5 ms·
It's true that the company might dilute your shares, but that also dilutes everybody else's shares too. The greatest risk is the company won't be successful an
by mateo411 5y ago
It's true that the company might dilute your shares, but that also dilutes everybody else's shares too.
The greatest risk is the company won't be successful and your shares will be worthless.
- bb88 5y agoI think you missed the point about issuing new shares. Everyone doesn't end up diluted in that case.
- s1artibartfast 5y agoIt happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution. Example: Cap table: Founder 10%, ex-employees 10%, VC 80% Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1. Step 2) New stock plan with 10% for founder Cap table: Founder 11%, ex-employees 1%, VC 88% Step 3) Founder and VC high-five
- HWR_14 5y agoIsn't that something the exemployee would be able to sue over? Like, it's clearly fraudulently done to steal their equity.
- bb88 5y agoYes, but you have to sue over it. For most people, it's probably not worth it. Besides, since it's a private company, equity is what the board/executives say it is.
- HWR_14 5y ago> Besides, since it's a private company, equity is what the board/executives say it is. Can you clarify that?
- s1artibartfast 5y agoMaybe they meant valuation is what the board say it is
- s1artibartfast 5y agoDilution is extremely common and a lot of this funding stuff comes down to businesses strategy. My example was extreme, but there is tons of gray area for this kinda thing
- HWR_14 5y agoAh, if you were exaggerating the numbers to explain the concept, I can see how a more subtle screwing would be nonactionable. I thought you were saying they were that blatant
- s1artibartfast 5y agoI think it certainly can be that significant or more. Someone else mentioned Facebook cofounder Eduardo Saverin. At IPO, Zuckerbergs's equity was down to 28% and Eduardo had been diluted down to 2%. That is a co-founder of a high profile unicorn with continuous growth. Now imagine what can happen to employee # 1000 at a shady middle cap startup struggling to get to market.
- zwily 5y agoSee: The Social Network. I now refer to it as “Getting Eduardo’d”