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No, but you can grant shares to employees whenever there is a round so that their share stays the same? Many times shares are being created to sell in the round

No, but you can grant shares to employees whenever there is a round so that their share stays the same? Many times shares are being created to sell in the round, why not create shares for the early employees?

eropple 9y ago
Because the goal is to dilute early employees so that their shares are worth less. The literal and specific goal of the modern stage of tech VC is to reduce all other holders of equity to the point where the money, if any is made, is going to the "right people"--the folks who came in with the cash in the first place. You're mixing up symptom with cause. The employee is the sucker at the table. (Most founders aren't far behind.)
- rdlecler1 9y ago
  No the goal is not to dilute early employees so their shares are worthless. You’re mixing up symptoms with cause.
- theptip 9y ago
  This is bass ackwards. The founders get diluted more than anyone else. Every time you issue a new tranche of equity, the existing holders take dilution proportional to the share they currently own. If the original founders each hold 40%, and some employee holds 1%, after 50% dilution (common after the first couple rounds) the founders are down to 20% and the employee is down to 0.5%. It's possible to bump a star employee up by 0.5% to counter dilution. It is impossible to bump the founders up by 20% to get them back where they started. The reason founders are OK with this is that they understand that 40% of a $1m company is worth less than 20% of a $10m company.
  - eropple 9y ago
    The founders get diluted more than anyone else. They also start with overwhelmingly more than anyone else. Pity the poor founder with their meager twenty percent--an employee at their pennies of equity is vanishingly unlikely, even at a successful company, to make back the opportunity cost of having their salaries gashed by going to a startup.
    - Yizahi 9y ago
      Also founders have shares. Employees get options with some crazy three letter types. They HAVE to pay in advance to get even those 0.0001% of shares after dilution. Not only that but they have to conjure that money in what, 3 month term, 1 month? I don't remember exactly.

eropple 9y ago

Because the goal is to dilute early employees so that their shares are worth less. The literal and specific goal of the modern stage of tech VC is to reduce all other holders of equity to the point where the money, if any is made, is going to the "right people"--the folks who came in with the cash in the first place. You're mixing up symptom with cause. The employee is the sucker at the table. (Most founders aren't far behind.)

rdlecler1 9y ago
No the goal is not to dilute early employees so their shares are worthless. You’re mixing up symptoms with cause.
theptip 9y ago
This is bass ackwards. The founders get diluted more than anyone else. Every time you issue a new tranche of equity, the existing holders take dilution proportional to the share they currently own. If the original founders each hold 40%, and some employee holds 1%, after 50% dilution (common after the first couple rounds) the founders are down to 20% and the employee is down to 0.5%. It's possible to bump a star employee up by 0.5% to counter dilution. It is impossible to bump the founders up by 20% to get them back where they started. The reason founders are OK with this is that they understand that 40% of a $1m company is worth less than 20% of a $10m company.
- eropple 9y ago
  The founders get diluted more than anyone else. They also start with overwhelmingly more than anyone else. Pity the poor founder with their meager twenty percent--an employee at their pennies of equity is vanishingly unlikely, even at a successful company, to make back the opportunity cost of having their salaries gashed by going to a startup.
  - Yizahi 9y ago
    Also founders have shares. Employees get options with some crazy three letter types. They HAVE to pay in advance to get even those 0.0001% of shares after dilution. Not only that but they have to conjure that money in what, 3 month term, 1 month? I don't remember exactly.