[jjice]

I had some RSUs from a previous company (likely will not be worth anything) and some options at another, but I have no idea how to understand how dilution like this works. My understanding is surface level of that scene in The Social Network.

I feel like I understand _what_ an RSU is and what options are, but are there any good resources for me to learn from?

[baq]

RSUs are much better than options, they’re actually properly shares, will go to zero when the company is bankrupt and even then not necessarily.

Options go to zero much more often.

[fragmede]

Dilution is where things get fucky.

So you're working at this startup. Lets say it's worth $10 million. To make things simple, in this company, there are 2 people, the fucker, the CEO, the guy that started it all. He holds 90,000 RSUs, each worth $100, so $9 million, and the fuckee, you, who holds 10,000 RSUs, each worth $100, for a cool million.

Here's where the fucker fucks the fuckee, ie you. The company does a round, and then creates, out of thin air, a billion shares (1,000,000,000), and issues them to the new investors. Lets say the company reached unicorn status this round, which is to say a valuation of a billion.

Holy hell a billion! But wait now there's 1,000,100,000 total shares out there, and the valuation of a billion, divided by the new shares, means that each share, of which you only have 10,000 of, is now worth just under one dollar.

That's right, your $1 million just turned into $10,000. Which isn't nothing, I'd love to come across a random $10k I didn't know I had. But that's just, like, one really nice vacation for you and the kids, which you haven't seen enough of because you've been working so hard at this startup, and not, like, a college fund for the kid that's showing aptitude at engineering and that you were hoping was gonna go to MIT.

Dilution is inevitable, there's no avoiding it. The scenario I presented is just to show you an example of how dilution fucks you. If things go well, would you rather have 10% of $1 million or 0.1% of $1 billion?

For more, it depends on how you like your information. ChatGPT's got stuff like ISOs vs NSOs pretty well covered, Investopedia's got a lot of good stuff if you'd rather it that way.

[Xylakant]

You are misrepresenting how dilution works - and dilution usually is not what fucks you. Dilution is fairly straightforward - someone ponies up money and gets a share of the company. The valuation that gets handed around is usually what’s called “post money” - how much is the company worth after investors have paid in their money. In a simple example, matching your numbers, a company that is worth 10 million, with 10 million shares, each valued at 1 dollar with a 90/10 split finds someone who invests a billion dollars at 1 dollar per share. These shares are created as part of the acquisition. The value of the shares doesn’t change - the company, post money, now is valued at 1 billion 10 million and has 1 billion 10 million shares, each worth 1 dollar. It also happens to have 1 billion in cash at hand. No change in value for anyone here, but dilution happened - the person that owned 10% of the company pre-investment now only owns 0.1% - but the value of each share is still the same, which means they still own the same number of shares, each at the same valuation with the same total value.

The problem tends to be elsewhere - as part of the deal, the investor asked that his share get preferred treatment in the next round - a liquidation preference which grants them the right to first take their investment of the table and then, whatever is left is distributed. The company gets sold for 1 billion. The investor takes the billion that they invested off the table. There’s nothing left to be distributed. Your shares are suddenly worthless - just as the founders.