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Comment by WheelsAtLarge | Hacker News Reader

I'm I missing something? It seems to me that everyone involved knew what they where getting into specially the investors. You hear about the cases where founders get screwed all the time. This is a case where a founder gets to keep his company. Good for him.

I for one think it's a bit greedy after all he did not build the company all by himself but silicon valley investment is all about greed. It's just another day.

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Luring employees with promises of equity and then not delivering sounds like a bait and switch.

I don't know man?

Just Devil's Advocate here, but as an employee going into a startup it's kind of well known at this point that you're only likely to get what's written in black and white. Would you go to work for a company that promises to start paying you at "sometime in the future"? I kind of agree with WheelsAtLarge, you had to have known what you were getting into. Personally, I wouldn't work for someone for free for any length of time unless it's volunteering. Anything else just sounds fishy.

Similarly, if someone promises you equity "later if [blah blah blah]"? I'm just saying, that sounds pretty fishy.

Whenever I talk to new grads, I tell them to value their equity compensation at zero for a small startup, for exactly that reason.

But, it's similar to a lottery: you should expect to lose, but an organization can't run a lottery and pocket the winnings itself under the pretext everyone should have known they were throwing away their money.

But in this case the organization is pocketing the money because everyone joined the organization without being given any lottery tix at all. That's the issue.

The boss told them that they would get lottery tickets later, but only if a hypothetical third person showed up and gave the boss even more lottery tickets. My point is not that the hypothetical third person never showed up, which in and of itself meant that the employees wouldn't get lottery tickets. My point is that the employees should never have joined the company in the first place on the basis of such a ridiculous promise. It was entirely predictable that they would get none of the lottery tickets. No one is going to pay more than they have to, nor will they pay up after they have what they want out of you. Just ask any prostitute.

> It was entirely predictable that they would get none of the lottery tickets

No shit.

You've been in this space well over a decade. If someone offered this comp package to you, you'd likely anticipate exactly how it'd play out. (Maybe... looks like the investors got scammed this time too, so perhaps it was a practice that people typically respected.)

I guarantee that, when employees accepted their comp package, they weren't doing it with the understanding that they would never see a cent of equity if the Toptal succeeded well beyond anyone's expectations. So, yes, it was a devious move on the CEO's part, but at some point deviousness becomes sociopathic. Ripping off your workers is one of them.

But that's not what happened here. It's not that they were told one thing but should have known to expect another. They were told one thing, and that one thing happened/didn't happen. It's totally cut and dried.

Employees aren't sophisticated investors, particularly new grads entering the workforce.

If it was clearly monopoly money that was never going to be going into their pockets, why did the CEO bother to offer it to them? The obvious and accurate answer is he knew they would value it at sticker price (or, at least sticker price discounted by the usual startup lottery shenanigans) while it would never cost his company a cent.

The fact that he managed to con a bunch of people using what amounted to insider knowledge is likely legal, but we still call a legal con a con.

The fact that it might never happen doesn't make it monopoly money. I once had a company that issued a convertible note which basically said, "If we raise x amount of money then it triggers a conversion to preferred." We didn't raise x amount of money, so it didn't convert to preferred. Pretty simple stuff.

I think most of the employees were under the impression that if the company did as well as it did they would make a significant amount of money. The CEO tried to encourage this view and did nothing to discourage it.

But they weren't lured with the promise of equity. The promise was that they'd get equity if there was a subsequent funding round.

The investors, especially, have zero right to complain.

FTA: “I was told the conversion [of Toptal into a corporation] would happen in a number of months,” said Aaron Diek, who is based in central Texas and says he worked for Toptal in 2014 and 2015, when Toptal said it was generating $80 million in revenue per year. “I asked on a number of occasions, and the answer [from Du Val] was always ‘it’s coming, it’s coming.’

Maybe that employee has a case for relying on that statement to his detriment if it was a misrepresentation or an outright lie. On the other hand, it's possible that Du Val had a good faith belief that the conversion was going to occur. Who knows? We'll probably never find out unless there's a lawsuit.

