[Aurornis]

Gumroad became my cautionary tale for startup equity for early engineers.

I remember excitedly following the story from start. It was fun to follow along. Then around 2015 things weren’t working well, so they laid off most of the team. Investors sold the company back to the founder at a steep discount. As I recall, a major investor sold their ownership for $1.

Just like that, the founding engineers who worked so hard lost their jobs and saw their equity valued down to nothing.

It happens! However, the strange thing in this case was that the company kept going. They had laid (almost) everyone off and declared their equity worthless, yet the company was still making money and growing. My younger self struggled to understand how the founding engineers could have gone from working so hard on something to being laid off and seeing their equity wiped out while the business itself continued right on working and generating revenue.

A lot has been written to put positive spin on those events. The founder claims to have helped out some of the early engineers in vague ways. However, I’ll never forget being a young, aspiring startup engineer and watching an entire startup team get wiped out of the business they helped create and then the business just kept on trucking for the founder who walked away with ownership of the company.

[tuhins]

I was one of them! Joined on August 5, 2012, got 0.5% of equity (I think?), it all went to more-or-less zero monetarily. I don't think most of us really hold any grudges against Sahil here. It was a very fun place to work, and I met some of my closest friends and made some of my strongest professional connections there. It was net-very-positive to my life and career, and I think we were all adults when we were opting-in to the experience.

As for Sahil/Gumroad making money and growing. Meh. He's worked on it for 13 years and showing dedication beyond what I would have for most things. It's fine.

[jokethrowaway]

A friend built a startup for years and progress was not looking good. Eventually the entire development team quit and left without equities. The founder was then acquired for millions.

Another case: startup running out of money after a series B or C and a history of questionable expenses. Everybody but a few left. The founders sold their main product for cheap to some private equity firm, focused on a crappy internal tool they built and they used their last money to hire a literal army of sales people.

These sales guys were apparently amazing and somehow managed to sell the tool to a bunch of fortune 500 companies and are now making bank.

The main product they sold? It's still on life support, the original buyer just sold it to another holding.

[adrr]

How did lose all their equity? You can’t declare equity is worthless. You can raise new rounds with different valuations and dilute previous investors/employees but they would also dilute themselves.

[hobofan]

Even if they don't "lose" their equity, it might just turn essentially worthless. Very often "equity" founding staff receives is in the form of (V)ESOP s = (virtual) employee stock options, or other equity grants that only materialize in the case of an "exit event". Depending on how the exit events are specified in the contract, the founder taking the company private (/ divestment from the investors) might have resulted in an exit event with $1 value of the company.

[beefnugs]

Yeah so pure grift : if it was really dying then just keep your worthless-percent forever, or get emotionally manipulated into selling for $1 like a sucker

[rahimnathwani]

Google 'drag along rights'.

[Aurornis]

> You can’t declare equity is worthless. You can raise new rounds with different valuations and dilute previous investors/employees but they would also dilute themselves.

The investors sold the company back to the founder for $1. That's as close as it gets to declaring equity as worthless.

[bigtunacan]

Equity for pre-IPO companies is often tied to an expiration. If there is no qualifying liquidity event before the expiration then your equity disappears unless the company takes action to reissue your equity. That sometimes happens for people who are still employed with the company, but almost never for former employees.