Edit - it's been really interesting hearing everyone's perspective on this ? thanks for the feedback.
Original post:
I'm working with my 5th startup right now, after putting my own on hold for a minute. I'm trying to save some extra money before diving in again, after having paid for a wedding and some legal things, and it's becoming really clear to me that I'd rather do profit sharing right off the bat with employees / confounders rather than equity. Here's why:
I'm really good at startups. I'm a 20+ year software veteran and have taken multiple startups from pre seed to series b, valuations upward of 400 million, patents and acquisitions. I've done this every time as an employee with ISOs and do you know how many times those ISOs have worked out? Never. Not once.
It's a joke and it's a manipulative tactic to get your early employees to stick around.
Even if they do exercise the options, you've waited 4 years for them to vest and now have to pay an absurd amount in taxes on phantom income. This alone is a reason people won't exercise and will be forced to wait for a sale. They will stay in a job that has changed dramatically and put up with a lot of bs for a maybe payout in an unknown number of years, harboring bad feelings and feeling trapped because if they leave, they lose their stock. If you exercise, you could owe hundreds of thousands to the IRS next tax year. This has been me.
This is bs.
I'm going to do profit sharing instead.
1% in ISOs that vest over 4 years? Nope. Instead you get that percentage of profit every quarter, growing to 1% after 4 years.
I don't even care if this is a barrier for investors. This model needs to change.
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