notbitter

In the "you can't cheat an honest man" department, you can be sure that some of the engineers complaining about nepotism now were expecting to cash in on the CEO's connections when they signed on.

See points 3-6 here: http://daslee.me/quick-thoughts-on-acquihiressoft-landings

However, you should note the content-free enthusiastic comment by LeonW, posted right after you submitted the article, in which he does not mention that he is the author's co-founder. You might also have noticed that many articles from this blog are similar: a catchy headline, a bunch of vague inspirational words on an uncontroversial subject, a token link to the conversion funnel, and a surprisingly high rank on the HN front page.

If you aren't even slightly suspicious that this article is 99% conversion fodder and maybe 1% altruism, I am not going to be able to explain it to you.

Your friends sound young.

That said, if you don't get a degree you will likely be fighting this battle over and over for the rest of your working life. And college is a lot more fun when you're the same age as your classmates.

You are not making it any simpler by redefining "control" in this theoretical way. You are making some very naive assumptions about independence: you'd be much better off treating the investors as a single voting bloc, which is what the usual sense of "control" assumes - and if there are multiple founders you should assume that serial investors are very sophisticated at splitting them.

A good followup would be to go out and actually measure the distribution of voting outcomes rather than making a strong claim based on the most tractable assumptions you can find.

What's sad is that one of the guys on the team could have fixed this with much less awkwardness, but apparently none of them stepped up.

Your question about why developers can't capture more of their value is a good one. Obviously acquirers would prefer not to pay $1M signing bonuses if they can avoid it, but they also seem to be happier about paying off VCs than engineers.

To the OP, I would suggest that the only sure-fire way to avoid getting screwed is to remain indispensable all the way through to a liquidity event. Even then, employee #9 may not see much from their equity.

Based on the emails I get from recruiters bragging about how much money their companies have raised, it's clear that most engineers don't understand this, even if it's obvious to founders.

Of which more than 90% will go to the founders and investors. The engineers being bought for $1M will be lucky to get $100K out of it.

Anybody out there want to justify or at least explain this practice?

The people getting screwed here are Gowalla's employees, who put years of effort into a single project and whose options are now worth zero.

Note that his example does not show a multiple on the liquidation preference, and it doesn't show how the early employees can get screwed even when the founders do well. But it's more realistic than Suster's infographic.

If you really want to understand dilution, don't look at the best case. You need a graph showing your payoff as a function of exit size. Pay special attention to the range where liquidation preferences and multipliers kick in, because the sharks aren't going make you an infographic for that case.