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> What kills your options is dilution. You have no control over this AND as time progresses you get more and more diluted with new hires and rounds. People are

> What kills your options is dilution. You have no control over this AND as time progresses you get more and more diluted with new hires and rounds. People are way too obsessed with dilution because it sounds so scary. "With the stroke of a pen they can create a billion more shares and your percentage goes from 5% to 0.01%" The reality is that all common shareholders have the same incentive to not dilute the outstanding shares. That almost always includes the founders. Outside of a money raise most of the people involved in the company are aligned in the desire to not dilute each other. The major source of dilution is new fundraising and while it will effect your percentage of ownership it typically doesn't affect the value of your stake because the dilution is part of post-money valuation. So you might own 1% of a $10m company before the dilution and 0.5% of a $20m company after the dilution but the value of your holding didn't change. The things people should be worried about are all the shenanigans that happen around participating preferred multiples. Or, the worst, 30-day exercise windows along with the tax treatment of options exercise/AMT. But since those are much more opaque concepts it's way harder to get people riled up about it. And if you have an unscrupulous CEO there's basically nothing you can do to protect yourself as a worker. But that's way different from the normal dilution you get as part of raising money.

ForHackernews 6y ago
> So you might own 1% of a $10m company before the dilution and 0.5% of a $20m company after the dilution but the value of your holding didn't change. If that is indeed true, then there's almost no reason not to demand being paid in real cash money rather than stock options. If the company doubles in value and I have the same amount of money, then what's the point of getting options instead of USD? This like saying, "don't worry, your lotto ticket won't be devalued: We'll make sure that even if those numbers win the jackpot, you'll still get the same $2 and it won't be diluted below that."
- mason55 6y ago
  > If the company doubles in value and I have the same amount of money, then what's the point of getting options instead of USD? Huh? You should compare the current value of the options to their value at the last fundraising round, not between pre- and post-money in the same round. The doubling in value happen between (e.g.) the Series A raise and the Series B raise, not at the time of the Series B raise, and when you compare the value of your options between the raises that's when you'll see the increase in value. For example, imagine you have 10% of the company and after the Series A raise the company is valued at $1m, so your share is $100k. Now you go and work for two years and increase the value of the company to $20m (pre-money). Your 10% is worth $2m now. If the company raises $5m for 20% ($25m post-money) in a Series B you now have 8.3% of the company (you were diluted) but your 8.3% is still worth $2m. The stock option reward happens while you're building the company.
  - ForHackernews 6y ago
    If it's a privately held company, then I think you could reasonably argue that the "pre-money" valuation is illusory. There's no market price, and the company is only worth whatever investors can be convinced to pay for it. To take your example: my hypothetical 10% isn't worth $2m -- it's worth an unknown amount (one hopes more than the $100k it started at). Only after somebody is willing to pay $5m for 20% of the company can one realistically say what my (now 8.2%) shares are worth.
    - mason55 6y ago
      Ah, in the context of this conversation "pre-money" means the value of the company before taking into account the cash raised in the current round. It doesn't mean a company that's never taken any outside investment. It's perfectly reasonable to talk about a pre-money valuation that has a market price. If you raise $20m for 20% of the company then you can say the company had a post-money valuation of $100m or a pre-money valuation of $80m, and both of those numbers are market-based. The poster I was replying to seemed to think that the act of raising money is what should increase the value of your shares, which is not the case. See here for more info on how the terms are used: https://www.investopedia.com/ask/answers/difference-between-premoney-and-postmoney/ https://www.investopedia.com/ask/answers/difference-between-...
ransom1538 6y ago
“So you might own 1% of a $10m company before the dilution and 0.5% of a $20m company after the dilution but the value of your holding didn't change.” Nope. If you are topped up (which means you still have political standing) then you start a new vesting schedule. So all those shares you worked for and vested — you can work for again!! Yay! Until another 4 years you are diluted. Yay! But likely there will be another round while you wait to vest the shares you already had!! Hahahaha!
- mason55 6y ago
  A top-up would increase your number of options (and thus your percentage), that is different from the value/percentage not changing as part of a new raise. Unless you're talking about the cap table being completely wiped but that's a different scenario and I wouldn't consider that to be part of dilution.
ummonk 6y ago
Founders usually own a different class of stock though - enough to have a controlling share of the vote no matter how much they’re diluted. This control that they hold ensures they will get paid extra during acquisitions (or sometimes even during fundraising rounds), proportional to the value of the company rather than their share of the stock.
jmionwnil 6y ago
what (if anything) stop the founders from just giving themselves more shares? they only have the same incentive to not dilute if they are getting the same penalty for diluting, right? I am not an expert in any of this but it seems they could just agree to issue a ton of shares to all the investors / founders but not to employees in a way where everyone except the employees benefit.

