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I was one of the first employees in a UK tech startup. I was given share options that I calculated represented about 0.5% of the value of the company. When the

by anthay 10y ago

I was one of the first employees in a UK tech startup. I was given share options that I calculated represented about 0.5% of the value of the company. When the company was sold about 10 years later, making the founders multi-millionaires, I got about £30K. I was clueless and didn't realise the shares could and would be diluted many times.

walkingolof 10y ago
Yea, and dilution is just one issue, its almost impossible to know as a employee what the stock options represent, you have no insight in to the corporate structure and what entity the stock options are given for. Its just all a lottery ticket...
- new299 10y ago
  It is possible to know. In the UK it's easier to know than in other countries, private companies still have to disclose share ownership and file public accounts (which you can download from companies house). It's just that this information is often not provided or explained. Why companies think it's ok to say "you'll get X shares" when X is a meaningless number without more information, is beyond me.
  - arethuza 10y ago
    There can be all manner of agreements in place that mean that the mapping from the share ownership structure pre-IPO/acquisition might not be straightforward. e.g. When the company I co-founded went public there was a ratchet agreement in place (amusingly, which we'd tried to get removed at the time of the first round of VC investment) that gave us large amounts of new share options that was much larger than the employee share option scheme. Things like liquidation preferences also can also have a huge impact and as an employee your are probably not going to get visibility of all of these and I'm pretty sure none of this will be in Companies House!
aedron 10y ago
But the dilution happened because your company had to sell out a lot more of its equity in order to succeed. You were not cheated. You could argue that you should have been offered to buy into the additional financing rounds in order to retain your share, but in all honesty, would you have taken them up on such an offer?
- cmdrfred 10y ago
  I think the issue is they probably offered lower than market pay and "half a percent of the company" but what he ended up with was lower pay and .00025% of the company. Sure it's all legal and his fault for not understanding the fine print but I understand why he would feel cheated.
  - aedron 10y ago
    The company could have shut down, and he would have gotten nothing. Would he have felt cheated then? Instead they sold a part of the company (out of everybody's share) and with the money that brought in, they eventually succeeded. I don't see anything unfair in it.
    - wastedhours 10y ago
      But also, the company succeeded due to the people who worked there working for less than market rate. Obviously dilution and all of the (fairly numerous) ways your share can be reduced are a risk factor and need to be taken into account, but still valid to feel hard-done by. Just because it's fair doesn't mean it's an easy pill to swallow.
    - cmdrfred 10y ago
      I think the moral of the story is rate equity like that as worthless and refuse to work at a discount for it. These contracts are complicated and as a programmer you likely won't completely understand them unless you get a lawyer involved.
      - 10y ago
adrianN 10y ago
You did not specify "multi" further, but 30k * 1/0.5% is around 6 million. So your assessment seems at least in the right ballpark?
- anthay 10y ago
  It was a private sale to a US company. I believe it was for an amount many times that figure.
  - kurthr 10y ago
    Indeed... it's likely that the board issued themselves new stock to prevent their dilution, but not yours. As an extreme example, I watched a startup in a private sale issue new stock to those on the board such that all of the other early (0.1-0.5% stock ownership) employees were diluted to $0.01. The total valuation was in the $100M range. It was a good way to make a few enemies and retire at 30. In the end the acquiring company ended up having to hire some of those employees back for consulting... I believe several of them received >$1k/hr. Most of those employees suspect that the acquiring company tacitly signed off on the issuance of new stock.
    - shostack 10y ago
      You bring up a good point though which is that if you stand to make millions and retire early, and it comes at the expense of your employees making a comparable amount, is it worth it to screw them over? Unfortunately in this messed up world and rollercoaster economy the answer is often yes, it is better to put yourself first. Not that I would, but I can see how those who do justify it.
neffy 10y ago
Ten years ago it was much harder to find information on all of this - and even if you went in knowing it, there was little or nothing you could do about it. I knew enough then to discount options to 0, but I'm permanently jaundiced in retrospect by just how many outright lies I was told at interviews, and saw being told to my colleagues.
st3v3r 10y ago
Diluting shares should be straight out illegal. There is no reason for it other than fucking over employees. You know, the people who have actually worked to make the company a success.
- danielweber 10y ago
  Dilution is way too easy to abuse, but there's a lot more to it than just "fucking over employees."
  - st3v3r 10y ago
    Really? Give me one example where it doesn't fuck over the employees? And don't say "they get to keep their jobs", cause if that's all that's needed for benefit, we might as well devalue the options to 1 cent, cause after all, they still got to keep their job.
    - danielweber 10y ago
      Shares need to come from someplace. Other people selling shares to the VC doesn't put any money into the company. The company needs to sell shares, and create shares if it doesn't have any left. It's often abused, and easy to abuse, but you are making the story too pat by saying it exists only to screw over employees.
- mywittyname 10y ago
  In egregious cases, you could probably sue the board and win. Another user here discussed an example where employees were diluted to a literal penny right before a sale. If the employees didn't win in that case, then there's some fundamental, structural flaw in American laws.

