As even the biggest and fastest growing Companies stay private longer, all kinds of new financial issues, problems and opportunities have been created.
Fred Wilson has an excellent post up on the subject of ‘Golden Handcuffs‘ that gets into the biggest problem which is a ‘pre-wealth’ problem as much as a policy problem for governments and companies. These three points stick out:
4/ I would like to see a market emerge for financing of option exercises. There are companies actively working on this. I believe that departing employees ought to be able to borrow against their valuable equity at no recourse to them, so that they can exercise and pay the taxes. This would solve part of the problem, where employees can’t leave because they can’t afford the taxes (and, in some cases, the exercise price).
5/ I do not believe that the option programs are the problem here. I do think the taxation at exercise is bad public policy and I wish the US government would move taxation to a liquidity event, but I also think we can use the capital markets to address this problem.
6/ I think in the vast majority of cases, the golden handcuff problem is a result of poor management and a leadership team that is unwilling to address this issue head on and make unpopular and difficult decisions about people.
Last year we made a seed investment in Secfi whose founder, Wouter, was attacking all of the above. It is a complicated problem with no easy solution. I can’t delve into all the intricacies so as not to reveal the roadmap of the company. Here is what I wrote at the time.
Today, Secfi is growing really fast. I will be there next week for a board meeting and am really excited to continue to help plot strategy.