Spenser Skates - Challenging Big Ideas - [Founder’s Field Guide, EP. 42]

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At a Glance

Guest: Spenser Skates, Co-founder & CEO of Amplitude Analytics.

Main Theme: An exploration of how to challenge conventional Silicon Valley wisdom. From equity incentives and investor selection to the path to going public, Skates shares contrarian views based on deep research and independent thinking.

Core Thesis: Spenser Skates believes the traditional IPO process is "the worst form of crony capitalism," systematically undervaluing companies and constituting a "breach of fiduciary duty" to existing shareholders. He advocates for a Direct Listing as a superior alternative and urges CEOs to consider it the only responsible option for their shareholders.

Key Topics

1. Challenging the "Golden Handcuffs" of Equity: A 10-Year Exercise Window Replaces 90 Days

Spenser Skates argues that the "90-day exercise window" commonly used by startups is a form of "equity servitude" that is deeply unfair to employees.

• History & Mechanics: Skates traces the origin of equity incentives back to Hewlett-Packard in the 1950s, where the intent was to give workers ownership of the means of production. Today, however, when an employee leaves a company, they typically have only 90 days to decide whether to pay out of pocket to exercise their vested options, or forfeit them. For companies with high valuations and long paths to IPO, the cost to exercise can be hundreds of thousands of dollars, effectively trapping employees who cannot afford to leave—creating "golden handcuffs."
• Data & Argument: Skates points out that if cash compensation were clawed back 90 days after an employee left, it would be considered "wage theft." He argues there should be no double standard for equity versus cash. He found a simple legal workaround: converting Incentive Stock Options (ISOs) to Non-Qualified Stock Options (NSOs), which allows employees to hold their options indefinitely after leaving.
• Action & Impact: Amplitude became the first company in Silicon Valley to offer all employees a 10-year unconditional exercise window. Skates believes this move instilled a powerful sense of ownership in the early team, becoming a key differentiator in a competitive market. He also criticized the one-year vesting plans adopted by companies like Coinbase and Stripe, arguing they effectively turn equity into cash and undermine long-term incentives.

2. Investor Selection: A Few "Trajectory-Changers" Far Outweigh the Majority of "Commoditized" VCs

Spenser Skates believes the value provided by the vast majority of VCs is commoditized, but a tiny fraction of top-tier investors can fundamentally alter a company's destiny.

• Early Belief: Influenced by Y Combinator, Skates initially thought VC advice was worthless and that the only purpose of fundraising was to get cash.
• Key Decision: During his Series A round, he faced a choice: one VC offered a higher valuation, less dilution, and no board seat (a "generous" offer); the other was Eric Vishria of Benchmark, whose terms were worse in every respect (50% lower valuation, demanding 25% of the company and a board seat).
• Data & Reasoning: Skates studied Benchmark's historical portfolio (Twitter, Yelp, Snapchat, etc.) and found their "success rate" was roughly 50% (meaning half of their investments achieved massive success), far exceeding the industry average of 1 in 30. He reasoned that whether this was correlation or causation, he wanted his company to be part of that high-probability portfolio. He ultimately chose Benchmark.
• Result Validation: Skates calls Eric Vishria a "co-founder," citing contributions including weekly communication, interviewing hundreds of people, recommending roughly a quarter of the early team, and participating in every executive hire and fundraising round. He states bluntly: "Without him, we would not have succeeded in breaking out of a crowded analytics market."

3. Disrupting the Path to Public Markets: Direct Listing is the Only Responsible Choice for Shareholders

Spenser Skates delivers a scathing critique of the traditional IPO process, arguing it systematically harms the company, and strongly endorses Direct Listings.

