4 ms·

I've noticed the same thing. Early employees are the ones responsible for building the product, without whom there would be nothing to sell, and yet they get s

by Osiris 10y ago

I've noticed the same thing. Early employees are the ones responsible for building the product, without whom there would be nothing to sell, and yet they get stiffed when more money is raised and shares are diluted. When I joined a startup I was promised that more options would be issued and we wouldn't get diluted from future rounds, but that never happened. As employee #22 I received options that equaled 0.05% of outstanding shares, and by 2 years later, I was down to 0.015%.

jasode 10y ago
>I was promised that more options would be issued and we wouldn't get diluted from future rounds, I understand you're only relating your previous misunderstanding but to others reading this, they need to realize that it's unrealistic for employees not to be diluted. The founders' ownership will get diluted. The investors also get diluted. Therefore, employees are not special in this regard. Getting diluted is supposed to be a Wonderful Event because it means the smaller ownership percentage is worth more. E.g. Larry Page's ownership of Google Inc got diluted from 50% in 1998 down to 16% in 2004. That smaller 16% was worth ~$3 billion around the time of the IPO.[1] If Larry insisted on "no dilution", no VC would invest money to help the search engine grow and therefore, he would own 50% of a worthless company. In other words, you can't look at dilution in isolation; it has be combined with the (hopefully increasing) value of the shares. [1] http://www.nbcnews.com/id/5033780/ns/business-stocks_and_economy/t/google-founders-sitting-billion-stakes/ http://www.nbcnews.com/id/5033780/ns/business-stocks_and_eco...
- Osiris 10y ago
  It wasn't a misunderstanding. I specifically asked if our options would be diluted in the next fundraising round and the founder said NO, they would be increasing our options to compensate for the additional issued shares.
  - jasode 10y ago
    >I specifically asked if our options would be diluted in the next fundraising round I guess I don't understand what motivated you to ask about dilution and then believing a promise of no dilution since you're supposed to get diluted over time as the startup reaches maturity. Everybody is supposed to get diluted. If a founder promised me "no dilution", I'd have to conclude either... 1) he doesn't understand the mathematics of selling equity (e.g. to maintain your 0.05% ownership, it has to come from someone else's shares since ownership % comes from a finite pie) 2) he does understand math, but he's a dishonest crook and therefore will tell you anything 3) he's mentally ill 4) he's absurdly generous of which I'd ask the same question 5 different ways to double check the more likely possibilities #1 through #3 again.
    - Osiris 10y ago
      Because it was my first startup and despite days of research into how options work, I clearly still didn't understand it all. So I trusted his answer. I had no previous experience or knowledge that would have led me to believe that they wouldn't follow through with the promise to grant additional options over time.
      - edblarney 10y ago
        Your company does not 'promise' you compensation - they have a contract for that. If you were to have some kind of special 'non dilution' clause in your equity position (which by the way, no founder would reasonably agree to), then you should have it in writing. But it's moot. One or both of you was obviously struggling with how all of that worked, because giving employees anti-ratcheting clauses is not something that should really be done. In fact, it should be avoided if at all possible even with investors.
    - curtis 10y ago
      > ... and then believing a promise of no dilution ... He expected to get diluted. But he was also expected to be able to offset that dilution by being issued new options. Which would be a perfectly sensible thing for the company to do for a valued employee.
- st3v3r 10y ago
  "I understand you're only relating your previous misunderstanding but to others reading this, they need to realize that it's unrealistic for employees not to be diluted." It's only unrealistic because of greed. There's absolutely no valid reason this has to happen.
- deleted 10y ago
  [deleted]
- danielweber 10y ago
  I've seen this scenario multiple times: 1. Company needs to raise money 2. Company issues new shares 3. Board realizes "oh shit, this is a lot of dilution" 4. Board decides "okay, who is important enough to keep around" and issues stock grants to those special people to undo their dilution. Founders and VCs have seats at the board table, and so are always important enough to get grants. Employees do not, especially after exit. So the two choices left are a) employees have no protection against dilution, therefore no protection, therefore shares are worth zero, or b) employees are given protection against dilution. You can say "b" is never going to happen. That's okay. It means that "a" and it's obvious conclusion happen.
  - deleted 10y ago
    [deleted]

