It just seems like a huge risk. Basically it seems like if you lose, you lose, if you win, everyone shares in your winnings.
Stock options that allow the founder to keep control and to receive more significant profit for the extraordinary risk they take makes much more sense imo.
Exactly this. Startup employees are essentially compensated like this:
* Base salary that is very low risk because they have a “liquidity event” every pay period, and there are numerous legal protections that ensure that they get paid.
* Incentive Stock Options, which are very high risk because they backed by a company that might not succeed, might never experience a “liquidity event”, are not nearly as liquid, and have far fewer legal protections.
It seems that more than a few people have not considered that ISOs will be a part of their overall investment portfolio, and they should think about how much of their portfolio they want invested in high-risk assets.
Making it illegal to have the company block/veto the sale of shares would definitely improve the picture. IMO it's a break in property law to have a contract that says "You own the property and have all it's liabilities (like taxes) but you do not have the right to sell that property to a willing, SEC qualified, and able buyer" ...
> IMO it's a break in property law to have a contract that says "You own the property and have all it's liabilities (like taxes) but you do not have the right to sell that property to a willing, SEC qualified, and able buyer".
Once you enter into a an options contract with your employer you are bound to the terms of the contract. You can refuse to sign I suppose.
More important though is to understand that the limitations you mention lower the value (increase the risk) of the options.
Example of this happening IRL? I've seen right of first refusal and tag along rights that make it harder to find a buyer, but nothing that actually prevents sale of vested shares.
As I understood the few contracts I've had they barred me from selling to anyone unless the company approved. That in practice meant I had no liquidity unless IPO or got to sell to investors in the next fund raise round (very very rare).
And think about it a bit further, who's going to go through any due diligence if their research and offer is going to first hit the board/company and potentially completely vanish for them? I certainly wouldnt invest time/resources to see if I wanted to buy shares from an employee to potentially find out the company decided to buyback those shares instead. This property would massively lower the price I'd be willing to offer. (as a compensation for my risk taken)
You lose when everyone’s contributions (including your own contribution) results in a net loss.
Sometimes, a lot of the time hopefully, your loss would be negated by the combined efforts of everyone else. It would be the situations where enough people lose to result in a net loss that would require everyone to steer away from.
Stock options that allow the founder to keep control and to receive more significant profit for the extraordinary risk they take makes much more sense imo.