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0 pointsamrocha2y ago0 comments

In practice, employee shares in a private company are not an "investment" because they can't be traded in an open market. So no, employees don't want someone else to hold the bag. Employees want a return on their investment, and the most viable way of doing that is through an exit.

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4 comments · 2 top-level

hn_throwaway_992y ago· 2 in thread

That's the whole point though - employees want an exit event so they can sell their shares and have someone else holding the bag.

crandycodes2y ago

That seems like an odd way to frame it, imo. "Holding the bag" usually implies something negative, as in someone will be "caught" with something bad. As in the employees are looking to dupe someone into buying what they are selling. But employees, outside of company officers, do not control what information investors get about what they are buying. They can't trick anyone into buying something, although they could theoretically benefit if someone else did trick buyers.

But it's a weird take, because employees are already the ones "holding the bag". Office space, cloud compute, etc. are all sold as COGS. VCs usually have some ability to sell their shares on the private market since they can negotiate to get their capital. Employees are often the only ones which are taking an IOU for their time and effort compared to what they could get elsewhere in the market. Employees are often the lowest class of shares which get paid out last and often reliant on the board to be able to sell on the private market. Yes, the employees decided to take this offer, on good faith, that their management would look after them. They are adults who made a, theoretically, informed decision. But structurally, they are set up to be the ones "holding the bag" if things were to go wrong with an exit.

So of course they want an exit. They literally have no other choice to get a return on their time/effort than for that to happen. (or some odd third thing like private dividends, but again, they have practically no control over that happening)

kelnos2y ago

> They literally have no other choice...

Sure they have (had) another choice: they could have taken employment at a more stable (possibly public) company, where compensation would have been more predictable.

But they chose to work at a smaller, private company, and accepted private-company equity as part of their compensation, which 9 times out of 10 ends up being worth zero dollars. This idea that they're somehow entitled to a payout is ridiculous.

The situation that the VCs and founders are in is often enviable, but isn't really relevant here. Regular employees need to be financially responsible about accepting jobs with private-company equity comp, and not expect miracles. That's the bottom line.

(I agree that "holding the bag" is a weird way to frame this, though.)

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Earw0rm2y ago

Yep, shares are part of the comp package, it's entirely natural that employees want to turn the fruits of their labour into liquid cash at some point.

There is a valid argument that that's a perverse incentive, and that companies should just pay employees better to begin with, or have various longevity/performance-associated bonuses, but if the company isn't profitable, share value is perhaps the best way to represent that.

And on top of that, employee share schemes tend to get very favourable tax treatment. So overall "skin in the game" is no bad thing, the problem is that, in many/most cases, an exit is the only way you're going to get your skin back out of the game.

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