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Comment by khazhou | Hacker News Reader

Sure, these founders went too far, but the basic problem of Founders >>> Employees is there at every startup. When even employee #1 at typical SV startup signs on for 1% and employee #4 already for half that, why do “employees” still think there’s anything equitable about equity?

Listen up, prospective employee: if your founder makes several million, you’ll get zilch. If founder makes tens of millions, you might get enough for a modest car. If your founder makes over $100 million, you might have enough for a down payment on a house. Then you can go to the next startup and work super hard all over again to try to mint another mega-millionaire.

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This fatalist attitude is just as bad as the overly naive attitude that I'm sure left many employees of this company feeling screwed.

Employees have agency. Founders don't have some magical power over you with which to screw you. You choose to work for them in exchange for money, stock, whatever. If stock is a sizable part of your compensation, you probably should be asking a lot of questions about it. How many shares will I get? How many shares do you have? How is the company doing? What are the future plans? When am I going to get liquidity? Do your own accounting. If they won't give you the information you require, don't join! If the company isn't hitting its benchmarks, leave! There are lots of other companies out there to join, including many publicly traded ones so you'll always have the full financials (and liquid stock).

If you do your homework and are serious about continually evaluating the company at which you work, you will not get screwed. Your time is the investment, and every 3-6 months you should re-evaluate whether the company is the best place to work. You don't owe the company anything! They need to keep proving to you, quarter after quarter, that what compensation they are giving you is worth you continuing to work there. Are you guaranteed to be successful? Of course not. Being an employee of a startup is risky, and you might make the "right" move that ends up not working out. Just from this article it seemed to me there were many clear warning signs this company wasn't all it was cracked up to be, and some employees didn't evaluate the company's trajectory properly and ended up getting screwed. It's a lesson learned but I'm sure many of them could have pointed out in retrospect where they went wrong.

And I'll also add that being a founder sucks, and being an employee is comparably much easier. First, getting companies off the ground is really really hard and founders have to do that themselves. As an employee you can look around and join a company that already is showing some traction, saving yourself a bunch of time and frustration. Additionally, as an employee you can and should leave if the company starts falling behind its benchmarks and you think there are better opportunities elsewhere. As a founder you can't really do this, you basically have to stick it out until the end.

So basically, being a founder isn't any better or worse than being an employee, they are different paths with different expectations, and each one of them has to be done with care to get the most out of it.

"This fatalist attitude is just as bad as the overly naive attitude that I'm sure left many employees of this company feeling screwed."

No, it isn't. It's reality.

"Founders don't have some magical power over you with which to screw you. "

They absolutely do. They have the power to dilute your share to nothing, and they have the power to make special deals which cut you out of receiving anything.

"And I'll also add that being a founder sucks"

That doesn't change a damn thing. That doesn't excuse for one second the shenanigans that founders pull to screw over their employees.

Seriously, this idea that we're entirely in control of our own destiny, which has the side effect of blaming the victim over the whole thing, needs to end.

> They absolutely do. They have the power to dilute your share to nothing, and they have the power to make special deals which cut you out of receiving anything.

This is an exaggeration. Founders/officers don't have the power to dilute the common shareholders "down to nothing" unless they believe it is best for the shareholders. All officers have a fiduciary duty to the shareholders, and can be sued if they violate this.

People get confused because in cases like this the company sells for $100 million and the investors get something, the founders get something and employees screwed. Then they take to leap to say employees ALWAYS get screwed! The truth is, if your company raises $150 million and sells for $100 million, its a fire sale. If you are an employee, you are never going to get anything in a fire sale, so you had no reason to expect anything in the first place. As an employee, you will only get paid with equity if the company grows REALLY REALLY BIG. If the company isn't growing, or isn't growing fast, employees not get anything. This isn't a scam, this isn't some founder trick, its just the way companies work. If the company isn't growing REALLY REALLY FAST, leave!

Yes, it is sleazy for the founders to be showing a document with a "what-if" valuing the company at 5B when it ends up selling for 100M. But as an employee you must be able to differentiate between a 5B company vs a 100M company, that is literally a 50x difference. If you can't, how can you possibly complain?

"This is an exaggeration."

No, it's not. We're literally in a comment section about that very thing happening.

"If you are an employee, you are never going to get anything in a fire sale, so you had no reason to expect anything in the first place."

Bullshit. The leaders of the company got quite a bit, so no, it is not unreasonable to expect those that are actually doing the work to get something.

You are trying to excuse these shenanigans as perfectly acceptable, and all it's doing is coming off as saying that employees should just shut up and deal. But you're not giving anyone any reason why they should agree to these shitty terms; why they should bust their ass just to make some founder rich while they get stuck with nothing.

And then you have the absolute gall to blame this on the employees, saying that it's their fault they didn't leave in time. As if it's somehow their fault that the founder was a scumbag who fucked them over? And as if that the vast, vast majority of startups aren't doing the exact same thing?

