4 ms·
Dilution can also happen through a reverse-split prior to IPO to hit a target share price. (In this case, the bankers effectively dilute everybody else, althou
by choppaface 11y ago
Dilution can also happen through a reverse-split prior to IPO to hit a target share price. (In this case, the bankers effectively dilute everybody else, although C-levels will probably get big new post-split grants to stay on after the IPO). The number of shares (rather than the percentage) might be more important given an IPO will probably require $10-15/share, and the share price will probably be no more than 2x-3x that after 6-month lockup.
IMO telling an employee you have x% of $n billion is very misleading, as dilution can be rather unpredictable. You're really showing the employee the /max/ upside in 2-7 years, which IMO is a very weak sales position.
- sskates 11y agoDilution is unpredictable and what's worse is you have the principal agent problem where employees who are affected don't have a seat at the negotiating table. You're definitely counting on upper management/the board not to do things like that. Not sure on the solution but agreed that it needs to be solved.
- salem 11y agoThese side-letter deals and exits optimized for founders are probably not legal since they are often not in the best interests of shareholders, but I've never heard of them being investigated.
- itaifrenkel 11y agoCould you explain in more detail how a reverse split (in which value should not change) is an indication for the bankers delluting everyone else? If there was no reverse split the delluting was any different?