ForHackernews 6y ago

> So you might own 1% of a $10m company before the dilution and 0.5% of a $20m company after the dilution but the value of your holding didn't change. If that is indeed true, then there's almost no reason not to demand being paid in real cash money rather than stock options. If the company doubles in value and I have the same amount of money, then what's the point of getting options instead of USD? This like saying, "don't worry, your lotto ticket won't be devalued: We'll make sure that even if those numbers win the jackpot, you'll still get the same $2 and it won't be diluted below that."

mason55 6y ago
> If the company doubles in value and I have the same amount of money, then what's the point of getting options instead of USD? Huh? You should compare the current value of the options to their value at the last fundraising round, not between pre- and post-money in the same round. The doubling in value happen between (e.g.) the Series A raise and the Series B raise, not at the time of the Series B raise, and when you compare the value of your options between the raises that's when you'll see the increase in value. For example, imagine you have 10% of the company and after the Series A raise the company is valued at $1m, so your share is $100k. Now you go and work for two years and increase the value of the company to $20m (pre-money). Your 10% is worth $2m now. If the company raises $5m for 20% ($25m post-money) in a Series B you now have 8.3% of the company (you were diluted) but your 8.3% is still worth $2m. The stock option reward happens while you're building the company.
- ForHackernews 6y ago
  If it's a privately held company, then I think you could reasonably argue that the "pre-money" valuation is illusory. There's no market price, and the company is only worth whatever investors can be convinced to pay for it. To take your example: my hypothetical 10% isn't worth $2m -- it's worth an unknown amount (one hopes more than the $100k it started at). Only after somebody is willing to pay $5m for 20% of the company can one realistically say what my (now 8.2%) shares are worth.
  - mason55 6y ago
    Ah, in the context of this conversation "pre-money" means the value of the company before taking into account the cash raised in the current round. It doesn't mean a company that's never taken any outside investment. It's perfectly reasonable to talk about a pre-money valuation that has a market price. If you raise $20m for 20% of the company then you can say the company had a post-money valuation of $100m or a pre-money valuation of $80m, and both of those numbers are market-based. The poster I was replying to seemed to think that the act of raising money is what should increase the value of your shares, which is not the case. See here for more info on how the terms are used: https://www.investopedia.com/ask/answers/difference-between-premoney-and-postmoney/ https://www.investopedia.com/ask/answers/difference-between-...

ransom1538 6y ago

“So you might own 1% of a $10m company before the dilution and 0.5% of a $20m company after the dilution but the value of your holding didn't change.” Nope. If you are topped up (which means you still have political standing) then you start a new vesting schedule. So all those shares you worked for and vested — you can work for again!! Yay! Until another 4 years you are diluted. Yay! But likely there will be another round while you wait to vest the shares you already had!! Hahahaha!

mason55 6y ago
A top-up would increase your number of options (and thus your percentage), that is different from the value/percentage not changing as part of a new raise. Unless you're talking about the cap table being completely wiped but that's a different scenario and I wouldn't consider that to be part of dilution.

ummonk 6y ago

Founders usually own a different class of stock though - enough to have a controlling share of the vote no matter how much they’re diluted. This control that they hold ensures they will get paid extra during acquisitions (or sometimes even during fundraising rounds), proportional to the value of the company rather than their share of the stock.

jmionwnil 6y ago

what (if anything) stop the founders from just giving themselves more shares? they only have the same incentive to not dilute if they are getting the same penalty for diluting, right? I am not an expert in any of this but it seems they could just agree to issue a ton of shares to all the investors / founders but not to employees in a way where everyone except the employees benefit.