Similar thing happened at my previous hot AI tech startup. Once valued at $850MM (despite /no/ recurring revenue), it crashed when the market turned down. Eventually, product pivot to Gen AI, round of layoffs of 15% of the company, including at least two excellent software engineers, with no cut to exec comp (high enough for a 29 year old CTO to buy a $2.5MM house).
Eventually, the startup got acquihired. Common stock was worthless, deep underwater compared to strike price for those who exercised (and some who exercised early had to pay tons of taxes on a low basis and overinflated valuation). Investors got their money back. Execs got between $1MM and $10MM in cash.
Pre-IPO investors always get their money back first, this is a straightforward defense against founder fraud - effectively meaning that the valuation of the company has to go up before a sale, not down. If it goes down, the founders have lost their gamble and the round should not have happened. The legal machinery for this is - each Series of stock is a custom negotiated contract and can have any number of custom terms; shareholders and/or the existing board have to consent of course. If existing board doesn’t like the terms, then don’t do the deal. The exec comp here was for retention and can include their retention salary - i.e., the $1M can simply be $250k 4 year comp and nobody is allowed to leave.
There was chart about startups wealth distribution: 50% to investors, 40% to founders and 10% to employees. The latter group includes execs that take the lion's share of the pie, leaving rank-and-file employees with breadcrumbs.
> The executives were earning significantly more than the employees who were keeping the company afloat.
The "Rules for Rulers" CGP Grey video[1] dug a fair bit into the difference between being a resource vs being a key player and how key players are not exactly the biggest contributors in a system.
This is unfortunately a rational result, so you cannot apply a moral or ideological argument to it & attempt to sway smart people enough.
"Take the throne to act, and the throne acts upon you. Accept that or turn back now before we discuss, The Rules for Rulers."
Smart people are very good at convincing themselves of things, all it takes is a little push. Unfortunately[1] rationalism is correlated with changing one's beliefs and is susceptible to cults[2] whereas inflexibility of thought, while having its downsides, is an antidote to cults.
The only way employees benefit from a startup is on a couple of conditions:
1. The startup makes it. (Acquisition by Big Co or IPO.)
2. They are sufficiently early employees to benefit from that.
Most startups don't make it. People trying to get wealthy from being employed by startups hop from one failing one to another, hoping this time the luck will turn around.
I worked for a "start-up" in 1994. I was employee number 600. And it had just gone public. The firm eventually had something in the range of 30,000 employees.
Anyway, at that point in 1994, the first 30-50 employees all made $$$. That included the secretaries and receptionists. They were all millionaires.
Something has changed and that is the terms that VCs and Executives have negotiated for themselves. I have not heard of any secretaries getting $$$ in a long time. There is a lot less sharing in the spoils than there used to be.
I feel that leaders in the past felt they had a moral obligation to take care of their employees. There were always exceptions of course among the wealthiest extortionists, but it seems like it has gotten worse.
A quick litmus test is to see whether they workers are called employees or resources
> In contrast, research from McKinsey highlights that companies investing in equitable pay see higher employee engagement, increased productivity, and stronger financial performance. When people feel valued, they work harder, stay longer, and contribute more to long-term success.
The problem is that the people on the top make more money if they pillage the vast majority of a less profitable company versus sharing more equally the profits of a more profitable company.
Who wants to run a successful company when you can make as much money making a golden parachute payout to shut the company down or sell it for scraps? Running a successful company sounds like actual work, that’s not something the upper crust signed up for.
Readit News
Eventually, the startup got acquihired. Common stock was worthless, deep underwater compared to strike price for those who exercised (and some who exercised early had to pay tons of taxes on a low basis and overinflated valuation). Investors got their money back. Execs got between $1MM and $10MM in cash.
What's the mechanism for this? Were there dual class shares for executives? A bonus for the acquisition?
The "Rules for Rulers" CGP Grey video[1] dug a fair bit into the difference between being a resource vs being a key player and how key players are not exactly the biggest contributors in a system.
This is unfortunately a rational result, so you cannot apply a moral or ideological argument to it & attempt to sway smart people enough.
"Take the throne to act, and the throne acts upon you. Accept that or turn back now before we discuss, The Rules for Rulers."
[1] - https://www.youtube.com/watch?v=rStL7niR7gs
1. For them.
2. As I have written before.
This happens to a lot of people at non-profits also. They consider the "mission" part of the paycheck and pay accordingly in Feel Good Bucks.
1. The startup makes it. (Acquisition by Big Co or IPO.)
2. They are sufficiently early employees to benefit from that.
Most startups don't make it. People trying to get wealthy from being employed by startups hop from one failing one to another, hoping this time the luck will turn around.
Anyway, at that point in 1994, the first 30-50 employees all made $$$. That included the secretaries and receptionists. They were all millionaires.
Something has changed and that is the terms that VCs and Executives have negotiated for themselves. I have not heard of any secretaries getting $$$ in a long time. There is a lot less sharing in the spoils than there used to be.
A quick litmus test is to see whether they workers are called employees or resources
The problem is that the people on the top make more money if they pillage the vast majority of a less profitable company versus sharing more equally the profits of a more profitable company.
Who wants to run a successful company when you can make as much money making a golden parachute payout to shut the company down or sell it for scraps? Running a successful company sounds like actual work, that’s not something the upper crust signed up for.