Andrej Kiska is a partner in Credo Ventures.
Dealing almost exclusively with the founders of start first time, we tackle the question with almost all of our leaders :? How much equity they should give employees
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During the first conversation with a given founder of the employee equity, it is not uncommon for the CEO to pull back with the question: Why should I give fairness to my employees?
In one case, I told a CEO that we generally recommend 15 percent of the options available to seed pool / stage series. She looked up in disbelief. When I attempt to illustrate that it is still quite conservative, and that US VCs like Fred Wilson or Sam Altman recommend at least 20 percent , it rationalizes by saying that they are not States -United.
When I counter that it will compete with US startups to the best employees and exit opportunities (some CEOs are willing to give 96 percent of their business for employees and investors to IPO on Nasdaq, such as the rather extreme example of Aaron Levie Box), she says that can not happen to a Czech company. And she's right - if it wants to build a Czech company, as opposed to a global start
.Even if only we have the funds teams with global ambitions, they are still struggling to separate from their own funds. Why?
Some investors say that the size of employee stock fund is a good indicator to measure the maturity of the startup ecosystem. founders of Silicon Valley give the most to their employees, while the poor European community tends to be fairly conservative.
And the EEC founders, perhaps marked by 40 years of forced collective socialist property, have a particularly difficult time parting with their own funds.
I'm sure there are many other reasons for this, so let's just say Noam Wasserman call a large number of European founders kings versus maximizers wealth . While we can argue the example of replacing the CEO of Wasserman (the Creed, we prefer the founder and CEO as opposed to a hit man), the rest of the analogy explains well the compromise between maintaining control and maximize wealth.
Apart from this compromise, are some of the reasons why it might be beneficial for the founders to part with their beloved equity?
Advantages of the employee equity
an important advantage of employee equity is its attractiveness as a recruitment tool: if you are a startup with global ambitions, we must recruit the best talent, which also has global ambitions.
These guys are not attracted by high wages; they could join a company for it. They want to work for the promise that if your startup, it is great, they have a chance to become millionaires.
This promise is particularly important in the immature startup ecosystems where employees might not understand why they want to join a small company unproven as opposed to a paying company.
The alignment of objectives between the founders and their employees is another strong advantage. A typical worries I hear King CEO: Well, have you tried to give them a part of "It bothers me that my employees leave to 17 hours and do not seem to care about the fate of the company." the equity?
Owning even a very small part of society reinforces the feeling among employees that they are holders of equity, a part of the team for the huge gains of the business can generate if it is successful.
Although it may seem a relatively minor change in the mentality, the sense of empowerment can serve as a tremendous boost to your business. Having the corporate culture and well-motivated employees is one of the factors critical to the success of any startup.
Sometimes CEOs tell me they feel an increase in productivity immediately after implementation of the Equity Plan employee not only your employees feel much higher cost opportunity to relax, they also have the desire to work in a way that maximizes the wealth of society, as opposed to picking problems are easy to solve or interesting, but not really value added to the commissioning.
key is good communication
"But some of my employees do not want fairness." Another standard reaction of the CEO . in some cases, they might be right There are two reasons why your employees might not be interested in fairness. 1) they prefer hard money and do not want to think long term, 2) you have not communicated the benefits of equity employees properly.
When preparing compensation packages, CEOs should prepare several alternatives to reflect attitudes several of your employees :. heavy equity less money compared to more money and less equity
These packages also reflect the different nature of employees in different departments: the sales team might have a higher risk (and therefore equity) appetite, as opposed to the engineering team. Yet every employee should have the right to choose the appropriate mix according to their preferences of risk / reward.
I wary of employees who refuse to take any equity at all: employees with such a strong preference for the short term are generally unreliable and can cause more harm than good. This is unless they refuse because you did not communicate the benefits of equity many employees.
You will not be able to effectively explain if you understand the concept of fair background to employees and can communicate in a very simple language. The lack of clear understanding of the concept, its costs and benefits, in my opinion, one of the main reasons why our region startup founders are so reluctant to work with employee equity.
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