Hacker News Reader

Comment by gsibble | Hacker News Reader

My former employer granted me 0.1% of the company, which was 26,000 shares. 3 years later they went public via a SPAC at $10 a share, with 371,000,000 shares floated. Apparently, fundraising rounds significantly diluted common stock and the founders owned a separate type of convertible super preferred stock that was not diluted (the CEO himself still owns over 60% of equivalent common shares).

Now they are trading below $2. So my entire equity grant for a Software Architect role over 4 years would have been worth $50,000 had I stayed.

What a horrible company and emblematic of the types of scams you saw going public via SPACs.

View on HN

How can one protect himself from this scenario?

Job offers will not even mention total number of shares outstanding.

Don't accept a different class of stock than the founder, and no RSUs. That used to be standard and I would insist on it as an employee going forward.

The tax consequences suck though.

Can you please explain why not RSUs?

I'm not sure what the point of RSUs is, is it just the lockup?

You don’t pay taxes on them until and unless they turn into shares.

Don’t work for pre-public companies, or be the founder. Non-founder roles in private companies are not rewarded.

> or be the founder.

or, ensure that there's SEC protection for pre-public companies' employees when/if they're issued stock. After all, issuance of stock is in lieu of compensation, so it is effectively an investment.

Since these employees are not "sophisticated or accredited" investors, there needs to be enough disclosure, and protection for them.

The best, and simplest, way to protect the employees is to grant stock with the same set of properties as founder's stocks. If there's dilution, the founders get diluted the same.

I was discussing what you, individually, can do today, rather than wishful thinking about how things should be.

> Job offers will not even mention total number of shares outstanding.

Wait, mine told me. You may have to ask. I think it's okay to ask questions about it, if they're offering it as part of the pitch to get you to join.

Ok, recruiter tells you a total number. How do you confirm it?

Be important enough to get explicit protections against dilution in your job offer.

Startups were barely worth it financially in the mid 2010's, anyone joining one the past few years has gotten majorly scammed.

Still chuckle when I think about Postman reaching out for a job at a 5B valuation with something like 100 employees and less than 50m revenue. Good life lessons for many though

> Be important enough

if you do not contribute capital, i dont think you can realistically become _this_ "important".

Agreed 100%. Essentially no employees (and nearly no founders outside of your unicorns) have anti-dilution protections against future investment.

Then don't join the startup

Lobby to delegalize stock classes.

Also require companies issuing equity to employees to tell them the exact ownership percentage, as well as any dilution and dollar impact on you as a shareholder as dilution events happen.

Value equity at zero. Work for cash.

Note: this doesn't apply if you are a founder obviously

You didn’t believe in the company so you left. You also typically get new grants when fundraising occurs to help with dilution if the dilution is material. Overall I don’t see why you can say anything tangible from your experience, other than you didn’t like a company, left, and it went public and the price dropped as you anticipated.

> You also typically get new grants when fundraising occurs to help with dilution if the dilution is material

it depends on the company. But in a lot of cases, the early stage employees get fucked over when new money comes in.

Reply on news.ycombinator.com