to go on their golf outing.
But sales have direct dollar amounts. It's easy to quantify. That money wouldn't exist without the sales person. On the other hand, those features wouldn't exist without your backend knowledge.
> DataRobot is an AI management and deployment platform, which was valued at $6.3B when it raised $300M in July of 2021. In May of this year, the company let go of 7% of its staff as part of cost-cutting.
Shut the front door. We're valuing companies based on rounds that caused less than 5% of the shares to change hands? How long has that bullshit been going on?
$300M is 1/21st of the valuation, or 4.76%. That's a vote of confidence sure but not a particularly large one.
Strictly speaking, analysis of stock does include the float. If the shares being traded are too thin, many people realize that the numbers are kind of fictitious. In particular if you’re a commercial trader, light trade levels mean you can’t sell a position without affecting the price yourself. And that’s without having Berkshire Hathaway problems, where you have to buy in secret over a long period or people will try to fast follow.
And some people think the stock market is a bit bs, yes. It’s less pyramid than an MLM, but I think we’re about to find out some things when the boomers start running out of money.
The difference is for some stocks there are active open orders large enough to sell quite a bit into. Stocks that do not have that depth are often "over the counter" or "penny stocks" and exhibit many similarities to crypto tokens.
That's how math works though. If I add $10 to an empty piggy bank, it's worth $10. If my parents pay me $1 in interest on my savings, it's now worth $11. If I add another $2, it's now worth $13.
And what does any of that have to do with venture capital math (other than that both tend to be condescending)?
Venture capital math says that if your parents pay you $1 in anticipation of getting to claim 5% of the contents of your piggy bank when you open it, that there are now $20 in the piggy bank.
In my experience the valuation is the starting point, rather than an extrapolation. During the investment pitch the company might say it will be worth $5 billion based on X Y and Z factors (like growth, market size etc), then they go out and get investors to buy little pieces of it.
Note that I'm not trying to say you're wrong. It is bullshit. Rather, I'm saying that the bullshit runs very deep.
No it isn't. Ford has 4 billion shares outstanding. I can place a buy order for Ford at $1,000/share right now: if it's filled at that price, Ford doesn't instantly become a trillion dollar company. Just because you can sell a few shares at a high price doesn't mean someone will buy the rest of the shares at that price. Especially not in illiquid private markets.
Many people are unaware that there's usually an automatic anti-dilution clause in the event of a down round. These types of maneuvers are usually 'heads I win tails you lose' in favor of the investors.
This is something that is so painful to talk about we often forget to bring it up. When the ICs who thought they had real equity in the company because they “got in in the ground level” find out they aren’t in that category, boy does that turn ugly quickly.
Minority shareholders including employees should get similar protections as investors often get in shareholder agreements - e.g. in this particular case it would have helped to have 'tag-along rights' which would have legally required them to be able to sell at the same conditions as those executives.
Not particularly likely to happen, but perhaps we can push towards this somehow? Because otherwise that stock loses much of its worth as compensation.
Would you happen to know of an example of "tag-along rights" that I could bring up at my next board meeting? I'm curious what the implications of such a thing would be and having sample text would be incredibly valuable.
We also have former DataRobot employees who have taken out exotic stock loans to cover $100,000-$1.000,000 worth of stock purchases and have been begging our executives to let them sell.
Seriously, how someone can be so clueless? Especially for an engineer or a data scientist?
To be clear there’s a lot wrong with these companies, but this passage below isn’t one of them:
> The article brought attention to other things not going right at the company. For example, DataRobot sent its top salespeople on a lavish trip to The Virgin Islands just days before laying off 7% of employees.
This is a misunderstanding of how sales compensation works. Individual sales people are paid a low base salary, and earn a commission on sales. Reps carry a quota of new revenue they are supposed to land. Their base pay + commission if they hit quota is a pretty good take home, like a mid to senior engineer.
Above quota, sales gets accelerators. Instead of say 15 or 20% commission on a deal, they get 25%, 30% or more. Accelerators keep compounding. The best Sales people are the highest paid individuals in a company. Outside of public companies, top sales people make more than the executives.
Part of that compensation is “presidents club”. Different companies call it different things. It’s a trip or perk for the top sales people. People who are hitting 150%-200% or more of their quota. The reps not hitting their targets are no going on these trips.
