"Startup companies take a long time to build so that 10% will make it tough to hire and build a team over 7 years because there is only so much equity to go around."
Is it still generally the case that the entirety of the options pool for employees is well under 10% (more like 5%)? If that's the case, I get that it may be limiting for the investors, but hiring & building a team is pretty "cheap" from an options standpoint I believe.
I believe this is fairly difficult to prove in court. It happens pretty commonly; it's not super hard to dilute someone out if the company wants to. In fact, it's probably seen as a good move by the board and all current employees.
"Their new profitability gives me some measure of confidence"
"Profitability" can mean whatever you want it to mean at a given moment. In this particular case it's closer than a lot of measures, but it's still a non-GAAP profit. In general these sort of startup announcements are marketing materials.
Every company I've been at has declared themselves "profitable" -- the devil is in the details of what you choose to ignore.
I agree and that's why I used the words "some measure of confidence". However, it IS better than many other unicorn examples, such as Uber losing $800M in Q3 2016 for example.
If generally an employee stock option pool is ~5% of the company, then why is it worth spending time optimizing for that by firing people before stock vests? I suppose it'd be possible that management/investors view the employee ownership as getting out of hand, but even if the options pool is 10-15% (which I think would be fairly ridiculously large), it's likely mostly held by early employees who may have already vested.
It just seems like a silly thing to spend time doing, monitoring who will be vesting soon to fire them. Sure, maybe for one or two executives who are vesting integer percents of stock, but beyond that, it's not worth the time, and definitely not worth the backlash.
Scott Kupor [managing partner at VC firm Andreessen Horowitz] wrote an article [1] suggesting that a 10 year exercise window for employees who leave:
" is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value, to former employees who are no longer contributing to building the business/ its ultimate value."
This seems to suggest that the "investment" by early employees who leave shouldn't be treated like the early investments from VC's who decline to keep investing at some point.
Isn't losing an election by running it wrong worse than Win running it right? People are pointing Clinton and DNC incompetence as merit. California alone is responsible for this "magnitude", and it only proves how good was Trump' strategy.
Those aren't really worth much anymore -- once you hit a bump in the road, employee options are the first things to be wiped out. If investors received a larger share as has been reported, it's in preferred shares, which probably wipes out the employee options.
If everyone gets 2x shares/options, there's no change in ownership -- someone lost out, otherwise they wouldn't do it. And preferred shares are tickets for the front of the line, and quite possibly with onerous terms that aren't public (whether it's a multiplier, or something else). Between a lowered valuation and more shares given to investors and the burden of a high valuation..... things don't look bright for the future of Zenefits, and especially not their employees.
can you explain a bit about how preferred shares wipe out employee options? thats only in the scenario the company exits for far fewer than its current valuation?
1. Usually debts are paid off first, then preferred shareholders get their money back, before regular shareholders get a chance to sell. I got a 1099 for $0.00 one year thanks to this!
2. When new shares are issued, usually preferred shareholders get shares for free to maintain their percentage in the company. Other existing shareholders do not, of course.
>> Uber only uses subsidies when trying to break into new markets to expand. If they stopped expanding, they would become profitable rather quickly.
Are you sure that's true? That sounds like the marketing speak that Travis K. spouts, but I wouldn't be surprised if that weren't the whole truth. Like any other "startup", you can claim to be profitable pretty easily -- you just have to find a hand-wavy way to qualify that ("if you exclude debt and operating expenses we're net margin profitable!").
Is it still generally the case that the entirety of the options pool for employees is well under 10% (more like 5%)? If that's the case, I get that it may be limiting for the investors, but hiring & building a team is pretty "cheap" from an options standpoint I believe.