I agree with you, though. I think employees want stock options without understanding their drawbacks and limitations. Receiving stock options sounds sexy and is motivated by social factors that may not be as beneficial now as they were several decades ago. But employees need to take personal responsibility for the offers they accept and if they feel under valued, they can leave at any time. I would personally opt for the cash flow route as well.

I think that stock options (and the eventual shares realized through option exercise) are a legitimate method for a cash constrained startup to offer deferred comp to early employees (as well as meaningful ongoing ownership in the business if done properly), but that additional government regulation is required to tip the power balance away from the employer/option grantor. I don’t disagree with social factors, but I think even today employees want upside exposure you can only obtain with options (or other equity instruments). Hustle has a cost.

If you want to issue options, no right of first refusal. You have to allow the transfer of your shares on a secondary market for accredited investors. You have to provide a cap table to all shareholders, as well as dilution and preferred share info. You have to hand over a 409A valuation annually to all shareholders.

You don’t have to go to the public markets, but you also don’t get to treat common shareholders (usually employees granted ISOs) as second class citizens. If private markets are the new public markets, we still regulate the private markets, just a bit less so.

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