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None. Early investors often have a ROFR (Right of first refusal) in their share agreement, in which case they will have the right to buy shares proportional to

None. Early investors often have a ROFR (Right of first refusal) in their share agreement, in which case they will have the right to buy shares proportional to the amount of dilution they would otherwise suffer (so they can maintain their % stake in future funding rounds) but I've never heard of an employee having that right. Also note early investors often have a liquidation preference meaning they get their money out before subsequent investors but this also isn't something which is usually extended to employees. You will get diluted beyond all belief. Not just by investors but by future grants to employees. The best that you can hope for is that that dilution corresponds to growth in the equity of the company such that you own a smaller share of a larger pie and in overall dollar value your stake becomes more valuable or at least maintains its value. It's worth mentioning that in the vast majority of startups this does not end up being the case and equity ends up not being that valuable. There is a very small probability of a lifechanging exit though which is why people go for it.

kaesar14 4y ago
This is all true but it's important to remember dilution IS what you want if you're signing up to work at a startup. No dilution means no growth, flat and simple. If your founders aren't expanding the pie, what chance do you have of walking away with a payout? Larry and Sergey owned 100% of $0 and like, 20% of $1 trillion. Which would you rather have?
- seanhunter 4y ago
  Kinda. It depends on whether the business has a positive enough return on this additional equity to offset the dilution, in which case it is absolutely what you want. For example, if a new employee comes on board and gets a grant everyone else gets diluted a bit. This is a good deal if the new employee will generate sufficient value to offset this dilution. I think we can all come up with examples where this would or would not be the case. Likewise with investors. Sometimes a new round will be exactly what a company needs to light the touchpaper and everyone will see a huge benefit in spite of dilution. Sometimes it’s just more cash on the big bonfire and not only does it not fix the fundamental problem but also hurts all the existing holders to add insult to injury.
  - kaesar14 4y ago
    I completely agree, but my point is that there's not really a situation (at a VC funded tech company) where you're not getting diluted and you're still getting growth on your equity
theli0nheart 4y ago
> Early investors often have a ROFR (Right of first refusal) in their share agreement, in which case they will have the right to buy shares proportional to the amount of dilution they would otherwise suffer (so they can maintain their % stake in future funding rounds) but I've never heard of an employee having that right. FWIW, what you described isn't right of first refusal. ROFR specifically refers to the right of an existing investor to buy shares when another investor wants to sell to a third party. E.g., let's say A has a right of first refusal, and B wants to sell at $20 / share to C. With ROFR, B must offer $20 / share offer to A first. The right to buy shares proportional to existing ownership percentage is called a pro rata right. If a round of funding would dilute your 1%, you have the right to buy in at the pricing of that round to keep your percentage ownership constant.

kaesar14 4y ago

This is all true but it's important to remember dilution IS what you want if you're signing up to work at a startup. No dilution means no growth, flat and simple. If your founders aren't expanding the pie, what chance do you have of walking away with a payout? Larry and Sergey owned 100% of $0 and like, 20% of $1 trillion. Which would you rather have?

seanhunter 4y ago
Kinda. It depends on whether the business has a positive enough return on this additional equity to offset the dilution, in which case it is absolutely what you want. For example, if a new employee comes on board and gets a grant everyone else gets diluted a bit. This is a good deal if the new employee will generate sufficient value to offset this dilution. I think we can all come up with examples where this would or would not be the case. Likewise with investors. Sometimes a new round will be exactly what a company needs to light the touchpaper and everyone will see a huge benefit in spite of dilution. Sometimes it’s just more cash on the big bonfire and not only does it not fix the fundamental problem but also hurts all the existing holders to add insult to injury.
- kaesar14 4y ago
  I completely agree, but my point is that there's not really a situation (at a VC funded tech company) where you're not getting diluted and you're still getting growth on your equity

theli0nheart 4y ago

> Early investors often have a ROFR (Right of first refusal) in their share agreement, in which case they will have the right to buy shares proportional to the amount of dilution they would otherwise suffer (so they can maintain their % stake in future funding rounds) but I've never heard of an employee having that right. FWIW, what you described isn't right of first refusal. ROFR specifically refers to the right of an existing investor to buy shares when another investor wants to sell to a third party. E.g., let's say A has a right of first refusal, and B wants to sell at $20 / share to C. With ROFR, B must offer $20 / share offer to A first. The right to buy shares proportional to existing ownership percentage is called a pro rata right. If a round of funding would dilute your 1%, you have the right to buy in at the pricing of that round to keep your percentage ownership constant.