Similarly, if profit sharing could work, would the equivalent of ‘how many companies have a good exit in x years’ be ‘how many companies become profitable in x years’ in the context of success stories?

An employee, in a start-up or an MNC, is essentially seeking the security of a fixed salary (and future gains to mitigate the risk). In such a situation why shouldn’t promoters get the “unfair reward”?

However, this does not mean that the promoters should not let employees own the company and the decision making process. Completely agree with point 1 above.

It would be good to know whats the value of an idea (in terms of shareholding)? If 3 cofounders are coming to implement an idea thought up by 1 main founder, (all other things being equal) should they all be holding 25% or the idea creator should hold a bit more, and how much?

Ok this sorta negates my entire argument. (Sorry) I assumed that ESOPs were in lieu of market salaries. You mean it’s difficult to attract people with market salaries and offer then ESOPs on top? This is one tough market then! Throwing more money than market can be interesting, and has helped people in the past. Microsoft’s “acquisition” of Anders Hejlsberg from Borland, for instance, fuelled .NET. Maybe it can work for startups too.

Perhaps people don’t think in weighted averages - but then until there is a sufficient precedent of someone making big money with an esop payout, the concept of esops isn’t going to make an offer more attractive. The problem really is that weighted average cannot be sold - in the US it can.

Taleb’s kinda here and there, and contradicts himself in many ways. While it may not make sense to be an entrepreneur (in the same weighted average odds/return funda) he does mention in other articles how innovations happen entirely by accident and it’s in the continuous innovation process that brings out the gems (not in what you’re looking for but in the serendipity) In fact he himself puts most of his money in deep out of the money options where he benefits only on a wild move, one big return against many small losses.Akin, perhaps, to the VC industry?

- In BPO companies like WNS, Firstsource, (and probably Intelenet when it lists), a large swath of employees — manager and above — seem to have made money when listing happened. I recall seeing the Red Herring books of some of these and actual employee names potentially making $ 1 - 10 M if you did the math.

- However there are also many BPOs where only the top 4-5 got good # of options while everyone else either did not get anything or only a modest amount. Several such companies have been acquired but only the top guys may have made money.

- Couple of years ago one of the ad agencies in Mumbai (forget the name) got acquired by its US partner, at which point practically every staffer is believed to have made serious money due to part ownership.

Also note that we are talking about an environment where we are still not talking of people taking paycuts to do this, unlike USA.

BTW, am reading Taleb right now, and he does advocate people shouldn’t do startups (for economic considerations)!

If you assume 5% chance of your startup hitting the big scene, 20% of it being break even (say an at par sale or some such) and 75% of it not making money, then what’s the esop worth? From history you make say 2 crores if it hits big. You make 20 lakhs if you kinda break even. And nothing for the rest.

Multiplying opportunity by odds, you make 14 lakhs (0.05*2cr + 0.2*20L) 14 lakhs is not a lot of money, pretty much worth a years salary for someone with 5-6 years of experience. For someone with more, the opp cost is probably negative.

What would make a difference? Someone making 20cr.+ in a big hit. An employee, through ESOPs. I’ve seen people do that - as founders - but not much as employees. Founders need to make 100cr.

We have to have success stories, otherwise ESOPs don’t matter. We gotta have more buyouts and more startups going public. We need bull markets to fuel the fire.

Till then, throw out esops. Keep them as spare change but it’s not possible, in my opinion, to hire quality people just on esops.

What else is needed to attract talent? Zoho’s ideas of 9 month training of people from the smaller cities, with the hunger and the drive, may just work. It won’t work in a short time frame that most investors seem to want, but if that can be relaxed you can get world class stuff out.

You can reward people on performance but it’s rare that in a startup there is any dollar value, initially, to performance. A revenue based incentive is akin to comp for sales people, and there’s enough research on that. Can’t really pyramid such things or pile them on because people want to see money now, not later.

So I think it’s money. Throw money, get talent. Throw esops too, but nothing big because no one cares anyway. But you want them there because if it’s a hit, it will form a precedent for esops on the next startup.

One thought: if VCs complain that startups don’t want enough money (and throw out the sub 2 million $ plans) and startups can’t attract talent with esops, why not simply give them more money for the same equity and throw money at the talent? Oh that’ll bring them, and the mercenaries, but who cares - eventually it’s a game of one big win, and if you have enough of the big talent across your startups your chances of scoring the big hit should increase.

I just don’t know who’s sitting on the other side buying the startups - unless it’s google, or microsoft or cisco.

* Kick-ass product to work on. No, yet another social community thing will not qualify. Nothing less than world-class will. * Open and trustworthy founders. “Inspiring leadership” in the MBA-speak
cheers
nilesh