Often it is founders, whose creativity, comfort with disorder, and risk-taking are more valuable at a time when companies need to retain a startup culture even as they grow large. With the observation that founders added value during the long runup in the growth stage, VCs began to cede compensation and board control to founders.

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While founders in the 20 th century had more stock than the rest of their employees, they had the same type of stock options. Rather, when a startup first forms, the founders grant themselves Restricted Stock Awards RSAs instead of common stock options. Essentially the company sells them the stock at zero cost. In the 20 th century founders were taking a real risk on salary, betting their mortgage and future.

Founders take a lot less risk, raise multimillion-dollar seed rounds, and have the ability to cash out way before a liquidity event. Early employees take an equal risk that the company will crater, and they often work equally as hard. Consider that the median tenure for an employee in a startup is 2 years. So why should non-founding employees of startups care?

There are four problems:. VCs have intentionally changed the more than year-old social contract with startup employees.

At the same time, they may have removed one of the key incentives that made startups different from working in a large company. In the past, founders and employees were aligned with the same type of common stock grant, and it was the VCs who got preferential stock treatment. The founders and very early employees have preferential stock treatment and the VCs have preferred stock. Add to that all the other known negatives of a startups: no work-life balance, insane hours, inexperienced management, risk of going out of business, etc.

That said, joining a startup still has a lot of benefits for employees who are looking to work with high-performance teams with little structure. Your impact will likely be felt. Constant learning opportunities, responsibility, and advancement are there for those who take it.

For later employees, offer what are called restricted stock units RSUs. The lower the strike price, the less you have to pay to own a share of company stock. But to keep employees engaged, they ought to be allowed buy their vested RSU stock and sell it every time the company raises a new round of funding.

Investors and founders have changed the model to their advantage, but no one has changed the model for employees. Moving the liquidity goal posts may have removed the incentive for non-founders to want to work in a startup versus a large company. You have 1 free article s left this month. You are reading your last free article for this month. Subscribe for unlimited access. Create an account to read 2 more. Cap table management software such as Captable. Learn more about Captable.

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