• Core Conflict: Skates argues that in a traditional IPO, the incentives of the investment banks (underwriters) are severely misaligned with those of the company (issuer). The banks' primary clients are large public mutual funds, not the company. Therefore, banks have an incentive to underprice the offering to ensure profits for their big clients.
• Data Support: Citing research from Professor Jay Ritter of the University of Florida, Skates notes that since the 1980s, the average IPO has been underpriced by approximately 25%. This implies that out of roughly $1 trillion raised in IPOs, about $200 billion has been "inefficiently priced," transferring value from the company to institutional investors. He argues that any IPO with a massive first-day "pop" is a "breach of fiduciary duty" to existing shareholders.
• Refuting Common Excuses: Skates systematically dismantles arguments for IPO underpricing:
• "Controlling the stock price": The market should discover the price, not have it artificially controlled.
• "Making the stock go up makes employees and the media happy": Employees are smarter now and don't expect a stock to only go up.
• "Pricing too high scares away long-term investors": As a CEO, he wants the highest bidder to be the shareholder; that is how markets work.
• Criticism of SPACs: Skates views SPACs as a "shortcut around the SEC," allowing companies to make unrealistic revenue projections (e.g., "predicting $100M in revenue next year when it's actually $10M") without adequate disclosure, posing a risk to investors.
• Defense of Direct Listings: He acknowledges that Direct Listings currently cannot facilitate a primary capital raise, but argues this can be solved with pre- or post-IPO financing, and that the transparent, market-driven pricing mechanism is vastly superior to the "black box" of an IPO.

4. Corporate Governance: Against a "One-Size-Fits-All" Dual-Class Structure

Spenser Skates is skeptical of the currently popular dual-class stock structure and proposes a superior alternative.

• The Problem: In most companies going public, pre-IPO shareholders (founders, early investors) receive 10-20 times the voting power of public shareholders. Skates questions: "Why are my shares more special than someone else's?"
• Alternative: He proposes that a better way to incentivize long-term holding is "time-weighted voting," where voting power increases the longer a share is held. He believes this rewards long-term shareholders more fairly than simple "founder privilege." However, he acknowledges that Delaware corporate law and the SEC have yet to innovate in this area.

Position Moves

Position	Guest's Stance	Key Data
Amplitude	Bullish (Founder's Perspective)	Over $100M ARR in 2020; Latest valuation $4B; Used by 20 Fortune 100 companies.
Calm	Case Study (Positive)	Used Amplitude to discover that "setting a daily reminder" was key to retention. By moving this feature front and center, usage went from 3% to over 50%, and user retention improved 3x.
Benchmark (Eric Vishria)	Highly Endorsed	Portfolio company success rate of ~50%, far exceeding the industry average.
Coinbase, Stripe, Lyft	Criticized	Adopted one-year equity vesting plans, which Skates believes undermines employee ownership.

Memorable Judgments

1. "The traditional IPO is the worst form of crony capitalism" (Spenser Skates): Underwriters and mutual funds are aligned, systematically underpricing offerings. Since the 1980s, roughly $200 billion in value has been transferred from companies to institutional investors via an average ~25% discount.

2. "The 90-day exercise window is a form of equity servitude" (Spenser Skates): It forces departing employees to either pay a huge sum to exercise or forfeit their options, creating "golden handcuffs." By converting ISOs to NSOs, Amplitude implemented a 10-year unconditional exercise window, becoming a massive competitive advantage in talent acquisition.

3. "The vast majority of VCs are a commodity, but a tiny few are trajectory-changers" (Spenser Skates): When choosing an investor, don't just look at valuation and terms; look at their portfolio's "success rate." Benchmark's ~50% success rate means choosing them is choosing to be part of that high-probability set.

4. "'Protecting your idea' is one of the biggest misconceptions in startups" (Spenser Skates): Just like in a programming competition, hiding your strategy only prevents you from learning and improving. He quotes: "If your idea is good enough, you have to shove it down people's throats."

5. "Product development is shifting from the 'madman phase' to the 'Moneyball phase'" (Spenser Skates): In the past, product development relied on the intuition of geniuses (like Steve Jobs). Now, the impact of every feature can be quantified with data. Amplitude's goal is to be the "brain" for every Chief Product Officer.

6. "The future of software is proactive adaptation, not static response" (Spenser Skates): Future software will act as an "intelligent agent" for everyone, proactively anticipating needs, removing friction, and delivering personalized experiences, much like Google expanded human memory.

7. "Better corporate governance is 'the longer you hold, the more votes you get'" (Spenser Skates): He opposes the current popular "founder privilege" dual-class structure, arguing that time-weighted voting more fairly incentivizes long-term thinking.

8. "SPACs are a shortcut around the SEC with serious disclosure risks" (Spenser Skates): They allow companies to make unrealistic revenue projections before going public, posing a significant threat to unsuspecting retail investors.