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one where the rules of the lottery might be changed in all sorts of ways after you sign on the dotted line. There is a pattern: Company: We will give you 1% o
by danielweber 14y ago
one where the rules of the lottery might be changed in all sorts of ways after you sign on the dotted line.
There is a pattern:
Company: We will give you 1% of the company.
Employee: Sounds good.
And the Company probably believes this in good faith, and that the employee will not be diluted
<years later things go bad>
Company: You now have 0.01% of the company.
Employee: I had 1%.
Company: Not anymore. That wasn't any kind of promise against dilution. Check the paperwork.
Switching from the "let's trust each other" to the "let's go by what's written in black-and-white" is a common trope. You, as the Company, don't even need be engaged in bad faith for it to happen. But it's often considered rude to tell the employer "these shares are probably worthless."
Being an early stage employee but not a founder is the worst of all worlds
Founders usually are completely averse to giving anyone hired after them a better deal then they have. (I've done it as a founder, too, so I understand those feels.) But non-founder non-investor shares are extremely vulnerable. If you aren't prepared to fund very close to market salaries, you need to give something spectacular.
- mrkurt 14y agoDilution in bad faith is lawsuit-worthy. Most founders these days have common stock just like everyone else, and get diluted in the same situations. Dilution during fundraising isn't an absolute bad thing, either. There are shenanigans, and investors with preferred stock definitely get paid first, but the basic theory is that 20% equity dilution comes along with an investment that immediately makes the company 20% more valuable. It's basically a zero sum transaction ... except for preferred shares, options pools, etc.
- georgemcbay 14y ago"Most founders these days have common stock just like everyone else, and get diluted in the same situations." True but given the vast differences in allocations that may turn their theoretical 100s of millions into dozens of millions while turning employee shares from a "really, really good bonus" into "not worth the transaction fees".
- danielweber 14y agoIt's also easier to defend your stuff when you are sitting in the board room. I've seen it happen to former employees at previous companies; once I even asked at a meeting if anything was being done about their massive dilution and the CEO gave a prepared spiel that was pretty close to Paul Graham's piece about how VC's like to wipe out angels: http://www.paulgraham.com/startupfunding.html#f9n http://www.paulgraham.com/startupfunding.html#f9n