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Disclaimer: I'm not super versed on this kind of thing, so this is just what I understand. It's my understanding that generally when you raise more funding, yo

Disclaimer: I'm not super versed on this kind of thing, so this is just what I understand. It's my understanding that generally when you raise more funding, your shares are diluted. Let's say before there were 100,000 shares, and you had 500 of them. Well, now there are 120,000 shares and you still only have 500 of them, so instead of having options for 0.5% of the company, you have options for .4% of the company. They don't really want you to know that the equity you were promised up front is now worth less than it was before, so that's why they hemmed and hawed.

arielweisberg 13y ago
IMO dilution is not a bad thing. The company is worth more after it takes money and that money is going to fuel growth that will hopefully offset the dilution. If it doesn't well the shares weren't worth that much anyways. You can't expect blood from a stone when it comes to ISOs. As long as the dilution is fair WRT to the valuation and number of new shares issued/allocated I don't see the problem and good leadership would explain it as such. The flip side is that if employees are diluted badly enough they will leave. Employers know this and walk the line of doing the bare minimum they think they have to do to get the people they care about to stay.
- emp25 13y ago
  "if employees are diluted badly enough they will leave" I guess in my case, I don't know how the second round dilution arrangement will affect me.
  - arielweisberg 13y ago
    Disclaimer, I am not an expert, but I did stay at a Holiday Inn Express last night. First I would suggest you bring up your concerns clearly and make sure you understand why they won't tell you. Give them a chance to explain. If the company is 30 people you should be able to drop by the CEOs office and ask. Like I said they may not be saying anything because the financing is not final. Alternatively if they are not cooperative. Go in tomorrow and ask to exercise your vested options. At this point they have no choice but to tell you the FMV of those options. Don't exercise them, or do that is a separate topic and you have to watch out for tax liability. Do it again after the financing finishes. The FMV of your shares will change. If it is significantly lower the options may not be worth your time. They can't avoid telling you the FMV of the shares you have because you need to know to calculate your tax liability for the spread between the strike price and the current FMV. Think of it like any other investment. If it isn't gaining in value it's not worth your time. If the FMV of your shares is say 4/5s of what you had before financing you did well. If it is 1/9 you got screwed or your company is doing very poorly (although why would anyone invest in it then...) In the middle it is more complicated. If your company is healthy and not taking on a large amount of money for growth the FMV of your shares might actually increase despite the dilution.
    - emp25 13y ago
      Thanks for the info Ariel. I'll have another talk with the CEO, maybe in private this time.
- Jemaclus 13y ago
  Yes, exactly. It's not always bad. Maybe the funding helps the valuation goes up, so .4% of the company is now worth more than .5% of the company before the funding. Should've mentioned that in my post.

arielweisberg 13y ago

IMO dilution is not a bad thing. The company is worth more after it takes money and that money is going to fuel growth that will hopefully offset the dilution. If it doesn't well the shares weren't worth that much anyways. You can't expect blood from a stone when it comes to ISOs. As long as the dilution is fair WRT to the valuation and number of new shares issued/allocated I don't see the problem and good leadership would explain it as such. The flip side is that if employees are diluted badly enough they will leave. Employers know this and walk the line of doing the bare minimum they think they have to do to get the people they care about to stay.

emp25 13y ago
"if employees are diluted badly enough they will leave" I guess in my case, I don't know how the second round dilution arrangement will affect me.
- arielweisberg 13y ago
  Disclaimer, I am not an expert, but I did stay at a Holiday Inn Express last night. First I would suggest you bring up your concerns clearly and make sure you understand why they won't tell you. Give them a chance to explain. If the company is 30 people you should be able to drop by the CEOs office and ask. Like I said they may not be saying anything because the financing is not final. Alternatively if they are not cooperative. Go in tomorrow and ask to exercise your vested options. At this point they have no choice but to tell you the FMV of those options. Don't exercise them, or do that is a separate topic and you have to watch out for tax liability. Do it again after the financing finishes. The FMV of your shares will change. If it is significantly lower the options may not be worth your time. They can't avoid telling you the FMV of the shares you have because you need to know to calculate your tax liability for the spread between the strike price and the current FMV. Think of it like any other investment. If it isn't gaining in value it's not worth your time. If the FMV of your shares is say 4/5s of what you had before financing you did well. If it is 1/9 you got screwed or your company is doing very poorly (although why would anyone invest in it then...) In the middle it is more complicated. If your company is healthy and not taking on a large amount of money for growth the FMV of your shares might actually increase despite the dilution.
  - emp25 13y ago
    Thanks for the info Ariel. I'll have another talk with the CEO, maybe in private this time.
Jemaclus 13y ago
Yes, exactly. It's not always bad. Maybe the funding helps the valuation goes up, so .4% of the company is now worth more than .5% of the company before the funding. Should've mentioned that in my post.