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>VC’s typically have pro-rata rights to keep their percentage of ownership intact, but employees don’t Either all shares must be diluted, or none. When someone
by dgudkov 8y ago
>VC’s typically have pro-rata rights to keep their percentage of ownership intact, but employees don’t
Either all shares must be diluted, or none. When someone's shares are diluted but someone's not, it's a scam. The concept of privileged shareholders is just wrong.
The whole system looks overly complicated and corrupted.
- 6gvONxR4sf7o 8y agoI believe pro-rata rights are rights to invest in further rounds. They can keep their percent ownership only if they contribute more money. This is like employees on vesting schedules, who can continue to get more options by continuing to work. Startup shares are a shitty deal, but this doesn't strike me as one of the reasons.
- jm20 8y agoCorrect, you don't just "gift" them more equity, you have to pay more (usually a much higher per-share price) to keep that equity.
- breischl 8y agoOh, and he didn't even touch on things like liquidation preference and participation. Basically says that even though they own X% of the company, they get paid out like it was 4*X. Or maybe they get $YY out before anybody else gets paid. This means that the percentage of the company your shares equate to is only a small part of the picture. You also need to know what deals were cut with every investor now _or in the future_ to know what your shares will be worth.