What is great equity and bad equity?


Last Update 2 jaar geleden

For workers, great equity is equity that enables workers to truly believe that they are owners. In other words, great equity cultivates an ownership mindset among workers allowing them to understand that, if the company succeeds, they will get their fair share.

Bad equity is equity that workers don’t understand. When an equity plan is not effectively communicated, it feels like a shell game where workers feel like they will never get their fair share.

We consider stock options to be bad equity because workers have to buy the equity. They have to basically bet a considerable amount of money and risk losing it should the stock price go underwater. Moreover, if they leave the company, they could lose the option immediately or within a short amount of time.

For founders and owners, great equity is equity that doesn't put workers on the cap table. This enables them to maintain company control, avoid shareholder disputes and legal liabilities.

Overall, great equity is one that doesn't put workers on the cap table necessarily but give them the financial upside. 

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