Written by Erik | Haven Commerce LLC
The Incentive Collapse That Turns Capable Teams Into Caretakers
Here’s an uncomfortable truth about stuck SaaS companies: the people running them often have no economic incentive to maximize the company’s value.
Not because they’re bad people. Not because they don’t care. Because the incentive structure that was supposed to align their interests with the company’s outcome is broken.
When equity is worthless, options are worthless. When options are worthless, the team is working for cash compensation only — usually below-market cash compensation, because stuck companies have been cutting costs for 18 months. There’s no upside tied to any outcome.
The founder who stays anyway is making decisions optimized for survival: keep the lights on, avoid the conversation that might end in a wind-down, manage the board’s expectations rather than confronting the situation. The employees who stay are the ones with the fewest alternatives. The best people have already left.
And somehow everyone is surprised when the restructuring fails to execute.
When a SaaS company’s equity drops below the preference stack, every employee’s options become worthless simultaneously. This isn’t gradual — it happens at a specific moment, and the people who see it first are the people who’ve been around long enough to read a cap table.
Your VP of Engineering with 0.5% fully vested? Working for salary only. Your founding CTO with 8% common? Also salary only. There’s no upside for anyone below the preference stack — which means there’s no incentive to take risks, push hard decisions, or execute the kind of operational transformation that a restructuring requires.
Here’s the problem: your most talented, most mobile people are exactly the ones who see this earliest and act fastest. They’re the people recruiters have been calling for two years. They can read the signals — slowing growth, flat board meetings, the conversation topics that get avoided. They start taking meetings. One leaves. Then another.
Who stays? The people with the fewest outside options. You’re trying to execute a complex restructuring with a team selected, inadvertently, for limited alternatives.
The negative selection spiral is invisible until it’s catastrophic. By the time the board decides to act, the three people you needed most to execute the plan are already at their next companies.
The founders I work with are almost all competent, committed, and genuinely invested in finding a good outcome. They’re also demoralized in ways that affect their decision-making, often without realizing it.
When your equity is worth zero, staying isn’t a rational economic decision. It’s an emotional one: obligation to the team, pride, sunk cost, uncertainty about what comes next. Founders who stay in that state make decisions that are rational given those motivations — not necessarily rational for value maximization.
Specifically: they avoid hard conversations. They present optimistic plans to the board because pessimistic ones feel like defeat. They optimize for runway extension over resolution — extending the timeline gives more time for something to change, even when the math says it won’t.
I’ve sat through board meetings where a founder presented a plan that nobody believed, including the founder. The board approved it because nobody had the mandate to do anything else. Ninety days later, everyone had the same meeting again.
The founder wasn’t failing. They were responding rationally to a situation in which honesty felt more dangerous than optimism.
The board’s incentive problem is different but equally real.
The later-stage investor has already written the position to zero or near-zero in their internal modeling. It’s a rounding error on their fund. They show up to quarterly board meetings because they want to stay founder-friendly for the next deal, not because they think this one is going anywhere. They’re not going to push for a restructuring that crystallizes a loss they’ve already mentally taken.
The earlier-stage investor has a smaller position where the math might actually work in a sale — but they don’t have blocking rights, and they don’t have the leverage to force a process the Series B can veto.
The independent director doesn’t want to be the person who triggers a process that ends in a wind-down. That’s career risk, not upside.
So nobody has an incentive to act. The board defers because acting means owning an outcome. Deferring distributes the responsibility across a group that will reconvene in 90 days and do it again.
The instinctive response to a retention problem is a retention bonus: cash bonuses, refreshed equity grants, accelerated vesting for key employees. In normal circumstances, these work. In a stuck situation, they don’t address the actual problem.
The issue isn’t that employees don’t feel appreciated. It’s that they’re rational actors who can see that the equity in their offer letter is worth zero, that the company’s trajectory doesn’t point toward a meaningful liquidity event, and that a larger company is offering them more cash, more equity that might actually be worth something, and less uncertainty.
A retention bonus buys time. It doesn’t change the math. The person you paid to stay for 6 more months is still evaluating their options. When the bonus vests, they leave anyway — unless something structural has changed.
The structural change required is creating equity-equivalent upside that reflects the company’s actual situation, not the situation it was in when the options were granted.
A management carve-out is a contractual right, separate from the existing option pool, to a percentage of the proceeds from any future transaction — typically positioned at or near the top of the distribution waterfall, ahead of some or all of the preference stack.
The mechanics vary, but the most common structure in a restructuring context is: 10% to 15% of net transaction proceeds (after debt repayment and transaction costs) distributed to a defined group of key employees based on a pre-agreed allocation. This is funded by the transaction, not by the company’s operating budget, so it doesn’t burn runway.
For the team member who’s been watching their options deteriorate for 18 months, a carve-out changes the calculation. Instead of “if this company exits at $10M I get nothing from my options,” they’re calculating “if this company exits at $10M I get $150K to $400K from the carve-out, plus my retention through close.” That’s real money with a real probability of occurring on a real timeline.
Why preferred investors sometimes resist carve-outs: The carve-out dilutes their recovery. If proceeds go 10% to the carve-out pool before reaching the preference stack, investors recover less. This is a rational objection.
The counterargument: Without the carve-out, you lose the team. Without the team, the restructuring fails. Without the restructuring, recovery is zero — not 90 cents on the dollar, zero. A 10% carve-out is the price of having someone competent execute the plan. The investors who understand this math usually agree.
Incentive realignment in a stuck SaaS company isn’t one conversation. It’s three parallel conversations, each designed for a different stakeholder group with different motivations and different leverage.
For the team: Cancel the old option pool (it’s worthless and everyone knows it). Create a management carve-out at 10% to 15% of transaction proceeds. Pair it with quarterly cash bonuses tied to specific restructuring milestones: burn rate targets, retention metrics, product delivery dates. Give people something real and near-term to work toward, alongside the longer-term transaction upside.
For the founder: Negotiate a founder carve-out as part of the cap table restructuring. If the company is worth $10M today and restructuring creates a path to $15M to $20M in transaction value, the founder should participate in that upside. Converting the founder from a demoralized caretaker to someone with a meaningful stake in the outcome changes everything about how they engage with the process.
For the board: Bring in someone with a clear mandate, a defined timeline, and accountability for a recommendation. When the board can delegate execution to an external advisor who’s reporting back in 30 days with a Situation Assessment and in 90 days with a path recommendation, the social dynamics change. The board’s job shifts from “figure out what to do” to “approve or reject a recommendation.” That’s a much easier ask.
The three conversations have to happen in parallel because they’re interdependent. An investor who agrees to a preference haircut wants to see a credible management team in place. A management team that accepts a carve-out wants to know the board is committed to a process. A founder who engages authentically needs to know the investors won’t block any reasonable outcome.
When all three groups are aligned, a stuck situation starts to move. Quickly, usually.
Every week between the moment the equity becomes worthless and the moment the incentive structure gets reset, the talent exodus continues. The restructuring clock starts the day your best engineer updates their LinkedIn for the first time since they joined — not the day the board votes to act.
The board meetings, the planning, the analysis — all of that happens while the people you need to execute the plan are making decisions about their careers. The window for preserving the team is always smaller than it looks.
If you recognize this pattern in your company or your portfolio, the incentive reset is one of the first things that happens in the first 30 days of any structured engagement. Not at Day 60 or Day 90 — Day 30. Because after that, the team you need to work with may not be the team you have.
If the incentive dynamics described here sound familiar, let’s talk through what a reset would look like. . The carve-out design and the board conversation usually take less time than people expect — the hard part is deciding to start
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