Comment by ghufran_syed | Hacker News Reader

Comment by ghufran_syed | Hacker News Reader

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YC has historically had a big influence on improving financing terms for founders and reducing founder-hostile behavior by investors, by creating competition among investors for YC companies. Should YC maybe consider developing and enforcing a code of conduct addressing these issues, that might similarly improve the situation for start-up employees?

They could maintain a public list of YC companies that abide by the code of conduct in order to encourage good behavior, and to help communicate to potential employees that they would get a “fair” option deal (as early investors, they would clearly have access to the terms of any financing deal).

[EDIT: they could also maybe publish a list of investors who have committed to following the guidelines, and consider excluding VC firms from YC events if they won’t commit to those standards]

Depending on how serious YC was about making a difference here, going against the code of conduct might even be grounds for exclusion from the YC community? My understanding is that YC has always focused on what’s best for the founders, even when they were the outsiders in silicon valley and at their own financial expense. Maybe now that YC is such an important player in the silicon valley ecosystem, they could use that power to maintain the health of that ecosystem in a way that few others could?

Blog post from 2014: https://blog.samaltman.com/employee-equity

That's more of an admonishment, but at least they recognized the problem ...

(I work at YC)

Yes, we care a lot about making employee equity more generous and more fair. Part of our YC curriculum now is teaching founders about these issues and encouraging them to follow best practices around being generous and transparent with employees about equity compensation like Sam discussed in his blog post.

I think there is still a lot more we can do, though.

Teaching founders is one thing, but equally as important is providing a platform that prospective employees can use to find out which startups are giving employees a fair deal.

Speaking as a bigco eng who would love to join a startup, but is disillusioned by the economics of it.

I pretty much ignore startup recruiters now because of my personal experience with the dynamic explained in the article.

If recruiters explained that yes, we don't actually shaft you in their message, I might actually take a look.

What do you think are the next steps in improving this?

My impression is that the one thing that will make a significant change in this is that private shares are liquid in secondary markets like Forge or Sharespost. It would be revolutionary to also valuate companies from the perspective of employees, being able to pick winners and negotiate more stock from the not-so-winners, where stock is worth less.

For what it's worth. I ignore private company equity offers of all stages as it's impossible to fairly value the equity which inevitably leads to an undervalued total compensation package - even on successful exit. I'd expect that the market would work out the generosity component if the terms were fair - but right now great startups are competing for employees with their second scarcest resource (cash) with companies that have effectively unlimited cash and great liquid equity. This is a recipe to burn the startups first scarcest resource (time) as projects run slower due to weaker execution, and for later stage companies leadership.

Good to hear this.

I would be happy to spend an hour on a call with you and provide my very humble suggestions, if you're up for it. My HN username at gmail.

Edit: of course we can do this over email, too. I just feel that in the year of Covid, you don't throw away an opportunity for a warmer human connection.

I think part of the problem is that founders/employers/employees don't have a common term set that's known to be a fair deal to all parties. It would only take the addition of a few simple protections to make the equity a fair deal, even without divulging information about the cap table. I'm sure other sets of protections could be devised which provide different tradeoffs. After all, there is no reason that employees couldn't have a dedicated board seat!

- The employee equity participates at the highest prefered equity pool.

- The employee option strike price will always mirror the lowest 409A valuation while the option is open.

- Vested employee options are valid for 100 years while illiquid, and 7 years post liquidity event.

- Modifications to employee equity pools resulting in a decrease in option value as the result of a funding round must be accompanied by a tender offer of 70% of the pre-funding option value.

The above terms wouldn't provide much value if employees didn't understand that the companies equity is better than a competing employers equity.

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