by Osiris 10y ago

jasode 10y ago

>I was promised that more options would be issued and we wouldn't get diluted from future rounds, I understand you're only relating your previous misunderstanding but to others reading this, they need to realize that it's unrealistic for employees not to be diluted. The founders' ownership will get diluted. The investors also get diluted. Therefore, employees are not special in this regard. Getting diluted is supposed to be a Wonderful Event because it means the smaller ownership percentage is worth more. E.g. Larry Page's ownership of Google Inc got diluted from 50% in 1998 down to 16% in 2004. That smaller 16% was worth ~$3 billion around the time of the IPO.[1] If Larry insisted on "no dilution", no VC would invest money to help the search engine grow and therefore, he would own 50% of a worthless company. In other words, you can't look at dilution in isolation; it has be combined with the (hopefully increasing) value of the shares. [1] http://www.nbcnews.com/id/5033780/ns/business-stocks_and_economy/t/google-founders-sitting-billion-stakes/ http://www.nbcnews.com/id/5033780/ns/business-stocks_and_eco...

Osiris 10y ago
It wasn't a misunderstanding. I specifically asked if our options would be diluted in the next fundraising round and the founder said NO, they would be increasing our options to compensate for the additional issued shares.
- jasode 10y ago
  >I specifically asked if our options would be diluted in the next fundraising round I guess I don't understand what motivated you to ask about dilution and then believing a promise of no dilution since you're supposed to get diluted over time as the startup reaches maturity. Everybody is supposed to get diluted. If a founder promised me "no dilution", I'd have to conclude either... 1) he doesn't understand the mathematics of selling equity (e.g. to maintain your 0.05% ownership, it has to come from someone else's shares since ownership % comes from a finite pie) 2) he does understand math, but he's a dishonest crook and therefore will tell you anything 3) he's mentally ill 4) he's absurdly generous of which I'd ask the same question 5 different ways to double check the more likely possibilities #1 through #3 again.
  - Osiris 10y ago
    Because it was my first startup and despite days of research into how options work, I clearly still didn't understand it all. So I trusted his answer. I had no previous experience or knowledge that would have led me to believe that they wouldn't follow through with the promise to grant additional options over time.
    - edblarney 10y ago
      Your company does not 'promise' you compensation - they have a contract for that. If you were to have some kind of special 'non dilution' clause in your equity position (which by the way, no founder would reasonably agree to), then you should have it in writing. But it's moot. One or both of you was obviously struggling with how all of that worked, because giving employees anti-ratcheting clauses is not something that should really be done. In fact, it should be avoided if at all possible even with investors.
  - curtis 10y ago
    > ... and then believing a promise of no dilution ... He expected to get diluted. But he was also expected to be able to offset that dilution by being issued new options. Which would be a perfectly sensible thing for the company to do for a valued employee.
st3v3r 10y ago
"I understand you're only relating your previous misunderstanding but to others reading this, they need to realize that it's unrealistic for employees not to be diluted." It's only unrealistic because of greed. There's absolutely no valid reason this has to happen.
deleted 10y ago
[deleted]
danielweber 10y ago
I've seen this scenario multiple times: 1. Company needs to raise money 2. Company issues new shares 3. Board realizes "oh shit, this is a lot of dilution" 4. Board decides "okay, who is important enough to keep around" and issues stock grants to those special people to undo their dilution. Founders and VCs have seats at the board table, and so are always important enough to get grants. Employees do not, especially after exit. So the two choices left are a) employees have no protection against dilution, therefore no protection, therefore shares are worth zero, or b) employees are given protection against dilution. You can say "b" is never going to happen. That's okay. It means that "a" and it's obvious conclusion happen.
- deleted 10y ago
  [deleted]