[s1artibartfast]

It happens. I've herd it referred to as a cram down +pull through. There are lots of ways to top people up after dilution.

Example: Cap table: Founder 10%, ex-employees 10%, VC 80%

Step 1) Company takes a down round, VC put some small money in, dilutes everyone 10:1.

Step 2) New stock plan with 10% for founder

Cap table: Founder 11%, ex-employees 1%, VC 88%

Step 3) Founder and VC high-five

[zwily]

See: The Social Network. I now refer to it as “Getting Eduardo’d”

[HWR_14]

Isn't that something the exemployee would be able to sue over? Like, it's clearly fraudulently done to steal their equity.

[bb88]

Yes, but you have to sue over it. For most people, it's probably not worth it. Besides, since it's a private company, equity is what the board/executives say it is.

[HWR_14]

> Besides, since it's a private company, equity is what the board/executives say it is.

Can you clarify that?

[s1artibartfast]

Maybe they meant valuation is what the board say it is

[s1artibartfast]

Dilution is extremely common and a lot of this funding stuff comes down to businesses strategy. My example was extreme, but there is tons of gray area for this kinda thing

[HWR_14]

Ah, if you were exaggerating the numbers to explain the concept, I can see how a more subtle screwing would be nonactionable. I thought you were saying they were that blatant

[s1artibartfast]

I think it certainly can be that significant or more. Someone else mentioned Facebook cofounder Eduardo Saverin. At IPO, Zuckerbergs's equity was down to 28% and Eduardo had been diluted down to 2%.

That is a co-founder of a high profile unicorn with continuous growth. Now imagine what can happen to employee # 1000 at a shady middle cap startup struggling to get to market.