So yeah, telling your top sales reps Melanie or Marco, who each personally generated millions of dollars for the company and exceeded their personal targets, that they don’t get to go on their trip because some other sales people sucked so much at there job the company missed a target is not an acceptable option. Definitely not if you want to keep those top reps, which you do, because they sold double their quota.
TLDR: these trips are part of compensation for the people who are exceeding their targets. Don’t fuck with their $$$
If you're getting paid great compensation, why do you need status perks as well?
Sales people do perform an important business function and it can involve a lot of skill, from knowing the product inside out to knowing the customer and competitors. But salespeople sometimes close deals by making technical promises on which they won't have to deliver, and often communicate poorly with other people inside their own company.
> So yeah, telling your top sales reps Melanie or Marco, who each personally generated millions of dollars for the company and exceeded their personal targets
I get what you’re saying and agree in principle but no top engineer who may have contributed as much if not more is getting such perks in a company that undergoes layoffs. So maybe pick less flashy perk to reward sales top performers?
I guess it logically makes sense to not begrudge the person who scratches off a winning lottery ticket while everyone else around them is getting laid off, but it definitely feels in poor taste to send someone on an expensive company sponsored fuck-fest while the rest of the company is getting fucked.
> personally generated millions of dollars for the company
Yeah. Like I believe that. They use their connections and moxie to justify that at the expense of everyone else creating legitimate value like all the employees that have to support the crap they sell yet never see a nickle of those commissions.
Happened at a startup I was at some time ago. Founders were able to include some of their own shares in a round. I found out and was able to put together my own sale later on. It was the best decision.
If you are a founder of a business and own a significant percentage of shares, I think it’s pretty reasonable and morally acceptable to sell some percentage for liquidity before everyone else gets the same choice.
The investors will be sure to keep you tied in, and that money can massively derisk the project for you. I encourage every founder I speak to do this.
Non founding executives with short tenure doing the same is a little shadier, but everything is a negotiation and nobody was forced into the transaction. A rank and file employee can push for whatever they like - more money, stock or even liquidity if they have enough perceived importance.
Look at it from the other side. Say an exec joins a series C business and plays a big role in growing the company to 3x revenue in 2 years. At the next raise they ask to cash out some equity to buy their beachfront house. Seems a fair enough ask, and with that track record it would probably be worth investors writing the cheque.
One of the jobs of C-suite people is to run the optics.
The way the company is perceived; both in and out; is really up to them.
I remember the company I worked with (a highly reputable Japanese company) made a deal with an SV startup. It was a great startup. The people behind it were the "real deal." Some of the most brilliant people I've had the honor to work with. The tech was risky as hell. I think a number of mistakes were made by the beancounters and executives that inked the deal. The Japanese company basically became VC shareholders of the startup. They paid several million dollars, in a few tranches.
We worked our asses off, in that deal. People in all parts of the relationships were burning themselves out. Like I said, risky tech. Things ended up not working out as planned.
After one of the tranches, one of the founders went out and brought a top-of-the-line Model S. Pissed off the Japanese, something fierce.
Things went south, fairly quickly, after that. I don't think it was the cause for the breakup, but it lost the startup some powerful friends, in Tokyo, when they really needed them.
It was the optics. I suspect he ordered it long before the payment, and it would not surprise me if he could afford it (way more than $100K, with his trim package), without the money from the deal. Several of the principals were independently wealthy.
However, Japanese executives make a fraction of what US execs make, and work in more difficult conditions. VPs that control billion-dollar budgets have desks that schoolteachers would sniff at.
Like I said, optics.
It’s not a good idea to piss off people that sign the checks, or will have your back, when you report failure.
Yeah he could buy that car at a different moment after a significant success, in that case no problem. It looked like squandering all the work the Japanese put into the deal.
I mean, yes. If everyone else is nose the grindstone to get something out door and feels on the verge of failing, then buying a new car is a leadership failure. Not because it's necessary bad in and of itself, but because it makes everyone else feel bad.
Why does an executive deserve to de-risk more than other employees? If anything, that's backwards. Who the hell doesn't want to de-risk? Why is that option only given to certain people, as opposed to offering everyone at the company a chance to sell 10% of their shares?
I'm sure it's legal, but it absolutely is fucking the employees over. Saying "the employees could have negotiated better" is kinda just playing the thunderdome card. Employees can't reasonably prevent company insiders from fucking them over with stock shenanigans. That's part of what makes the practice so insidious, and why public stock markets are so highly regulated.
