Andrew Mason wants to make you rich (If you come work at his new startup, and it's successful)
We’ve come to expect uncommon ideas and actions from Groupon founder Andrew Mason, whether it was applying self tanner backstage at tech conferences, producing an album about startup life, or his, ahem, unconventional approach to managing the press and investors during his brief tenure as a public market CEO.
His latest move is either brilliant or batshit insane. It describes a new plan for distributing equity in companies. That’s kind of a third rail for a lot of corners of Silicon Valley. For many years, VCs made the vast majority of the money in any exit, because it was so capital intensive to create a company that needed massive infrastructure, ad budgets, and rolex-wearing sales guys. Today, with the cost of company creation a fraction of what it was decades ago, its founders who are making a greater chunk of the proceeds than ever before.
And some -- a few typically off-the-record-- brave VCs have started to say they think that’s unfair. Not so much to them, but to the rest of the employees and management team that make a startup succeed. If the spoils used to be lopsided towards VCs against entrepreneurs, some argue they’ve become lopsided towards founders and away from employees.
There are reasons for this, of course. A founder has an outsized impact on a company’s trajectory and some of the amassing of equity is for control purposes. Still, founders are always the ones who insist they can’t build a unicorn on their own.
Enter Mason. A guy who built a multi billion dollar company (even if it probably should have sold to Google when it was still the “fastest growing company” in the history of Accel’s portfolio) and who was schooled at the hand of Eric “GROW BIG FAST!” Lefkofsky. Mason did OK for himself, even if most of Groupon’s Silicon Valley VCs didn’t.
Some capitalists might moonwalk around knowing they did well even if others didn’t. It’s the buy low/sell high mentality of Wall Street right? But surprisingly, Mason described his regret about who made what in a blog post today called “Introducing Progressive Equity.” Seeming disappointed by what he discovered about sharing financial success, Mason explains,
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.The thrust of the post is a radical new idea for distributing employee equity that isn’t just a blog post. It’s his actual blueprint for distributing equity at his latest venture Detour, a location-aware audio app. It’s a pretty revolutionary way to share ownership, as well as an employee's emotional and financial stake, in a company.
The craziest part? It’s arguably anti-founder in practice as much as it’s pro-employee. That’s something you almost never see in the Valley these days.
Give Mason credit for one thing: It's an exceptionally innovative approach to leadership in an industry where ingenuity usually isn’t applied to corporate structure. And he’s willing to be the guinea pig.
The idea, which Mason calls Progressive Equity, splits up the equity of the company not along set percentage stakes, but in a way that gives as many people as possible what he describes “financial independence.”
There is a pre-determined financial independence threshold that is decided upon in advance, whether that be $50 million or $5 million is up to a company’s own opinion of its future worth. In the post, Mason doesn’t use common currency, and instead uses the made up “megadonk” to explain how the financials would work. (Oh, Mason…)
Here’s how it works now: If a company achieves an exit, let’s say a $100 million cash acquisition, and the founder owns 50 percent of its equity, he would get $50 million. In Mason’s system, if a financial independence threshold of $25 million was set in advance, and the founder would get 50 percent of the other $25 million, $37.5 million, and the difference would be distributed between the pool of employees.
It’s essentially a check against greed. If you said you wanted around $25 million to feel independent, why not share the wealth with the rest of the people who got you there? Of course, there are some huge flaws.For one thing most founders have no clue what will make them feel financially independent, what a decade-plus struggle of their life will be “worth” to them, or what the value of their company could wind up being. In the case of Facebook, it would be wildly unfair if Mark Zuckerberg just made, say $50 million. It’s a case that works best if the acquisition isn’t too small that there’s simply not enough to go around, but also not so huge that everyone makes enough and the founder deserves the credit for building one of the most dominant tech companies of a generation. Mason's proposal would work, in hindsight, for a company exactly like Groupon -- but the trouble is, at the outset you don’t know if your startup will work out the same way.
The last thing investors or employees want is a founder not to be aligned with building as big a company as possible because he feels like his potential earning power is tapped out. And the obvious critique is that it’s all well and good for someone like Mason who has already made some cash.
Another point: Mason criticizes that founders make more money “than they could spend in infinite lifetimes” as a reason the wealth should be shared. So what about billionaires like Pierre Omidyar, Dustin Moskovitz, and Tim Cook who pledge to give the vast majority of their wealth to charity. It’s hard to argue six-figure salaried engineers are more deserving of Moskovitz’s “extra” unspendable wealth than impoverished nations, whether we always agree with the way these founders spend these charitable dollars or no. Many argue Bill Gates has done more as a philanthropist than a brass knuckled monopolist software mogul.
A discussion on HackerNews pointed out more flaws. One commenter hypothesized that if employees who were part of a $1 billion deal all ended up millionaires as part of an IPO, what would keep them working to keep the company in operation after the exit. The last company to revolutionize how employees get liquidity was Facebook-- and most VCs agreed the company went too far in how permissive it was in letting employees and ex-employees sell stakes pre-IPO.
Still, good for Mason for showing some humanity and disappointment that the Groupon rocket didn’t help everyone as much as he’d hoped, and probably promised them all when he joined. In this age of the founder-is-God, it’s nice to see someone caring about the many nameless, faceless employees who do a lot of the grunt work. It’s doubtful the venture world will line up to follow Mason’s lead-- if nothing else because of his wacky, up-and-down track record. But it might actually draw this conversation into public and on the record.
Still, lest we think he’s being entirely magnanimous there was a telling line in his post: “Most importantly, I haven't met an employee who doesn't love it.” If nothing else, it’s a great marketing message as Mason looks to hire in a cutthroat market for developer talent.