Why dividend cash-outs are evil

Yes, a dividend cash-out is unequal for different parties. It's not necessarily evil. Lots of things in startups are unequal rewards for unequal risks and contributions.

Treating founders (and maybe early pre-series-A employees, and early seed investors who take common) differently from later investors and later employees might be desirable. The founders are the ones making a choice between selling the entire company now for $500mm or so to a place like Yahoo where it will die, or raising VC money to try for an IPO, an outcome which will expose them to much higher risk and yet might make 90% more returns for everyone (investor and employee) alike.

This might be more complex if a company has a hired-gun CEO with 5-10% equity stake in options, and some founders with common stock. One could argue that the CEO should be incented to "swing for the fences" as much as the founders. A founder probably has a greater percentage of net worth tied up in the company, and may substantially lack other assets; a hired CEO probably doesn't.

If capital gains, dividend, carry, bonus, and wage income were all taxed at the same rate, it would be more straightforward to just declare a special cash bonus to founders at financing events, vs. going through the somewhat indirect route of dividends.

This doesn't even cross into 'unethical', let alone 'evil'. The employee had the option to buy shares and chose not to. Had they done so, they'd have shared in the dividends, too.

In the first 'evil' scenario (only Adam sells), it's only a bit unfair if Bill is contractually prevented from arranging his own private sale. Otherwise, he has the same freedom to arrange a person-to-person transaction as Adam does.

In the 'really evil' scenario (only Adam and Charles collect the dividend), it's only unfair if a vested Bill is prevented (by policy or secrecy) from participating in the dividend. That is, it's not the "dividend cash-out" tactic itself, but the exact implementing details, that might make it unfair. The blanket headline condemnation isn't supported.

Also, what if unlike in Salmon's scenarios, Bill has only a relatively small stake, and perhaps options that are only slightly in-the-money, or even still out-of-the-money? Bill might then actually assign a positive value to Adam retaining a controlling interest (versus later investors), or to the other benefits of a big jump in funding and company ambition.

If the dividend-to-others helps finesse that control/ambition equation, it could be more valuable to Bill's stake than a tiny amount of cash dividend now, or sparing him a tiny amount of extra dilution. The magnitudes and future hopes matter for an analysis of whether Bill would want to veto the deal or cheer it on. And if Bill (along with Adam and Charles) likes the deal when all factors are considered, can it be "evil"? No victim, no crime.