Thursday, March 20, 2014

The Newest Organized Labor Group: Startup Employees

The Newest Organized Labor Group:  Startup Employees
Tekla S. Perry
IEEE Spectrum
19 March, 2014
More than 300 employees of Silicon Valley companies gathered last Friday night in Palo Alto to share war stories and to start developing what organizers called a "Startup Employee Equity Bill of Rights".
Mary Russell, an attorney, and Chris Zaharias, who ran tech sales teams at a number of start-ups and recently founded SearchQuant, put together the event. They hope it represents the beginning of a movement, bringing more transparency and fairness to the process of equity compensation for start-up employees.
The launch was much bigger than the two had anticipated. They originally expected a couple of dozen attendees (start-up employees only, no founders or venture capitalists allowed), and had scheduled the meeting to be held in a downtown office. When RSVPs pushed 300, they scrambled to relocate it to the theater at a local high school. And the crowd of engineers, computer scientists, and business grads pretty much filled the joint.
They came because they had gotten raw deals from a start-up in the past, were in the process of negotiating employment contracts with start-ups right now, or are working for most established companies but hoping to join start-ups in the future. In any case, they came because they feel lost when they try to understand the way start-ups compensate employees.
Indeed, Zaharias said, according to a 2011 survey, two-thirds of start-up employees don’t know the number of shares their companies have outstanding—which means that even if they know the number of shares they are entitled to, they have no idea how to value those shares.

That may not sound like a big deal to someone working at a traditional company, who might think something along the lines of “they get the stock for free, so what are they complaining about?” But start-up equity doesn’t come free—it comes in place of traditional salary. Start-up employees sacrifice current income to make a bet on the future, but, as Zaharias and Russell pointed out, the dice are often loaded. Even if employees know how much equity they have when they sign on, that number changes as more stock is issued [known as stock dilution]. In addition, people can be fired just before they vest or right after a sale in order for companies to recapture equity, and companies can give themselves the right to repurchase shares at an “official” valuation that is actually much less than the company is worth.

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