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Equity, and also: a contractual obligation to not dilute my equity more than the founders, crafted to avoid shenanigans like selective grants which sidestep thi

Equity, and also: a contractual obligation to not dilute my equity more than the founders, crafted to avoid shenanigans like selective grants which sidestep this. It doesn't have to be as much equity as the founders, but it must stay proportionate. Dilution is obviously necessary for external investment, but more than once I have seen early employees screwed out of valuable equity by the following scenario: once the company is getting traction and revenue, the founders take a huge round of funding. All existing shares and grants are diluted, but the VC investors give the founders a "make-up" grant (or whatever; the mechanism isn't important) that keeps them whole—while early employees, who aren't part of the negotiations, have their stakes reduced to tiny fractions of what they were. This in spite of many years of sweat and struggle and overwork equal to what anybody else in the company put in. So basically they are discarded when no longer useful. For anybody actually considering joining an early startup as an employee, make sure you get this in your employment contract, and get your own lawyer to review it. "Trust me bro" means nothing in 2-3 years if $millions are on the line.

p1esk 4y ago
Does this mean insisting on getting “preferred” rather than “common” shares?
xs83 4y ago
I have almost exclusively worked in early-stage startups, over the past 10 years as a CTO / Technical founder and I agree with Eric here, most start up founders have no idea what they are doing when it comes to equity, so more often than not its not malicious, you just get unfavourable terms because of a misconception of things like Dilution and other requests from VC's for further capital. Dilution happens, but being diluted more than the founders is a no-no. It needs to be on the same level playing field. Having not only this in a contract but also a remediation should dilution pass a certain level is prudent. It might feel like bad form to talk about this when you aren't even at the company yet but your due diligence now matters more than when you are on the job. Ask to see the finances, ask to see the investor holdings, ask the founders what % they own, research the VC's and funds that are invested, calculate the remaining runway at 2x growth, 3x growth etc - how long do they really have before they have to start raising funds. If there is any perceived opaqueness or subterfuge - walk away. Also don't accept a low salary on the promise of equity alone unless: - You are a founder and have preferred shares (and the amount more than makes up for it) - It is something you truly believe in and you have a decent stake in it - You have a pool of reserve funds to keep you going for 6 months should the shit hit the fan Many start-ups fail because they can't get the funding they need and sometimes it gets desperate and VC's can smell this a mile off so the terms get worse for everyone - knowing this will help you know your worth at this point. I think after this next start up I will be looking for a period of stability so I will only be going with well funded (3+ years runway at 3x growth size) start ups

p1esk 4y ago

Does this mean insisting on getting “preferred” rather than “common” shares?

xs83 4y ago

I have almost exclusively worked in early-stage startups, over the past 10 years as a CTO / Technical founder and I agree with Eric here, most start up founders have no idea what they are doing when it comes to equity, so more often than not its not malicious, you just get unfavourable terms because of a misconception of things like Dilution and other requests from VC's for further capital. Dilution happens, but being diluted more than the founders is a no-no. It needs to be on the same level playing field. Having not only this in a contract but also a remediation should dilution pass a certain level is prudent. It might feel like bad form to talk about this when you aren't even at the company yet but your due diligence now matters more than when you are on the job. Ask to see the finances, ask to see the investor holdings, ask the founders what % they own, research the VC's and funds that are invested, calculate the remaining runway at 2x growth, 3x growth etc - how long do they really have before they have to start raising funds. If there is any perceived opaqueness or subterfuge - walk away. Also don't accept a low salary on the promise of equity alone unless: - You are a founder and have preferred shares (and the amount more than makes up for it) - It is something you truly believe in and you have a decent stake in it - You have a pool of reserve funds to keep you going for 6 months should the shit hit the fan Many start-ups fail because they can't get the funding they need and sometimes it gets desperate and VC's can smell this a mile off so the terms get worse for everyone - knowing this will help you know your worth at this point. I think after this next start up I will be looking for a period of stability so I will only be going with well funded (3+ years runway at 3x growth size) start ups