except for the fact that Employees and founders salary is generally below market rate while at the same time they are expected to work more than standard hrs( 8 Hrs?? ) and be available 24x7 to fix issues. Equity with promises of big payout is given as a reason to take such such a deal over a job at a Bank.
Now these employees and founders know that these promises are empty and the example provided above is one good way to keep the promise.
Lots of investors expect Founders to take a salary needed to survive and also don't get paid for the sacrifices already made.( its assumed their equity stake makes up for the difference)
I'm probably not seeing the difference but it almost seems like by this logic a busboy (busperson?), the person that cleans up the dishes at a restaurant is owed $$$$$$$ because he could have gotten a higher paying job so he's sacrificing for the rest of us?
Is a fast food worker who goes to company A at $8 a hr but expects to move up into a management position and then gets denied, is he owed money because he could have gone to company B at $10 but without a management position expectation?
Employees and founders get paid. So it's lower than market rate it's still > 0 which means zero risk. They get a tiny piece of the pie. If things fail they still got > 0 whereas investors got < 0. You want the big payoff you have to take the big risk.
We are in full agreement that risk and reward go together. In fact, my suggestion is a way to shift more risk and more reward onto investors.
If I impose the condition that investors get paid only after employees get paid, I expect that I'll get investment at a lower valuation. Which means greater upside for investors if the company becomes a big success.
Alternatively, if each employee's upside is limited, then that leaves more of the money (again if the company succeeds) for investors.
In either case, the goal is to shift more risk AND reward onto investors, not only risk.
Now these employees and founders know that these promises are empty and the example provided above is one good way to keep the promise.
Lots of investors expect Founders to take a salary needed to survive and also don't get paid for the sacrifices already made.( its assumed their equity stake makes up for the difference)