Comment by justinlloyd | Hacker News Reader

Comment by justinlloyd | Hacker News Reader

I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has a perfectionist attitude to the user experience. Which in a start-up is deadly.

Now, as I said, the start-up cannot meet its capex obligations and the current funding round is looking grim. It is definitely going to be a down round and it ain't going to be pretty should a term sheet get thrust under our collective noses. To get the developers motivated to stick around a little longer, "generous" equity packages are on offer, with a request to convert over-due back pay and future payments too, into equity .

When I sought transparency - "Can I see the cap table?" - "Can I see the terms of the investors?" - "Can I see anything?" - the answer was invariably "no." Essentially, they're asking me to make a nominal investment of over $200K in the company, accepting common stock in lieu of pay without any insight into the financials or the terms provided to other investors.

It's worth noting that I had previously given the start-up a sweetheart deal, significantly discounting my usual rate and offering generous payment terms, in the spirit of support and belief in the project. This makes the current scenario even more disheartening. Compound that with what has become an overall toxic environment that I have euphemistically called "challenging" when asked to sum it up, and the future isn't bright enough to wear shades.

Now this isn't exactly my first rodeo. I've seen the beautiful side of start-ups and liquidity events. And I've seen the dreadfully ugly side too. Hard lessons learned. And the ugly side shows up way more than the pretty one.

I swear, some entrepreneurs must think I stepped off the boat yesterday.

If they owe you back pay and they're not being transparent about their "equity offer" you need to take steps to get in line for your money NOW. Talk to a lawyer. Assuming this is the US since you're quoting dollars: if you're an employee, a complaint to the state Dept of Labor about back pay usually puts you first in line for money. If you're on contract, you might be able to get a lein on...something of value. Seriously, don't wait on this if you expect to ever get paid.

They are unlikely to show the full cap table. Consider asking for the most recent 409a valuation, the total shares outstanding, and the size and liquidation preference of the past rounds. That’s a smaller ask that will give you the most important info.

Most likely you already know the answer.

In a fantasy scenario, you could take the stock they’re offering and demand to have a more senior stake and a 5x liquidation preference.

Why is cap table sensitive? When I look at a public company one of the most important things to know is how many shares there are.

The comment you replied to did say to request total shares outstanding.

The full cap table will show how much each individual investor owns, and there are valid reasons to want to keep that private.

Could they share one with all information except names?

They're likely asking for OP to forgive them $200k. Having the full cap table so you know it's a gift isn't a big ask, it's the bare minimum.

Working without pay is the reddest of red flags in any company. It’s not even a business at that point - it’s a volunteer gig.

Yeah it can also be super illegal here in Australia - falling foul of what are essentially anti slavery laws.

If companies get caught doing things like this, they can be fined for tens of thousands of dollars “per offence” - which is something like the number of missed pay packets across all employees, the whole time this has been going on.

(I’m fuzzy on the details - a friend was an advisor to a startup which paid their employees in crypto. He looked into it - and made them pay everyone in dollars as a condition of having anything to do with the company.)

"Let's convert this back pay that you are legally owed and we almost certainly violated a couple state and federal laws by not paying you into equity" is a pretty ballsy suggestion, but couple that with not being allowed to see the cap table is the kind of thing you have board room fist fights over.

Sounds like they should fire that primary stakeholder, claw back his equity, hire someone who knows what the hell they're doing, and hope to god the employees don't walk or sue the hell out of them - both of which they probably should do.

It sounds like you already know, but that company is almost certainly in its final throes before bankruptcy. Do not take stock, get as much of your back pay as you can, and get out.

I think you're in a same-same path with this.

That is, If you say "No, I don't want equity", they still owe your back pay, there are multiple ways to get it, AND if either "back pay" or "equity" is to have value, they must have more funding. Which means, out of that funding can immediately come your back pay.

So if you take the equity, or insist on pay, both are the same in the end.

In fact, by not showing you what you need to know? They're forcing you to go after any investment they get for backpay.

I've always found, in every single case, if someone doesn't want to show me something? It's because they know they're scamming you. Or selling false goods.

No one with a sensible, reasonable deal ever desires to hide what the deal is.