This seems to be par for the course for any startup that drinks its own Kool-aid. I've been told many times at every organization I've been at by enthusiastic co-workers believing the exit is right around the corner. It never was and all of those previous orgs have either gone bankrupt or had really unfavorable acqui-hires. I believe in enjoying my work environment, being paid fairly, and doing work that positively impacts society. Beyond that, I treat every share of equity as toilet paper in the negotiation stage -- when it comes to a private company organized as a startup/VC-leech.

I also use this approach and I love how little leverage equity brings them to the negotiation table. You want to give me equity, nice, but I'm still working for my preferred salary under my preferred conditions.

This is exactly what Malwarebytes did to me for years- their CEO constantly told me I was going to get stock but it never materialized.

It's definitely a live and learn situation, but it does suck that learning the lesson is so expensive (while the people who lied their way into having employees end up making out really well for their dishonesty).

that is not true. my options have NOTHING to do with additional funding, but with converting the corporate structure of the company - which Taso, CEO, said he would do, multiple times, back then - he's not changing his tune.

Thanks for chiming in. It sounds like the article may have conflated the investor and employee deals. To be fair, the conversion to a corporation usually happens at the same time as raising the next round.

So, it sounds like the deal with the employees was simply that you'd get the equity if and when the LLC converted to a corporation. Notwithstanding whatever other representations were made, was there anything in the equity offer that would trigger/force the conversion to happen? In other words, was there any kind of guarantee that the conversion would definitely happen?

1. This is a very unusual structure in the first place. The company do issue new common stock at funding rounds specifically for stock options but they don't make employees wait for it. 2. This is a common practice for venture-backed companies so people might expect that. Lawyers might say nobody lied to them – but Silicon Valley is not about lawyers.

I think it relies on people thinking there are only two possibilities. Bankruptcy or another round. They didn't realize success without a round could happen. It's a loophole essentially.

It sounds like fraud.

Conditional promises of equity, where the conditions were never met.

Definitely a bait and switch, even if legally it is all above table and the employers should have relied on what the paper said not what people said.

Having that contingency about taking more funding might not create any legal obligations but there is certainly an implication there.

If I cover your tab and you say you'll pay me back next time we go out, "I'm never paying you back" is an equivalent statement if there's an unspoken "but we're never going out again" at the end of the first statement, but it wouldn't be my first interpretation.

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That said, if an Engineering Director is getting 0.02% then, assuming TopTal is worth $1b, you'd have a Director cashing out at <$200k pre-tax right? I'd imagine run of the mill ICs had a percentage such that they didn't accept it thinking "and when this pays off I'm done forever"

At the very least, he ran a scam on his employees, who he lured into the company with the promise of a big payoff if it became successful.

If "everyone knew" what they were getting into, why did he feel the need to give them what amounts to monopoly money to convince them to work their asses off for him?

>lured into the company with the promise of a big payoff if it became successful.

Sounds par for the course for startups

Yes, but usually the employee sees something if the company is successful.

It's like playing Powerball, winning, and then the lottery agency saying "just kidding."

Not really... usually the employee sees nothing. I also don't know if the employee really deserves to see anything - lots of people work dev jobs and see nothing over salary for it, why should you make bank if you did you job just as well but happened to be in a wildly successful company... Concurrently I think that founder compensation is absolute BS at the moment, their contributions to success are far less effective than their compensation would suggest.

Because devs working for startups that pay heavily in equity are usually not making what they would make if they were paid 100% in cash.

Sometimes. Sometimes they are given equity (or options on the equity) - other times there is an "understanding"[1] about equity as happened in Toptal. Once you have equity... it's worthless, or near to - it only becomes valuable if the company does well... and if your effective equity isn't diluted in successive rounds - which it quite often is. You've surrendered a portion of your salary for a potential to get paid if the company does well (maybe) - and it's doing well is, in a large part, out of your hands. There is far too much good-faith being required from employees in these sorts of setups and, if everything goes as planned, why should you get a payday while the person who went to work for a perfectly good company that failed gets nothing? That could have been you!

1. So, some deceptively worded stuff that ends up being worthless.

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