[commandlinefan]

I've worked now for three separate startup/small companies in which I had some measure of equity. In all three cases, they did some legal sleight-of-hand to reduce that value to nothing. The first time it happened, I was outraged, and researched my options to fight back (I had none). The second time, I was hopeful but unsurprised when it turned out the same as it had before. The third time, I rolled my eyes when they even mentioned "equity" and paid close attention to the salary because I knew that was the only actual real money I was ever going to get (I was right).

[opendomain]

I have had this happen to me several times as well. This should be illegal

[wtvanhest]

This is one area that YC has been silent, but would benefit the echosystem long-term to step in. They should create guidance on employee friendly terms for equity.

[commandlinefan]

I think technically it is, but they count on the fact that it would cost twice as much to fight them in court than you could ever hope to get back.

[gamblor956]

If those actions constituted a tort, the court can award punitive or treble (i.e., "triple") damages (depending on the jurisdiction), plus legal fees.

[ta2121]

Was your equity vested in any case? Any insight into the sleight of hand that went on?

[planteen]

My guess is OP's share was diluted to the point it was basically worthless. As in, they went from owning 1% to 0.01% or similar.

[askafriend]

I want to point out that dilution isn't strictly bad if the final sale price of the company is high enough. E.g. if the company sold for a billion, then 0.01% would be a cool million dollars. It's better to own 0.01% of a billion dollar company than 10% of a million dollar company.

Dilution can be beneficial in cases when diluting equity for cash in the short term would lead to an increase in the overall value of the company in the long term (e.g. the tradeoff most venture backed companies make when swinging for the fences).

The kicker here is that most companies are not billion dollar companies or even multi-hundred million dollar companies. Essentially, the role of dilution is different at different stages of funding and company growth. It can be a bad thing, especially if improperly used during a company exit like an acquisition. It can also be a good thing if it ultimately leads to a higher overall exit in the future.

It's a financial tool that can be properly or improperly used and one which a regular employee doesn't have control over. That's why being able to trust leadership is critical when joining a startup. If you think the CEO won't do the right thing when the time comes to do the right thing, then all bets are off and your equity means nothing even if the company achieves moderate success.

I know that most of what I wrote is super basic, but I've been seeing more and more comments around here that imply that all dilution is bad no matter the circumstances. But that just isn't the case.

[jazzyjazzy]

FYI 0.01% * 1 billion = 100k

[askafriend]

Ahh, good catch you're right. The point I was trying to make still stands though. Owning a small percentage isn't strictly bad and there are common scenarios where it can be favorable.

[shoo]

> That's why being able to trust leadership is critical when joining a startup.

another potential scenario to think about is "what if leadership changes" e.g. if, for whatever reason, control of the company leaves the hands of the CEO you trust to some other third party.