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.
Don't defecate where you eat; don't invest where you work.
> "Don't defecate where you eat; don't invest where you work."
That sounds pithy, but I don't see why that's good advice. If you work in a role where you can have a significant impact on the success of your employer, that can be a very advantageous situation compared to being a random investor in a venture you have no agency within. You also potentially have a lot more visibility than a silent investor. These are reasons one might choose to take equity over cash.
Had you argued that it might not be a universally great idea, from a portfolio management standpoint, to trade a lot of upfront cash for illiquid, volatile stock option, I'm with you.
If you don't have a contract (you are "at will"), don't invest in your employer, ever. If you do have a contract, but can be fired for any reason that is outside your control, don't make an investment that is not completely liquid. If you can make the stock price move unilaterally, perhaps you should consider shorting it, quitting, and airing all the dirty laundry in public? That would be a dick move, but so is diluting all your employees into oblivion so you get a bigger share of the payout.
If one cannot raise enough capital to execute on the business plan, I question the value of the investment. In any case, the market is not homogenous. If you can't afford the market wages in Silicon Valley, move your startup to the Rust Belt. If you can't afford those wages, hire remote from Britain, Australia, or India. If you can't afford that, try your hand at lowballing freelancers. Or maybe hire one 40+ developer at 120% median pay instead of two 25-year-olds at 80%. Tricking your employees into thinking you're paying them more than they're actually getting is not a viable way to conduct business in the long run. Believe it or not, there is value in not being a scumbag employer.
People on HN sometimes talk a big game about negotiating job offers, but in my experience, most software engineers are terrible at it, and are not equipped to go up against enormous companies with a lot of resources dedicated to paying them as little as possible.
Forget negotiation. Just saying "I want $XXX" when interviewing for a position is a simple thing to do. What's the worst thing they can do? Not hire you! What's the best thing they can do? Give you what you asked for.
Is it really that hard to say "I really like the position you're offering, but unless you can meet my salary requirements, it's a non-starter?"
http://www.kalzumeus.com/2012/01/23/salary-negotiation/
We should all read this once a year. Even if you can't take it all to heart, whatever you read will help, and getting your colleagues to negotiate better will raise your rate, too.
I see nothing but unfairness in this.
Except that every dilution I've witnessed has come with re-upping the people who really Matter. Current employees we want to keep, and people sitting the board room.
Not everyone takes an equal hit from dilution. Some don't get hit at all. Some can get hit but handle it. (A founder diluted from 10% to 5% still is sitting on a huge nest-egg. An employee diluted from 0.01% to 0.005% may see her 200K payout changed to 100K.)
Of course that kind of insight would lead to employees jumping ship when there is trouble...