You can blame the execs, but the real question is, where was the board of directors who were supposed to provide governance during this time. Ultimately they approved it and you don't hear anyone calling for their ousting.
I'm not going to bat for the executives at all, but given the opportunity to take $22m off the table ala Dan Wright, why wouldn't you? Shame on him but he'll wipe his tears with hundred dollar bills. Why did the Board approve this sale — that's the real question.
it is not an executive's fault to want to de-risk. THis is capitalism, and everyone looks out to himself only.
it is venture capitalist's fault for signing up for this deal, that KILLED a company. Sure, they bribed executive to sign term sheet by allowing him to cash out, but now the entirety of DataRobot is going to be worth 0. VCs basically destroyed value of their LPs.
next time, VCs should think about employees who put hard work and keep company operating, not only executives.
Without people - any startup is just a worthless legal entity.
> THis is capitalism, and everyone looks out to himself only.
Absolutely not, Capitalism required democracy a system of justice and many other attributes of modern state. 'Law of the jungle' is niot capitalism and does not produce functional society.
The only thing that capitalism requires is stable full property rights (including transfer) on capital. It most certainly doesn't require democracy; most authocracies today are capitalist.
"stable property rights" can become a rather large number of rights.
Corruption is probably a bigger threat to these rights than nominal form of government; I'd say what is really needed is a strong tradition of rule of law.
The issue is the principal-agent conflict that cash-out opportunities create. The executives have a fiduciary duty to shareholders, including their employees. Cashing out not only reduces the alignment of incentives between executives and shareholders, it also frequently causes executives to accept funding deals that are suboptimal for other shareholders. E.g., they may accept funding at a lower valuation or with otherwise less favorable terms in exchange for a partial cash out.
Of course, you're correct in saying that everything is a negotiation. Rank-and-file employees should have accounted for the risk that they'd get screwed over by the founders and required more cash or equity to compensate for that risk. But I worry about a future in which the best talent refuses to work at private startups because the risk of getting screwed renders employee equity next-to-worthless. Arguably we're already there.
Are we not already there? Any equity grant I’ve been given has always seemed like a lottery ticket to a lottery ticket to a lottery ticket.
The company not only has to do well, it has to decide to actually IPO, and then there are lockout dates, and it’s always given as options instead of straight grants, and the vesting, and all the other constraints that I’ve forgotten. I’ve just valued them as zero when considering offers and only consider the salary portion which has the insidious(for employers) effect of making me unaligned with the companies best interests beyond the end of the week.
Talking to my coworkers at every place I’ve worked it seems like a common feeling.
Granted I’ve never worked at a unicorn company or faang so it might just be a function of working for less competent employers who are cargo culting compensation and don’t understand how it’s supposed to bind the employees to the company having a good future
It seems like a lot of companies are so afraid of their employees gaining any sort of value out of the company that they’d rather risk failure than risk the situation being a win/win. The employers aren’t completely brain dead and they seem fine enough at negotiating and evaluating risk when it’s company to company negotiations. I can only assume it’s some cultural component of the wealthy class that leads to the continual self sabotage
For private unicorns I think the answer is no, I've seen plenty of good people join companies that are perceived to be likely to IPO soon. There's plenty of shady stuff that can still happen in late-stage startups, but I think the perception (which is probably somewhat but not completely accurate) is that at that point the equity is enough of a known quantity to be somewhat de-risked.
For earlier stage startups...yeah, I dunno. To be clear, I think the illiquidity and vesting period and all of that are basically fine, well-understood risks, and in principle startups can offer enough equity to compensate "true believers" for those risks. What gets me is the really shady unforeseeable stuff, like converting part of the acquisition price to retention bonuses avoid paying out ex-employees for their vested equity. Between that unquantifiable risk and the inherent risk and illiquidity of early startup equity, I'd personally discount the 409a valuation by something like a factor of 5 when evaluating a job offer from an early-stage startup.
I don't see a ton of people leaving FAANG or similar companies for early-stage startups, but obviously there are lots of engineers outside of FAANG companies, and I'm sure it helps that valuations are rich enough (or were until recently) to compete with non-tech companies on cash comp.
To me it seems “fine” in terms of everyone is doing it, but it doesn’t fit what I understood the goal of even granting equity in the first place. Namely trying to mitigate the principal agent problem. Every layer of risk or new rules added on makes it more and more likely that the equity is worth nothing but it costs companies a lot to set up these systems.
