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You’re entirely (technically) correct. The issue is that side-effect often comes into play because employees like to calculate potential future outcomes, and th
by nlh 8y ago
You’re entirely (technically) correct. The issue is that side-effect often comes into play because employees like to calculate potential future outcomes, and that’s done based only on overall company value (since that’s one of the only data points that’s available from past acquisitions).
I’m sure you get this and I know the psychology of what an employee might hope for shouldn’t be relevant, but unfortunately it is.
(For those who don’t fully get this - what I mean is that folks often look at a potential outcome and say “other companies like this have been acquired for $1-2B vs $100B, so if I’m being given 1% at $10M my stake could be worth $10M!” When in reality after dilution, that stake might only be worth $2M, which is a very different outcome after 5-10 years of hard work at below market salaries.)
- tdumitrescu 8y agoAnother aspect of this is that if you join an early stage startup and work there 5-10 years without any new equity grants (such as the annual refreshers that many companies give) while the company grows and does new funding rounds, then you're getting screwed badly.
- jiveturkey 8y agoonly financially, which isn't one of the reasons you should work for a startup!
- kakaorka 8y agoI think getting paid (preferably well) is always one of the reasons why people work for any company, including startups.
- spookthesunset 8y agoWhat you are saying, I think, is it is important to figure out what the expected future value of each of your shares are. All you have to go on, in general, is "what do companies like this one generally sell for"? From that, assuming all the preferred stock get converted back to common stock, you can figure out what each unit of stock is worth. The problem is, the cap table you have now won't be the cap table you have when the company gets bought out. It's not dilution that is the problem. Dilution is just what happens when you bring in new money. It's that it is very hard to predict what a reasonable upper bound is for the future value of your shares. Quite frankly, it is one of the big reasons I think trading salary for stock options is a horrible idea. Much better to treat those options are lotto tickets--the odds they pay out in any meaningful life changing way are very small. Startups don't like to hear this because the truth is, when you work for a startup you almost always take a sizable hit to your salary.