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This sounds like straight down fraud.

> There was even a second market offering to let Ryan sell enough shares to pay his taxes and maybe buy a nice house in South Park.

Who was buying the shares from Ryan in this secondary market?

> This is a problem that faces a lot of startups. We should all be more wary of information that's given out, and be more demanding of transparency. Learn a less from all of us PF employees: the more a company talks about their IPO, the less likely it's going to happen.

I generally agree, but no matter how much information is given out, if the last deal is done secretly and with bonuses and pre-arranged values, there is no amount of information that can protect you from that.

Fraud is hard to prove because it requires providing intention, but certainly some of the elements of fraud are present.

I don't remember who was buying, but I think it was literally on "Second Market" before they were acquired by NASDAQ (iirc)... I wanna say that was in the summer of 2015, and was the only official liquidity opportunity that was offered for employees, at least in the last few years that I was aware of. I know some of my colleagues got out with sharespost sales, but those were only the ones who had enough shares qualify for that sale (which, again screwing the lower compensated employees, wouldn't be the customer service teams).

In my mind, there's two things that should change: first, and most importantly, we need better protections for employees in these kinds of situations; second (and a distant second, but still salient since it's the only thing that you really can do to protect yourself), people should be more wary. I totally agree that you can't protect yourself from these kinds of deals done in secret. But, you can look for the kinds of warning signs and stay away.

I know people who were laid off during one of the multiple rounds of layoffs, and still went back to buy their shares. That's some strong Kool-aid, and it makes very little sense to me why one would do that in this context if they weren't being given some strong misinformation.

Unfortunately this is the rule more than the exception.

I've been at a startup that handed out split stock options like candy while the CEO was planning on using his majority control to transfer all IP to a separate entity.

I've been at a startup where the executive team buried a clause in the equity agreement that would allow them to forcibly buy back all shares, where the sum valuation of the company was how much money was deposited into a single, explicitly defined bank account.

I've seen a non-compete agreement that stated the employee was not only barred from working for competitors for five years, but working in the entire industry altogether.

It's amazing the depths of greed you can find when you read the fine print.

>I've seen a non-compete agreement that stated the employee was not only barred from working for competitors for five years, but working in the entire industry altogether.

Too bad that's probably not enforceable. But sure it sounds serious when you don't know no better.

It was definitely not enforceable, but it was a great indicator of intent. When I pointed out the paragraph to the President, who wrote the agreement, he said, "Oh, we didn't mean to do that. I don't know why that's in there."

He was a lawyer.

When I pointed out the bank account valuation to the CEO of that startup, he said, "that's not what that says." I informed him that I had run the agreement through two lawyer friends who had confirmed my interpretation.

This is one area that YC has a strong incentive to act in, but hasn't. A startup ecosystem with a best practices guide to equity and suboptimal exits would help everyone.

Doesn't have to be rules, just a guide and companies who comply and those who don't.

For an example how this could work, see the CFA and GIPS. Every big asset manager is in compliance with GIPS. Every reputable startup should choose whether to be compliant with best practices for equity for employees.

A VC is disincentivised to empower ordinary workers regarding equity.

In the short term perhaps, but in the long term? What happens when word gets around that you shouldn't join a startup because even if it succeeds, your equity will just be stolen from you?

What happens when word gets around that you shouldn't join a startup because even if it succeeds, your equity will just be stolen from you?

That word has already gotten around and is one of the main reasons for ageism in the industry - the only people who will work for startups are those who haven’t been burnt or wised up yet.

Just to second this point, I am often courted by potential startup employers and I am usually pretty skeptical for exactly this reason.

Yeap, imagine if the company's HR rep was able to say that their equity distribution is compliant with YC employee favorable equity standards (YCEFE) or whatever. I think it would make hiring much easier. Ultimately, the exits which barely pay investors back are not how YC or anyone in VC makes money (power law) so creating an equity standards system seems like an obvious choice.

"This is one area that YC has a strong incentive to act in, but hasn't."

This is an interesting thing to consider. If you look at the current president of YC (sama), at least from an outsider's perspective, he's the beneficiary of exactly the type of behavior you're trying to get away from. Based on his company's exit, he is now a VC, but his company was acquired for essentially what it raised, meaning the employees' stock was likely worthless. I have absolutely nothing personal against sama, but let's remember that YC doesn't exist as a charity, it's a business.

Man we are such cattle in this topic. If employees could publicly sell their stock, employees would share information constantly about things like this.

I cant imagine one measure increasing salaries and efficiency more than allowing employees to trade stock.

"but let's remember that YC doesn't exist as a charity, it's a business."

But let's also remember that the people running YC are adults, fully capable of telling right from wrong, and fully capable of being held responsible for their actions. Being "a business" is no more of an excuse for their actions than "following orders" is.

Being able to tell right from wrong, and acting on knowing something you're doing is wrong are different things. It is much easier to do something you know is wrong, when you stand to benefit to the tune of a few dozen million dollars.

> The company played some nasty mind games with their employees regarding equity. They did a 7 (I think?) for 1 split, and then had the recruiters telling employees that they had "never seen a company give out so many shares before." They sent out spreadsheets with calculators that would let you estimate the value of your shares, and just casually let you know that Apple was trading at ~$700/share. iirc, they even pre-filled in the line for potential value with Apple's current share price (so, 5000 shares * 700 Apple-level share price = 3.5M). At every company meeting, they'd get really pumped about how they were going to IPO. They would throw parties celebrating their 100 millionth patient life covered, even though it seemed pretty obvious those numbers weren't real. No 401k match, since you're not going to need it after we IPO.

man...fuck this shit hard...this is just straight up deceiving people

here's the share calculator spreadsheet they sent me: https://imgur.com/IR7Boha

thanks for sharing, and sorry for your horrible experience. just want to confirm you scrubbed numbers like the number of shares so there's no way someone can deduce your identity.

I only gave this a quick look but what's the problem with this? They're wildly optimistic projections but there's doesn't seem to be any funny math going on. That said, if they're sending out something like this while knowing valuations are not going to approach anything like that, it's pretty scummy.

Yeah, that looks similar to the one that I got. But I don't remember it having the shares outstanding listed, because I specifically remember asking around to try to figure that number out. But that was years ago and maybe my memory is bad.

>I don't feel bad for the engineers, since they were generally exposed to enough information that they should have been able to call bullshit.

I want to ask this without sounding like it's an indictment: do most honestly offer their empathy with similar conditions?

Interestingly, if someone wrote "I don't feel sorry for fast food workers, they had enough info to learn a skill and earn more," that usually strikes a nerve with a lot of people. But software devs getting nothing?

Someone in that position should presumably have some skill with logic and numbers to simply do the job. It would be like someone in finance not understanding how the payout would work. How could they even do the job and not understand a lot of the basics involved?

That said, getting fleeced sucks and most likely it is similar to why people who know better fall for most scams - they think they can beat the system. They know it is false information but they think they are good enough to still come out ahead and the other sucker is going to take a hit. Sometimes they are right but most of the time they are the sucker.

I figure the lesson is that any time someone talks about the number of shares (and only the number), they are trying to cheat you.

> iirc, they even pre-filled in the line for potential value with Apple's current share price (so, 5000 shares * 700 Apple-level share price = 3.5M)

Wow. $700 * 300,000,000 shares outstanding (according to the screenshot someone else posted) = $210,000,000,000. That was... optimistic.