3 ms·

If this actually happens I am surprised to have not come across a lawsuit about it.

lumost 7y ago
Lawsuits are partially prevented by not disclosing the cap table. The majority of startups I've seen will just say "here are 150k options; trust us, they're worth $1 at the close of our last round". why join a startup that doesn't disclose the cap table based on options when you can join a public company that will typically give you a larger and liquid grant?
- Trias11 7y ago
  Even if they disclose cap table upon hiring (which i agree likely they won't) - they are not obligated to keep doing that. So 1-2 yrs down the road - the picture will quietly deviate away from employee's rosy dreams and harsh reality will become visible upon (low probability) exit.
  - lumost 7y ago
    Aye this is a fair point, but ultimately it's self defeating for the employer as their comp model is selecting for employees with irrational hope or those whose market value is comparable to salary only comp. The startups greatest asset in hiring has always been the ability to create outsized reward for employees who will accept higher risk. It doesn't make economic sense for public companies to be capable of matching or exceeding startup equity comp on successful exits.
- staticautomatic 7y ago
  I partly agree with you but this is a separate issue. Whether or not the cap table is known is unrelated to the legality of deliberately driving all common holders to (or near) zero in the way described by the parent comment.
  - lumost 7y ago
    A party has to know they were wronged to file a lawsuit, if the cap table isn't presented as information related to the contract then the employee has no basis to understand whether they got their rightful share or not. Many companies don't disclose the total shares outstanding either, so it would be unlikely the employee could check for other forms of dilution. Without sounding too conspiratorial, as long as the payouts pay everyone with enough information to figure out that the company was restructured prior to the sale then there really isn't anyone with reason or evidence to sue.
    - staticautomatic 7y ago
      I think you're overstating the importance of the cap table in the scenario outlined by the parent poster. If you're asserting that no one could know they got screwed in that situation without having seen the cap table, then I think you're wrong. The cap table has nothing to say about the company suddenly issuing a bunch of new shares, let alone with the exclusive purpose of screwing certain shareholders.

Lawsuits are partially prevented by not disclosing the cap table. The majority of startups I've seen will just say "here are 150k options; trust us, they're worth $1 at the close of our last round". why join a startup that doesn't disclose the cap table based on options when you can join a public company that will typically give you a larger and liquid grant?

Trias11 7y ago
Even if they disclose cap table upon hiring (which i agree likely they won't) - they are not obligated to keep doing that. So 1-2 yrs down the road - the picture will quietly deviate away from employee's rosy dreams and harsh reality will become visible upon (low probability) exit.
- lumost 7y ago
  Aye this is a fair point, but ultimately it's self defeating for the employer as their comp model is selecting for employees with irrational hope or those whose market value is comparable to salary only comp. The startups greatest asset in hiring has always been the ability to create outsized reward for employees who will accept higher risk. It doesn't make economic sense for public companies to be capable of matching or exceeding startup equity comp on successful exits.
staticautomatic 7y ago
I partly agree with you but this is a separate issue. Whether or not the cap table is known is unrelated to the legality of deliberately driving all common holders to (or near) zero in the way described by the parent comment.
- lumost 7y ago
  A party has to know they were wronged to file a lawsuit, if the cap table isn't presented as information related to the contract then the employee has no basis to understand whether they got their rightful share or not. Many companies don't disclose the total shares outstanding either, so it would be unlikely the employee could check for other forms of dilution. Without sounding too conspiratorial, as long as the payouts pay everyone with enough information to figure out that the company was restructured prior to the sale then there really isn't anyone with reason or evidence to sue.
  - staticautomatic 7y ago
    I think you're overstating the importance of the cap table in the scenario outlined by the parent poster. If you're asserting that no one could know they got screwed in that situation without having seen the cap table, then I think you're wrong. The cap table has nothing to say about the company suddenly issuing a bunch of new shares, let alone with the exclusive purpose of screwing certain shareholders.