4 ms·

> How many outstanding shares are there? (This will allow you to calculate your ownership in the company.) Is it not true that company can (and usually will) i

by dandare 10y ago

> How many outstanding shares are there? (This will allow you to calculate your ownership in the company.) Is it not true that company can (and usually will) issue new shares and dilute your stake at every investment round? (I am just a layman like you)

battlebot 10y ago
I believe Facebook famously did that to some people?
- cmdrfred 10y ago
  It's a verb now. When it happens to you, you've been zuckerburged.
hedora 10y ago
Hiring is the primary source of dilution at new companies. Stock packages have to come from somewhere. Also, equity rounds reduce your percentage ownership, but (usually) not the current value of the stock you hold. If a $100M company raises $100M, the number of outstanding shares doubles. However the company is now worth $200M (the cash in the bank counts towards valuation). Now, your 1% share is a 0.5% share, but it is still worth $1M. If the company spends the $100M without growing, then the funding round was a mistake, and your shares are now worth $0.5M So, spending money lowers the value of your stock. Issuing shares lowers your upside at a fixed future valuation. If management knows what it is doing, raising cash should increase the chances the company grows, and so should hiring. (these calculations are oversimplifications, but the intuition is right)
- JonFish85 10y ago
  > Hiring is the primary source of dilution at new companies. Is that true? Generally don't companies set aside ~5% of the company for employees? Even the first 5 employees probably get a combined total of less than 10%, whereas the first investors probably get 10+%.
  - danielweber 10y ago
    I agree with you. The dilution events happen because something unexpected happens, not because "we had to hire people." If people are getting diluted from shares being issued to employees like you, you have already entered a death spiral.

by dandare 10y ago

battlebot 10y ago

I believe Facebook famously did that to some people?

cmdrfred 10y ago
It's a verb now. When it happens to you, you've been zuckerburged.

hedora 10y ago

Hiring is the primary source of dilution at new companies. Stock packages have to come from somewhere. Also, equity rounds reduce your percentage ownership, but (usually) not the current value of the stock you hold. If a $100M company raises $100M, the number of outstanding shares doubles. However the company is now worth $200M (the cash in the bank counts towards valuation). Now, your 1% share is a 0.5% share, but it is still worth $1M. If the company spends the $100M without growing, then the funding round was a mistake, and your shares are now worth $0.5M So, spending money lowers the value of your stock. Issuing shares lowers your upside at a fixed future valuation. If management knows what it is doing, raising cash should increase the chances the company grows, and so should hiring. (these calculations are oversimplifications, but the intuition is right)

JonFish85 10y ago
> Hiring is the primary source of dilution at new companies. Is that true? Generally don't companies set aside ~5% of the company for employees? Even the first 5 employees probably get a combined total of less than 10%, whereas the first investors probably get 10+%.
- danielweber 10y ago
  I agree with you. The dilution events happen because something unexpected happens, not because "we had to hire people." If people are getting diluted from shares being issued to employees like you, you have already entered a death spiral.