You have no defense for any of these actions. The blame rests solely on the founders who sold out those that worked hard for them. And I really, really, really hope that these stories get around, so that it makes things incredibly hard for scumbag founders to try and deceive hard working people into working for worthless equity.

> The leaders of the company got quite a bit, so no, it is not unreasonable to expect those that are actually doing the work to get something.

It is unreasonable to expect it, because that isn't how the law works. The employees can complain and file lawsuits all they want, but they'll probably lose. It's a fire sale with retention bonuses for the officers by the acquiring company. That is all very standard stuff that the courts of law will not overturn as unfair unless there was some fraud that goes beyond what was written in the story. A founder selling a very optimistic viewpoint of their company's future is not against the law.

But guess what, if you are buying that viewpoint and trusting the founders, that's on you. As an employee you have the power to do 2 things: not join companies run by sleazy people and quit companies that are going poorly. If you don't exercise either of those options, you are leaving yourself wide open to be screwed.

And look, if you want to sit back and tweet at how horrible these founders are, go for it. I do think bad behavior like this should be called out as a massive signal to any future employees not to work for companies started by these sleazeballs. But don't talk about how silicon valley is a rigged game that employees cannot win. Silicon valley right now is a fucking gold rush for employees. There are lots of great companies out there paying lots of money to software engineers who take the time to find them. This company was not one of them, and the employees gave up a lot of value working at some shit-ass company instead of finding a good one.

The entirety of your posts on this topic have come down to, "Either bend over and take it, or leave the company, in which case you get fucked out of your hard earned compensation as well."

"But don't talk about how silicon valley is a rigged game that employees cannot win."

Why not? This is not the first story we've heard of this, and it won't be the last. In fact, I'd say stories like this are far, far more common. So yes, I will keep beating the drum that the game is rigged, until it isn't. Because it absolutely is, and you have to be incredibly blind, or benefitting from the rigged game, to claim it isn't.

Evaluating the worth of a company and stock options is very hard and usually requires several skill sets the employee doesn't have, as well as information the company is reluctant to give out.

If I asked the founder for all of the financial documents the company has signed so I could know it's obligations, I can't imagine that a majority of the founders/CEOs would say "sure here you go". And even if they did, the cost of a lawyer to go over all of that paperwork to make sure you didn't miss anything would be expensive.

Learn the skills!

Financial literacy is a very important skill. Yes, startups are complicated. To be an informed employee you need to deeply understand how stock options work, you need to deeply understand how startup financing works, and it wouldn't hurt to have a general understanding of business. And look, if you just want to be a software engineer, then you don't have to learn these things, but then you can't complain if you get screwed. Or take a job at a publicly traded company and use the stock price as a proxy for how the company is doing.

And as for the availability of the documents and financial information, the main ones you care about are: revenue, expenses, total burn and cash in the bank. Any company that will not reveal those is being shady, full stop. These figures should be so top of mind the CEO or CFO should know them off hand without even having the look. A good company will share all of these with the full company every month or quarter, because they are really important indicators of how the company is doing and what the overall strategy should be.

You don't need a lawyer. You are not auditing the company, you are just getting a sense for the company's trajectory. Your job is actually really easy. If things are going well that is normally obvious. Revenue going up. Burn going down. Fundraising rounds at higher valuations. If these things aren't happening or you suspect something shady is going on, leave! You don't need to break the case, just get a better job at another company that is doing better.

"the main ones you care about are: revenue, expenses, total burn and cash in the bank"

That's part of it, but not all of it. Total number of outstanding shares (including warrantable shares!) can change the complexion of things a lot. And then there's the question of preference -- deals that a company made years ago can make for a big difference in share value.

Unless a company has an incredibly clean cap table, a rank-and-file employee will never really know how much their shares are worth until they are either worthless, or have a cash-in-hand buyer. What you're talking about is the general case of "things are moving in a pretty good direction", and that's important. But to really gauge value of a stock option is much, much more complex (and is constantly changing!). Even if an employee were able to come to a reasonable estimate of common stock value, one bad month can wipe that away (an emergency $5m round to make payroll? a loan backed by stock? a long-term lease backed by stock?).

Most of the time the company should share with you the most relevant info: # shares outstanding, liquidation preference on the term sheet, strike price of shares, FMV of shares and so on. If they don't then run. They're making you a deal you can't properly evaluate.

And if your founder fails (like most startups) and ends up wasting several years earning no income then you get to have had a modest job for however long the founder was able to last

The founder will swan straight into his or her next Series A without missing a beat. They have already proven themselves to be a willing pawn for VCs to exploit Workers after all. The petit bourgeoisie, if you will.

I’m thinking a lot about this right now. Do you know of any successful company that did not adhere to giving conventional (i.e. very small) amounts of equity to employees?

I’m also wondering whether giving significantly more equity than usual to employees would deter potential investors, even if their own share of the cake remains the same (i.e. only by diluting the founders).

welcome to the collusion club. don't worry you'll never get the right to vote on anything. so even if you did get any kind of weird deal they'll just "fix" it in the next round, or your company goes up in flames.

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