by anthay 10y ago

walkingolof 10y ago

Yea, and dilution is just one issue, its almost impossible to know as a employee what the stock options represent, you have no insight in to the corporate structure and what entity the stock options are given for. Its just all a lottery ticket...

new299 10y ago
It is possible to know. In the UK it's easier to know than in other countries, private companies still have to disclose share ownership and file public accounts (which you can download from companies house). It's just that this information is often not provided or explained. Why companies think it's ok to say "you'll get X shares" when X is a meaningless number without more information, is beyond me.
- arethuza 10y ago
  There can be all manner of agreements in place that mean that the mapping from the share ownership structure pre-IPO/acquisition might not be straightforward. e.g. When the company I co-founded went public there was a ratchet agreement in place (amusingly, which we'd tried to get removed at the time of the first round of VC investment) that gave us large amounts of new share options that was much larger than the employee share option scheme. Things like liquidation preferences also can also have a huge impact and as an employee your are probably not going to get visibility of all of these and I'm pretty sure none of this will be in Companies House!

aedron 10y ago

But the dilution happened because your company had to sell out a lot more of its equity in order to succeed. You were not cheated. You could argue that you should have been offered to buy into the additional financing rounds in order to retain your share, but in all honesty, would you have taken them up on such an offer?

cmdrfred 10y ago
I think the issue is they probably offered lower than market pay and "half a percent of the company" but what he ended up with was lower pay and .00025% of the company. Sure it's all legal and his fault for not understanding the fine print but I understand why he would feel cheated.
- aedron 10y ago
  The company could have shut down, and he would have gotten nothing. Would he have felt cheated then? Instead they sold a part of the company (out of everybody's share) and with the money that brought in, they eventually succeeded. I don't see anything unfair in it.
  - wastedhours 10y ago
    But also, the company succeeded due to the people who worked there working for less than market rate. Obviously dilution and all of the (fairly numerous) ways your share can be reduced are a risk factor and need to be taken into account, but still valid to feel hard-done by. Just because it's fair doesn't mean it's an easy pill to swallow.
  - cmdrfred 10y ago
    I think the moral of the story is rate equity like that as worthless and refuse to work at a discount for it. These contracts are complicated and as a programmer you likely won't completely understand them unless you get a lawyer involved.
    - 10y ago

adrianN 10y ago

You did not specify "multi" further, but 30k * 1/0.5% is around 6 million. So your assessment seems at least in the right ballpark?

anthay 10y ago
It was a private sale to a US company. I believe it was for an amount many times that figure.
- kurthr 10y ago
  Indeed... it's likely that the board issued themselves new stock to prevent their dilution, but not yours. As an extreme example, I watched a startup in a private sale issue new stock to those on the board such that all of the other early (0.1-0.5% stock ownership) employees were diluted to $0.01. The total valuation was in the $100M range. It was a good way to make a few enemies and retire at 30. In the end the acquiring company ended up having to hire some of those employees back for consulting... I believe several of them received >$1k/hr. Most of those employees suspect that the acquiring company tacitly signed off on the issuance of new stock.
  - shostack 10y ago
    You bring up a good point though which is that if you stand to make millions and retire early, and it comes at the expense of your employees making a comparable amount, is it worth it to screw them over? Unfortunately in this messed up world and rollercoaster economy the answer is often yes, it is better to put yourself first. Not that I would, but I can see how those who do justify it.

neffy 10y ago

Ten years ago it was much harder to find information on all of this - and even if you went in knowing it, there was little or nothing you could do about it. I knew enough then to discount options to 0, but I'm permanently jaundiced in retrospect by just how many outright lies I was told at interviews, and saw being told to my colleagues.

st3v3r 10y ago

Diluting shares should be straight out illegal. There is no reason for it other than fucking over employees. You know, the people who have actually worked to make the company a success.

danielweber 10y ago
Dilution is way too easy to abuse, but there's a lot more to it than just "fucking over employees."
- st3v3r 10y ago
  Really? Give me one example where it doesn't fuck over the employees? And don't say "they get to keep their jobs", cause if that's all that's needed for benefit, we might as well devalue the options to 1 cent, cause after all, they still got to keep their job.
  - danielweber 10y ago
    Shares need to come from someplace. Other people selling shares to the VC doesn't put any money into the company. The company needs to sell shares, and create shares if it doesn't have any left. It's often abused, and easy to abuse, but you are making the story too pat by saying it exists only to screw over employees.
mywittyname 10y ago
In egregious cases, you could probably sue the board and win. Another user here discussed an example where employees were diluted to a literal penny right before a sale. If the employees didn't win in that case, then there's some fundamental, structural flaw in American laws.