[anthay]

I was one of the first employees in a UK tech startup. I was given share options that I calculated represented about 0.5% of the value of the company. When the company was sold about 10 years later, making the founders multi-millionaires, I got about £30K. I was clueless and didn't realise the shares could and would be diluted many times.

[neffy]

Ten years ago it was much harder to find information on all of this - and even if you went in knowing it, there was little or nothing you could do about it.

I knew enough then to discount options to 0, but I'm permanently jaundiced in retrospect by just how many outright lies I was told at interviews, and saw being told to my colleagues.

[_lbaq]

Yea, and dilution is just one issue, its almost impossible to know as a employee what the stock options represent, you have no insight in to the corporate structure and what entity the stock options are given for.

Its just all a lottery ticket...

[new299]

It is possible to know. In the UK it's easier to know than in other countries, private companies still have to disclose share ownership and file public accounts (which you can download from companies house).

It's just that this information is often not provided or explained. Why companies think it's ok to say "you'll get X shares" when X is a meaningless number without more information, is beyond me.

[arethuza]

There can be all manner of agreements in place that mean that the mapping from the share ownership structure pre-IPO/acquisition might not be straightforward.

e.g. When the company I co-founded went public there was a ratchet agreement in place (amusingly, which we'd tried to get removed at the time of the first round of VC investment) that gave us large amounts of new share options that was much larger than the employee share option scheme. Things like liquidation preferences also can also have a huge impact and as an employee your are probably not going to get visibility of all of these and I'm pretty sure none of this will be in Companies House!

[aedron]

But the dilution happened because your company had to sell out a lot more of its equity in order to succeed. You were not cheated. You could argue that you should have been offered to buy into the additional financing rounds in order to retain your share, but in all honesty, would you have taken them up on such an offer?

[cmdrfred]

I think the issue is they probably offered lower than market pay and "half a percent of the company" but what he ended up with was lower pay and .00025% of the company. Sure it's all legal and his fault for not understanding the fine print but I understand why he would feel cheated.

[aedron]

The company could have shut down, and he would have gotten nothing. Would he have felt cheated then?

Instead they sold a part of the company (out of everybody's share) and with the money that brought in, they eventually succeeded. I don't see anything unfair in it.

[wastedhours]

But also, the company succeeded due to the people who worked there working for less than market rate. Obviously dilution and all of the (fairly numerous) ways your share can be reduced are a risk factor and need to be taken into account, but still valid to feel hard-done by. Just because it's fair doesn't mean it's an easy pill to swallow.

[hubb]

it shouldn't be hard to understand that being mislead about the actual value of your options is unfair. pointing out that things could have gone worse doesn't change that.

[danielweber]

> (out of everybody's share)

Except that every dilution I've witnessed has come with re-upping the people who really Matter. Current employees we want to keep, and people sitting the board room.

Not everyone takes an equal hit from dilution. Some don't get hit at all. Some can get hit but handle it. (A founder diluted from 10% to 5% still is sitting on a huge nest-egg. An employee diluted from 0.01% to 0.005% may see her 200K payout changed to 100K.)

[cmdrfred]

I think the moral of the story is rate equity like that as worthless and refuse to work at a discount for it. These contracts are complicated and as a programmer you likely won't completely understand them unless you get a lawyer involved.

[wcummings]

Tech workers need an organization to provide legal services, most people I know aren't empowered to have a lawyer review their employment terms. More accessible legal help would create pressure on employers to stop bad practices.

People on HN sometimes talk a big game about negotiating job offers, but in my experience, most software engineers are terrible at it, and are not equipped to go up against enormous companies with a lot of resources dedicated to paying them as little as possible.

[HeyLaughingBoy]

In my experience, most software engineers simply don't ask.

Forget negotiation. Just saying "I want $XXX" when interviewing for a position is a simple thing to do. What's the worst thing they can do? Not hire you! What's the best thing they can do? Give you what you asked for.

Is it really that hard to say "I really like the position you're offering, but unless you can meet my salary requirements, it's a non-starter?"

[acjohnson55]

Lots of companies don't have the cash to pay market rate, in the early stages. Our even the mid stages. In those cases, it's best to make sure you're advocating for your stake on the business. But you're not going to get much unless you're indispensable to the company's success.

[logfromblammo]

From a perfectly rational standpoint, the companies that cannot pay market rates for those employees required for their success should either raise more capital from qualified investors or fail immediately.

Don't defecate where you eat; don't invest where you work.

[st3v3r]

Really? How much of the founders share got sold? And how much of a say did he have in this happening?

I see nothing but unfairness in this.

[anthay]

You may well be right and to be honest I don't really understand exactly what happened. But I do know I thought I'd get more than I did.

[jackgavigan]

What was the company? We may be able to analyze what happened by looking at the documents published at beta.companieshouse.gov.uk

[briffle]

Seems like as a shareholder (well, I guess potential share holder, since they are options) you should have some say in that.. Is it okay to dilute my shares by x%, in order to continue functioning as an employee..

Of course that kind of insight would lead to employees jumping ship when there is trouble...

[pjlegato]

You do have some say in that as a shareholder -- most companies are goverend by shareholder vote. However, as a startup employee, your total number of shares is insignificant compared to the number of shares held by the founders and the investors.

[st3v3r]

Diluting shares should be straight out illegal. There is no reason for it other than fucking over employees. You know, the people who have actually worked to make the company a success.

[mywittyname]

In egregious cases, you could probably sue the board and win. Another user here discussed an example where employees were diluted to a literal penny right before a sale.

If the employees didn't win in that case, then there's some fundamental, structural flaw in American laws.

[danielweber]

Dilution is way too easy to abuse, but there's a lot more to it than just "fucking over employees."

[st3v3r]

Really? Give me one example where it doesn't fuck over the employees?

And don't say "they get to keep their jobs", cause if that's all that's needed for benefit, we might as well devalue the options to 1 cent, cause after all, they still got to keep their job.

[danielweber]

Shares need to come from someplace. Other people selling shares to the VC doesn't put any money into the company. The company needs to sell shares, and create shares if it doesn't have any left.

It's often abused, and easy to abuse, but you are making the story too pat by saying it exists only to screw over employees.

[adrianN]

You did not specify "multi" further, but 30k * 1/0.5% is around 6 million. So your assessment seems at least in the right ballpark?

[anthay]

It was a private sale to a US company. I believe it was for an amount many times that figure.

[kurthr]

Indeed... it's likely that the board issued themselves new stock to prevent their dilution, but not yours.

As an extreme example, I watched a startup in a private sale issue new stock to those on the board such that all of the other early (0.1-0.5% stock ownership) employees were diluted to $0.01. The total valuation was in the $100M range. It was a good way to make a few enemies and retire at 30.

In the end the acquiring company ended up having to hire some of those employees back for consulting... I believe several of them received >$1k/hr. Most of those employees suspect that the acquiring company tacitly signed off on the issuance of new stock.

[shostack]

You bring up a good point though which is that if you stand to make millions and retire early, and it comes at the expense of your employees making a comparable amount, is it worth it to screw them over?

Unfortunately in this messed up world and rollercoaster economy the answer is often yes, it is better to put yourself first. Not that I would, but I can see how those who do justify it.