4 ms·

Always ask for a non-diluatable percentage early on.

• sokoloff 5y ago
  It’s reasonable to ask “what percentage does this represent on a fully-diluted basis?” It is entirely unreasonable to ask for a percentage of the company which can never be diluted by a future fund-raising round. Doing so just telegraphs that you don’t know how venture funding/corporate finance works.
  • deleted 5y ago
    [deleted]
  • oogabooga123 5y ago
    I’ve scored deals that can’t be diluted for X years after liquidity event, so employees should be able to as well. Don’t put people down with “you must not know what you’re talking about”.
    • azinman2 5y ago
      You’d have to be one hell of a hire to convince anyone to agree to something that will complicate all finance rounds going forward. I cannot imagine the average employee could get away with this.
      • oogabooga123 5y ago
        It’s as easy to imagine as it is to imagine a VC getting this kind of deal. The first employees are the ones who literally build the company and usually take far greater personal risk
        • sokoloff 5y ago
          VCs can somewhat commonly get pro-rata rights in future rounds. That's quite a bit different from a guarantee of never being diluted.
          • enra 5y ago
            Pro-rata only usually applies once. The investor has an option to retain their ownership by investing more in the next round, but only that one round. If they use it, it’s gone. If they don’t use it, it’s gone. Then they have to negotiate it again for future rounds and usually you can’t get prorata unless you are the lead investor.
        • tyre 5y ago
          I cannot imagine a competent and well-informed founder accepting an investment on these terms. Prorata is fine for larger investors, but explicitly undilutable is idiotic.
  • HWR_14 5y ago
    How would they know what fully-diluted would be? Wouldn't there be unknown number of rounds at unknown valuation before liquidity? Or do you just mean based on current expectations. Because, if the latter, how do you hold them to that?
    • sokoloff 5y ago
      Fully diluted means if all currently issued options, warrants, convertible bonds, etc are converted to shares. It obviously can't account for future financing rounds which aren't even yet contemplated.
    • dbt00 5y ago
      Fully diluted is not the same as future diluted, it just means including all the available options currently allocated but not exercised.
  • ska 5y ago
    > It’s reasonable to ask “what percentage does this represent on a fully-diluted basis?” Not only reasonable, but you really should. If they won't answer it's a bad sign.
• staysaasy 5y ago
  I imagine that that would be really hard to achieve (or manage for the company) in practice, although I'd love to see a world in which employees could essentially get pro rata rights to purchase more shares built into their employment. That'd allow them to participate more fully in the upside of companies taking off like rocket ships.
  • ska 5y ago
    > employees could essentially get pro rata rights to purchase more shares built into their employment. I've seen this done, for what it's worth. Both contractually and ad-hoc.