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Sure, dilution can be a good thing, but that doesn't change the fact that it can also be a gotcha. > The point is all things are not equal. To restate a siblin

Sure, dilution can be a good thing, but that doesn't change the fact that it can also be a gotcha. > The point is all things are not equal. To restate a sibling comment, dilution means you own a smaller % of a more valuable company. Right but if you aquired your shares under the assumption that you would own the same percent of a more valuable company, you are still being taken advantage of.

jasode 9y ago
>but if you aquired your shares under the assumption that you would own the same percent of a more valuable company, The employee shouldn't have that assumption. The correct default assumption is that the employees are diluted just like the founders when new equity is sold. If the founders mislead the employees into thinking they got 1% -- and it would always stay 1% all the way to IPO, that's an issue with the ethics of the founder and not an issue with dilution. Dilution wasn't the problem. It's the dishonest entrepreneur that's the problem. Put another way, if a founder told me I would be awarded 1% in stock and it would have anti-dilution protection for all subsequent rounds, I would not think to myself "wow, that's great!". Instead, that would be a signal that the founder is either 1) incompetent with math or 2) a crook.
- benchaney 9y ago
  Right, but if you read the post that you originally started arguing with: > I started off once thinking "yay, X% means I get X% of the company!" and then I found out the shares can be diluted. Then I learned "non-dillutable". Then I learned about vesting periods, windows for exercising options, and a whole slew of financial terms and devices; each one seemed to come with its own unique "gotcha" that, if you didn't know about, would cost you nearly everything. Everyone I talk to about these always says "well, don't do that one thing, or if you do that one thing be sure you do it in this way and you're set". The cumulative knowledge you need becomes pretty high pretty quickly though, and the chances of me doing the right legal and financial incantation at the right moment becomes lower. Nowadays I go with cash. I don't get 'golden handcuffs' that hold me to a job I don't like because it might pay off later. I can calculate the expected value and risks with cash without tons of research. I know my legal recourses if I get screwed out of cash. You'll see that it was right all along.
  - jasode 9y ago
    >The cumulative knowledge you need becomes pretty high pretty quickly though, Yes, I agree that we all go through an early period of ignorance and then we get more financially savvy as we learn more information. We don't know what we don't know. However, when OP writes, "then I learned "non-dillutable", he/she is misinforming people with expectations that employees can get fixed-percentage ownership that stays at that fixed amount through subsequent investment rounds. The implication is that employees who didn't get such "non-dilutable shares" are getting screwed. This is not the case.[1] The normal situation is for _all_ ownership to dilute. It's not a nefarious trick on the employees. If people think they are more "financially sophisticated" with knowledge of "no dilution" shares, they are wrong. Instead, if candidates try to negotiate "non-dilutable shares" with a founder as a condition of employment, they will look like clueless idiots. (Reading about mythical "non-dilutable employee shares" on HN made them dumber, not smarter.) The expected mathematical mechanism for employees to get richer is for the share price to increase instead of the ownership % not to dilute. [1] "Non-dilutable stock is impractical and unfair, and in some cases impossible.[...]" : https://www.quora.com/I-was-offered-non-dilutable-equity-by-the-founder-for-joining-their-startup-but-he-reneged-What-now https://www.quora.com/I-was-offered-non-dilutable-equity-by-...

jasode 9y ago

>but if you aquired your shares under the assumption that you would own the same percent of a more valuable company, The employee shouldn't have that assumption. The correct default assumption is that the employees are diluted just like the founders when new equity is sold. If the founders mislead the employees into thinking they got 1% -- and it would always stay 1% all the way to IPO, that's an issue with the ethics of the founder and not an issue with dilution. Dilution wasn't the problem. It's the dishonest entrepreneur that's the problem. Put another way, if a founder told me I would be awarded 1% in stock and it would have anti-dilution protection for all subsequent rounds, I would not think to myself "wow, that's great!". Instead, that would be a signal that the founder is either 1) incompetent with math or 2) a crook.

benchaney 9y ago
Right, but if you read the post that you originally started arguing with: > I started off once thinking "yay, X% means I get X% of the company!" and then I found out the shares can be diluted. Then I learned "non-dillutable". Then I learned about vesting periods, windows for exercising options, and a whole slew of financial terms and devices; each one seemed to come with its own unique "gotcha" that, if you didn't know about, would cost you nearly everything. Everyone I talk to about these always says "well, don't do that one thing, or if you do that one thing be sure you do it in this way and you're set". The cumulative knowledge you need becomes pretty high pretty quickly though, and the chances of me doing the right legal and financial incantation at the right moment becomes lower. Nowadays I go with cash. I don't get 'golden handcuffs' that hold me to a job I don't like because it might pay off later. I can calculate the expected value and risks with cash without tons of research. I know my legal recourses if I get screwed out of cash. You'll see that it was right all along.
- jasode 9y ago
  >The cumulative knowledge you need becomes pretty high pretty quickly though, Yes, I agree that we all go through an early period of ignorance and then we get more financially savvy as we learn more information. We don't know what we don't know. However, when OP writes, "then I learned "non-dillutable", he/she is misinforming people with expectations that employees can get fixed-percentage ownership that stays at that fixed amount through subsequent investment rounds. The implication is that employees who didn't get such "non-dilutable shares" are getting screwed. This is not the case.[1] The normal situation is for _all_ ownership to dilute. It's not a nefarious trick on the employees. If people think they are more "financially sophisticated" with knowledge of "no dilution" shares, they are wrong. Instead, if candidates try to negotiate "non-dilutable shares" with a founder as a condition of employment, they will look like clueless idiots. (Reading about mythical "non-dilutable employee shares" on HN made them dumber, not smarter.) The expected mathematical mechanism for employees to get richer is for the share price to increase instead of the ownership % not to dilute. [1] "Non-dilutable stock is impractical and unfair, and in some cases impossible.[...]" : https://www.quora.com/I-was-offered-non-dilutable-equity-by-the-founder-for-joining-their-startup-but-he-reneged-What-now https://www.quora.com/I-was-offered-non-dilutable-equity-by-...