I'm not in SV. My cofounder and I own 100% of the business.
And that's the way it works in most of the world. The SV approach of giving early employees shares as an incentive is actually fairly tech-centric. Whoever heard of a restaurant's first waiter getting shares in the business?
I'd actually love to see examples of companies in SV giving equity to people who are not even clued in and recognize that they need to or should be given equity. And would gladly work for a normal pay check.
Anecdotal there are stories of the early janitor getting stock (or something like that) as if they wouldn't work for just a salary.
The line that I've heard is that it's a way to get people to work for less money than they would get paid if they didn't get equity. [1] But is this really true and how often in actual practice? (Comments?). I mean in a way if it is true you are taking advantage of the naivete of "the janitor" or "admin assistant" who may not even have a clue at all the probability of that equity even being worth anything at all. Because all they know about is what they read of the big wins that everyone talks about and they think they might actually stand a good chance of hitting the jackpot. Why is this right? To me it isn't (even if you believe it yourself as a founder).
Separately with domain name deals there is always a push on the part of sellers that I have noticed to try to get some upside equity when selling what they consider to be a valuable name. In general since the seller isn't taking that much of a haircut on the price anyway it's is usually a bad idea. It's almost pure upside with nominal downside.
[1] Along the lines of your comment "Whoever heard of a restaurant's first waiter" that would be the almost equivalent of the admin assistant or maybe customer service rep. Otoh anyone can easily see a new restaurant offering equity to people who work in the kitchen. Especially the the person in the kitchen (or several) need to be lured away from another job they are at.
That is one philosophical position -- a classist and strongly capitalist one dividing members of a company into owners and employees. This leads to division of society into workers (who sell their labour) and capitalists (who collect rent).
An alternative, more progressive position is that all workers should be entitled to some ownership of the fruits of their labour. That is to say, everyone involved in an enterprise, no matter how big or small, is entitled to receive ownership proportional to the impact of their contribution to the success of the endeavor. In this world view there is no division between owners and employees, and unearned rents are minimized.
This is really a philosophical / moral / political debate.
Yeah, the communist "everyone owns the labour" approach has been tried, I think you'll find, if you open some history books.
There are some seductive ideas in communism, but making ownership a function of direct contribution sure as hell isn't one of them. The fact that the setup is biased towards owners is the very reason why so many people go and try to start their own business.
Starting your own business and making it successful is extremely hard and risky work. The entire point of putting that hard work in is that at the end of the day, you own the system, and can retire on the fruits of the system you gave birth to.
If ownership decreased to be a proportion of direct contribution, apart from the fact that it'd be very hard to measure that, it would also demotivate most entrepreneurs, myself included, from lifting a finger to start a new business.
"Starting your own business and making it successful is extremely hard and risky work. "
And, in fact, while it might surprise many people on HN, there are many people who are quite satisfied with working for someone else and collecting a paycheck without all the worry and uncertainty that comes with owning a business. (And I'm excluding the people who talk a good game and say they'd like to be their own boss but would never even come close to actually taking the chance or pulling the trigger..)
"If ownership decreased to be a proportion of direct contribution, apart from the fact that it'd be very hard to measure that"
I'd say it would actually be near impossible to measure that actually. And even if you could measure it if it diluted the owners equity to the point where it didn't pay them to operate the business it wouldn't even matter.
I'm reminded a a guy, quite valuable, who worked for me many years ago in another business. After working for 3 months he walked in and asked for some ownership. Although I viewed him as quite valuable I said no, that I'd pay him more but I wasn't going to give him ownership (various reasons for this). Part (and only part) of my logic was that first he wasn't going to pay in for the equity (he just wanted it) and also if the business failed he could just walk away and get a job elsewhere. So he could afford to take risks and chances that I couldn't take.
For a very short period (between businesses) I worked for another company and remember how I couldn't believe how different it was than being the owner. All sorts of things that I had worried about as owner didn't matter anymore as an employee. It was almost like being on a vacation it was that easy.
They really should amend Godwin's Law to include mentions of Communism these days.
There's a marked difference between everyone owns the labor and everyone owns their labor. You don't even have to check the history books. There are plenty of examples of functional, profitable, worker-owned cooperatives in the wild today.
>a classist and strongly capitalist one dividing members of a company into owners and employees.
But you don't have to divide it as "owners" and "employees". The underlying category is the division between those who favor high-risk-uncertain-reward, and those who favor safety-and-salary. I'd argue the varied risk profile is rooted in the psychology of economic participants instead of being born of any classism. The employee that wants to be an owner can be an owner. The owner that wants to be an employee can be an employee.
>An alternative, more progressive position is that all workers should be entitled to some ownership of the fruits of their labour. That is to say, everyone involved in an enterprise, no matter how big or small, is entitled to receive ownership proportional to the impact of their contribution
These types of appeals always leave out the other major factor: owner's capital at risk. We want the workers to get benefits of ownership but never discuss how employees should also bear the same financial risks as the owners. It's an incomplete call to action. The founders/owners are the ones depleting their life savings and maxing out their credit cards to help fund their (sometimes crazy) business idea. If the business goes bust, is there any realistic discussion of employees giving back their salary to help pay off creditors? Of course not. (And rightfully so; the employees took a salary and don't want to deal with any of that -- that's the owner's problem!) The discussion only talks of employees benefiting from additional upside without taking on any additional downside.
If the business was inherited, I can be more aligned with employees sharing more upside. If Joe Dilettante owns business he got from dad, he could run it into the ground without competent employees keeping things profitable. However, since this is Hacker News and the "startup" crowd, we're usually talking about creating businesses from scratch.
> In this world view there is no division between owners and employees,
There already is no division. If an employee wants to be an owner, he can do so. For California, here are the forms:
Pointing out those forms is not a snark. I'm emphasizing that there is no "classism" preventing anyone who happens to be an employee now from becoming an owner tomorrow. Submit those forms, and go create wealth. Instead of asking for ownership percentage from other owners, you can simply get the State of California to grant you ownership of your own company. You give ownership to yourself. The avenues of ownership are already available to everyone.
Is this not in the spirit of the Hacker News demographic or am I reading things wrong?
However what I'm talking about is something different -- e.g. language in options contracts that cause you lose your shares if you leave the company unless you immediately exercise them, which most people are not in a financial position to do. This has caused many early employees to lose out on windfalls that would have been theirs if they had the same terms as founders (actual vested equity).
