How To Startup Like a Communist

About a decade ago, one of my hook-ups proposed to join him and his friend.

They had an idea for an app and were looking for developers.

He called it “a social startup” — giving developers a chance to be investors too, effectively investing their monthly salary over 2 years.

Eventually, this was a case for the courts. I can talk about it because it’s closed.

We started as a large group in the living-room of that man, let’s call him Zvi.

We would come after finishing our 9-5 work, and stay as late as we could. This went on for 8 months, as the group grew and then shrunk.

At the end of 2015, Zvi decided that it’s time — whoever wanted in had to commit to the startup full-time.

Being “in” meant having equity and voting rights on the board.

The commitment was a vesting for two years with a 2-year cliff.

This means that those who leave before the two-year mark will get nothing.

Since I was dependent on my salary as my main source of income, I couldn’t just leave my full-time job. The rest of the group had the same problem.

Zvi’s solution was to loan us money from the newly established company.

The company itself was registered in the US (for tax purposes), while we all were in Israel, so the loan was an easier way of circumventing intercontinental financials.

We were told, repeatedly, that the idea is to never ask us for the money back.

As soon as the company will earn all those well-deserved millions of Dollars, the mere thousands of Shekels would be discounted from our dividends.

Life happened — the CTO had a nasty fight with Zvi, the CEO, just 4 months before the end of the second year.

The CTO left with most of the tech-team; I was the only one to stay.

Zvi and the representative of the investors’ group sued them to repay the loans.

They lost — the judge deemed the loans to be salaries.

My Conclusions

• Vesting is an important instrument to ensure long term commitment, but it’s not iron shackles.

• Pay people for their time. Founders should get a salary too! it should be low relative to their expertise, but not so low that they starve.

• Offering actual equity is a great way to hire senior developers on a junior-dev salary at very early stages.