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Why is it unfair? The engineer was part of a team that collectively destroyed economic value. What is the fair portion of bonus on top of salary that they should be rewarded with for that performance?

By all means understand it; I’ll never argue against that, but I find liquidation preferences quite reasonable.

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The VCs are also part of the team that collectively destroyed economic value. They can't simultaneously claim credit for every success and disavow every failure.

This is a fair point and I’d never looked at it that way before. Thanks!

https://en.wikipedia.org/wiki/Lemon_socialism

We have a lemon socialism banking system. Obama made certain that 100% of bankers wiped out in 2007 paid NO PRICE for their recklessness; he prosecuted NO ONE.

It's not a reward. The engineer's work is a commodity they are selling to the company. Partly for wages and partly in exchange for equity. That is a real investment they are losing just like the VC's if things go bust.

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