Emergence of growth capital, delayed IPOs, and founders taking Restricted Stock Awards has ruined the social contract of giving startup employees stock options
Steve Blank : Tweets: @kneath , @shaanbatra , @w1zz1e , @tbatchelli , @savils , and @rrhoover Tweets: Kyle Neath / @kneath : This is a pretty good overview of how fucked the world of stock options has become in recent history. I'm a bit bummed he didn't mention onerous stock option agreements (30-day expirations, no transfers) and the frequency of founder-only liquidity events. http://steveblank.com/... Shaan Batra / @shaanbatra : I've been saying this for years. This one frustrates me the most: “in many high valued startups where there are hungry investors, the founders get to sell parts of their vested shares at each round of funding.” https://steveblank.com/... via @sgblank William Chan / @w1zz1e : The startup-versus-corporate-job question keeps tilting away from startup. Growth capital extends the private runway for larger startups but squeezes the employees. Brutal. https://steveblank.com/... Antoni Batchelli / @tbatchelli : VCs have been tipping the scales in their favor and talent is starting to catch up with it. The SV needs to rethink the model soon,or there will be plenty money but no talent for startups. https://steveblank.com/... Savil Srivastava / @savils : <3 this. Early employee (1-10) startup compensation being broken is something i've felt for many years. @sgblank i would add that the early-employee equity pool is also too small, and needs expanding. https://steveblank.com/... Ryan Hoover / @rrhoover : The history of startup stock options and where it's broken by @sgblank: http://steveblank.com/...IMHO, the biggest issue for employees is liquidity and option exercising. This is what @AskSecfi is focused on solving (disclaimer: I'm an investor).
Context & Ripple Effects
This post lands mid-arc in a debate that had been building for years: back in 2015, analysts were already arguing startups needed to redesign options packages because IPO timelines kept stretching, and by 2018 the Wall Street Journal documented tech founders wresting control from VC backers and extracting outsized pay packages tied to going public. Steve Blank's synthesis names the mechanism underneath both: growth capital extends private runways, so the decade-long wait to liquidity breaks the old bargain where employees took low salaries for options that would cash out at IPO.
The corroboration came later: an analysis of 2020 IPOs found a $21.9M median CEO payday for US tech startups going public, with seven of the ten best-paid CEOs of US public companies coming from that cohort — evidence that the value gap Blank describes widened rather than closed. The comment thread adds texture Kyle Neath's overview missed: 30-day exercise windows, no-transfer clauses, and founder-only secondary sales that give insiders liquidity employees never see.
First-order effects
- Early employees at late-stage private startups hold options that can sit underwater or expire worthless under 30-day exercise windows if they leave before an IPO that growth capital keeps postponing.
- Founders capture liquidity directly — selling vested shares in funding rounds and taking Restricted Stock Awards — while their employees' equity stays locked until an exit that may never come.
Second-order effects
- Recruiting math changes: candidates discount startup equity offers against cash-heavy compensation from large companies, forcing startups to enlarge pools or shift toward restricted stock and cash to compete for senior hires.
- Secondary-market demand grows as employees seek earlier exits, giving institutional buyers a channel to price private shares and adding pressure on boards to formalize tender offers rather than leave liquidity to founders alone.
Third-order effects
- If the pattern holds, equity stops functioning as the universal startup incentive and becomes a negotiated instrument — restricted stock, extended exercise windows, structured secondaries — reserved for those with leverage to demand better terms.
- Sustained private staying power cements the valuation–liquidity gap: companies can stay private indefinitely on growth capital, so the IPO ceases to be the employee wealth event it was when the option social contract was written.
The trend: As growth capital lengthens private runways, startup equity is shifting from a broad employee wealth-sharing contract to a founder-and-investor liquidity instrument, with employees' compensation renegotiated around cash and restricted stock.