It would be a lot simpler and cheaper to just grant stocks and then the calculation for employees is easy, you get paid big bucks of the company succeeds. The employers that are not doing that signals to me that they value keeping compensation down over actually having the company succeed
You can’t “just grant stocks” though without subjecting employees to massive tax liabilities on non-liquid shares. That’s the primary reason options and RSUs exist. Unless I didn’t understand what you were saying
> You can’t “just grant stocks” though without subjecting employees to massive tax liabilities on non-liquid shares
Just pay their taxes then?
If you give an employee 100 stocks, valued at 100$ each, with a tax rate of 25% - 7500$ net wealth, you should rather give the employee 75 stocks and 1875$ (==tax on 75 stocks at 25%) - 7500$ net wealth.
I don’t think you’re wrong but that’s part of the trade off?
If you grant stocks that means the company makes you part of the investor class subject to investor class level regulation. That leads to having investor class level benefits if the company succeeds.
If you’re implying that the convoluted equity packages companies offer as standard to employees now is better for them, then why aren’t founders or investors taking similar deals? I think that’s really the heart of the issue. Founders and investors are taking one type of deal, but then telling their employees they need to take a deal so bad that they would be insulted if you offered it to them.
Founders generally do give themselves options instead of shares for tax purposes. The reason investors get shares directly is that they’re buying them, not earning them as income. There are plenty of ways to screw over unsophisticated minority shareholders in a funding round or acquisition even if they have the same class of ownership as the founders. The main disadvantage of options for employees is that they have to pay to exercise them, but the company can trivially make this a non-issue by setting the exercise period to 10 years.
If your executives start selling off shares before the employees who had been there waiting for their paper value to turn into real value get the same opportunity (as you said, with founders it depends on if its reasonable), then even if its legal its going to destroy any trust and the best people will stop believing in your company and move on to someone who hasn't demonstrated working against the employees interests.
In your last case, if someone wants to cash out equity but employees can't, then you've destroyed trust and your company may fail in the future because the employees can't trust you to protect their equity.
VCs who signed up for this deal are idiots. Now their DataRobot investment is practically worthless, because CEO cashed out and most important product people are going to leave the company.
VCs who sign up for these deals should think more than one step ahead.
"In fact, the executives had worked at DataRobot for a year and a half or less when the sales took place. And under their watch, expenses skyrocketed while revenue growth slowed, with the company missing one of Wright’s 2021 revenue targets by 75%."
There are necessary protections in place for minority shareholders in public companies. For example, I can't just buy up 51% of a company and then vote that the company is now going to give all of its profits to me.
The same situation should apply here. Employees are typically minority shareholders and as such, should get some basic protections. Early liquidity has significant value. I'd bet that plenty of employees would give up a percentage of their equity in order to cash out at least some of their shares early. Giving this ability to larger shareholders and not to smaller ones is very similar to saying that only large shareholders get to share in profits.
Selling before everyone else is putting yourself over others. It's a terrible move from a morale standpoint if it gets out. Doesn't matter whether it is "morally acceptable" or not.
If you want peak performance from your employees then leaders eat last.
This happened at Blue Apron while I worked there as well and caused a big morale hit. The company was preventing engineers from selling shares while simultaneously enabling founders to sell.
the real lesson here is: don't pour your soul into something you didn't found, control, or have executive power over...because those that are in this category will pull the levers available to them
> What they did was immoral. ... Employees that missed family events, worked family vacations with the promise that their paper millions would be converted to cash.
Companies never promise this. The employees who chose this stupid fucking startup over their families are also immoral.
But the "secondary's for founders" is not that unusual - it's typically used as a tool by VCs who are in competition with other corporate development opportunities.
AKA Clubhouse had several suitors for acquisition (including Twitter it's rumored) but Andreesen added a few million bucks of liquidity for the founders to bridge the gap between "guaranteed liquidity" vs "non guaranteed but potentially greater upside" (1)
But then of course you have all sorts of eggregious examples over the past several years of Johnny Boufarhat @ Hoping taking $100m+ out or infamous Adam Neumann pulling out $700m+ from WeWork(2)
(1) https://www.forbes.com/sites/alexkonrad/2020/05/15/andreesse...
(2) https://sifted.eu/articles/secondaries-taboo/