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a16z Podcast | Is It Possible to Achieve Equitable Equity for Startup Employees?
12 segments available
There's been a lot of activity lately around trying to improve equity compensation (for example, by removing tax liabilities that handcuff them). Or by making equity more equitable in other ways; as former Groupon CEO Andrew Mason observed, "When startups grow into unicorns, the distribution of employee earnings follows a common pattern: the founders make more money than they could spend in infinite lifetimes, a handful of early folks achieve financial independence, and everyone else gets a nice bonus, but nothing life changing." It's admittedly a very rarefied problem yet one that plagues a number of startup founders and employees who put in a lot of work to make the startup a success ... but end up with less than others in the same company. And it's a problem that has long plagued Mason, who shared his views on something he calls "progressive equity" to help more startup employees achieve financial independence if and when their companies exit through an IPO, acquisition, or other liquidity event. Can it work? Should it? a16z General Partner and co-founder Ben Horowitz joins Mason on this episode of the a16z Podcast to dissect the idea.
Segments Timeline
The Inequity of Startup Wealth
In this segment, Michael Copeland introduces the podcast's theme, discussing the common inequity in wealth distribution among startup employees during liquidity events. Andrew Mason shares his frustrations from his experience at Groupon, where he witnessed a few individuals making substantial profits while many others, despite their hard work, received little. This sets the stage for the discussion on progressive equity.
"welcome to the a 16z podcast I'm Michael Copeland if you are lucky enough to be a part of a company that goes from zero to a monster with an IPO or some big liquidity event along the way it's not usua..."
Introducing Progressive Equity
Andrew Mason explains his concept of 'progressive equity,' a system designed to create a fairer distribution of equity among employees as a company grows. He highlights the challenges of achieving equitable ownership and how his system aims to redistribute ownership from higher percent owners to lower percent owners, ensuring that more employees can achieve financial independence.
"am Ben Horowitz and I'm here talking to Andrew Mason and today we're going to talk about a concept that he invented called progressive equity and mega Docs and we are very excited to have him Andrew t..."
The Financial Independence Threshold
Mason discusses the financial independence threshold, a key component of his progressive equity model. He explains how this threshold is determined and its significance in ensuring that employees can achieve a level of wealth that allows them to stop worrying about money. The conversation emphasizes the absurdity of needing to address such issues in a capitalist society.
"solves one of those challenges which is if you're lucky enough to be part of a company that that grows to be quite large and is where more than a billion dollars typically if you if you look over the ..."
Redistribution Mechanism Explained
In this segment, Mason elaborates on how the redistribution mechanism of progressive equity works. He describes how once an employee's ownership exceeds the financial independence threshold, any additional value is taxed at 50%, with the proceeds redistributed to other employees based on their ownership percentage. This innovative approach aims to create a more equitable environment within startups.
"felt like there were all these other people there I felt like I was frankly ending up with more money that I wanted or knew what to do with and there were all these other people who had put in enormou..."
Challenges of Setting the Threshold
Mason and Horowitz discuss the complexities of setting the financial independence threshold. They explore the balance between making it achievable for employees while still attracting top talent. The conversation highlights the potential pitfalls of setting the threshold too high or too low and the implications for executive recruitment.
"some number which we've determined to be a financial independence threshold right which is a number that we say once you've made this amount of money you have enough that you never need to think about..."
Impact on Company Culture
The discussion shifts to the potential cultural impact of implementing progressive equity. Mason expresses concerns about how a one-time liquidity event could alter the company's culture and the sense of shared purpose among employees. He reflects on the importance of maintaining a collaborative environment even after financial distributions occur.
"everybody has to figure that out on your own you can talk to your financial adviser or whatever but our company came up with a number I'm gonna use a fake term that I was calling Megan donks and I sai..."
Addressing Employee Concerns
Mason addresses potential employee concerns regarding the progressive equity model, particularly the fear of losing benefits if they leave the company before taxes are paid. He reassures that the system is designed to provide upside for employees who remain with the company, fostering loyalty and commitment.
"the employee ownership percentage is reflective of the impact that they have on the company Ranch is a whole other problem right and sometimes it is sometimes it is sometimes it isn't sometimes it isn..."
Recruitment and Retention Dynamics
The conversation explores how the progressive equity model could influence recruitment and retention. Mason and Horowitz discuss the appeal of the model to potential recruits and the importance of attracting individuals who align with the company's mission rather than those solely motivated by financial gain.
"the problem of figuring out how to properly just distribute among employees to reflect impact but yeah yeah yeah interesting so one of the things you kind of obfuscated in the in the blog post and and..."
Navigating Political Sensitivities
Mason reflects on the potential political implications of labeling the equity model as 'progressive.' He acknowledges the need for a more neutral term to avoid alienating potential employees with differing political views. The discussion emphasizes the importance of creating an inclusive environment within the company.
"hurt your executive recruiting because you know with Google offering people like a hundred million dollars to stay at Google you know if you're offering if you say ok the threshold is 10 million bucks..."
Balancing Equity and Capitalism
In this segment, Mason and Horowitz discuss the balance between equity distribution and the principles of capitalism. They acknowledge the disparities in income and the challenges of creating a fair system while recognizing the benefits of a capitalist framework. The conversation highlights the complexities of wealth distribution in the startup ecosystem.
"coffee and and so in terms of the downside of executive recruiting I mean I just think anybody that feels like you know you're capping me out or you're taxing me I don't know like person's an I, don'..."
The Future of Progressive Equity
Mason shares his hopes for the future of progressive equity and its potential to reshape how startups approach employee compensation. He expresses a desire for others to adopt and improve upon the model, aiming for a more equitable landscape in the startup world.
"benevolent person to end up with all this money instead of just distributing it evenly among all the employees so that they can all buy you know slightly nicer cars and other work you know materialist..."
Conclusion and Reflections
As the podcast concludes, Mason reflects on the journey of implementing progressive equity and the lessons learned along the way. He expresses gratitude for the opportunity to share his ideas and hopes for a future where equity distribution is fairer for all employees in startups.
"I imagine this kind of extra mega group you know we're all in this together incentive and then that's just gone mm-hmm and so how do you think about that and then with that like make you wanna like de..."