Equity as Commitment Filter

“Equity is a powerful tool precisely because of these limitations. Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future. Equity can’t create perfect incentives, but it’s the best way for a founder to keep everyone in the company broadly aligned.”

“Most people don’t want equity at all. At PayPal, we once hired a consultant who promised to help us negotiate lucrative business development deals. The only thing he ever successfully negotiated was a $5,000 daily cash salary; he refused to accept stock options as payment. Stories of startup chefs becoming millionaires notwithstanding, people often find equity unattractive. It’s not liquid like cash. It’s tied to one specific company. And if that company doesn’t succeed, it’s worthless.”