In fact, you should most insist and see what the founders are getting too. And the older investors. But either way, you are 100% owed salary, without dilution, and in most jurisdictions employee wages are class A, come first, before anyone gets cash -- investor or not.

Is this the case in your region?

> come first, before anyone gets cash

Only after the taxman came over. And in most places the banks are preferred too.

In my case you are only first in line if you have a court order for them to pay (give them notice to pay, repeat three times, go to court). Otherwise you are above the shareholders only but it's not that hard to work around that so I have been told.

> So if you take the equity, or insist on pay, both are the same in the end.

Well, no. As you write yourself, if you insist on pay, and they cannot get funded and have to wind down, you're first in the line. You may not get a large percentage of what's owed, but you'll get something. And if they can get funded, you almost certainly can get everything owed.

If you take equity and they cannot get funded, you get nothing. If they can get funded, the way they avoid showing the terms, it's extremely likely there are the kind of shenanigans TFA describes and you'll get nothing.

Really, the only scenario where taking the equity makes sense is if you believe the company will do well and the funding terms will be be favorable or at least balanced. And it sure doesn't look like that.

Completely agree! Regarding your last paragraph, upthread wrote:

  >> the start-up cannot meet its capex obligations and the current funding round is looking grim. 
  >> It is definitely going to be a down round and it ain't going to be pretty

File for back pay owed and take the paycheck, not the equity, in this case.

> I've always found, in every single case, if someone doesn't want to show me something? It's because they know they're scamming you. Or selling false goods.

they may also want to hide specifics if things are going great since then the employee may negotiate hard knowing how much they can get more

Interesting, the commenter is from California, is there nothing like this in the US? https://www.canada.ca/en/employment-social-development/servi...

In Canada my understanding is that, if a company files for bankruptcy and you’re owed back pay, certainly the first recourse is getting said back pay from whatever assets the company has. But if that stone is bled dry, and employees are still screwed, the government steps in and pays their back pay (up to ~$8.5K). Not a thing in the US?

If it is a thing, the commenter would be smart to hold out for back pay. If they instead accept (almost certainly worthless) stock instead of back pay, they can likely no longer make claims like this if the company goes bankrupt.

Wow, do not understand this approach some founders take. Being “radically” transparent by showing your cap table and talking through liquidation prefs/exit scenarios with every single employee is an absolute prerequisite for me. For me this has driven loyalty and paid dividends in culture and retention. I would not work for a startup where the founder wouldn’t share that info.

How many times has a startup shown you the full cap table? Was this at the very early stage, before raising money, or even after funding rounds?

The cap table contains names of individuals. Most founders I know were reluctant to share the exact details. At the same time it's impossible to value option or equity grants without knowing valuation estimates, shares outstanding, round sizes, and liquidation preferences. Those get shared more readily.

Lump the individuals into “Angels” or “F&F” or “Employees” then you can still disclose and discuss the terms that each group of investors received.

You can at least file a wage claim without even having a lawyer https://www.calaborlaw.com/complaint/ In California, you are also entitled to more than minimum wage if you're an exempt SWE.

If you have a reasonably documented trail that you’re owed back pay, I’d take a “f#%k you; pay me” [in money, not paper] approach.

No way would I put $200K into a startup that’s facing a down round, especially not as an employee.

> "Can I see the cap table?" - "Can I see the terms of the investors?"

These questions should become so normalized that founders don’t bat an eye at it. If I am an early employee, we are partners. Wanting to know my percentage and the company’s liabilities before I sign is not unreasonable. I also want to hear you talk convincingly about your plans for future investment.

If you dont pay to get the equity at market value you're most definitely a worker.

You’re just paying for your equity in a different currency.

yeah, but one that put you in a weaker position because work based equity is often after a cliff and most likely from the non preference pool and doesn't have clause for buy in during fundraising events

Yes, if you get yourself a bad deal, you get a bad deal. There isn't anything inherently weak about trading work for equity. Don't take a bad deal.

Even when you ask that, make sure to ask for the "_fully diluted_ cap table". It may seem like a small detail, but if you get a cap table that's not fully diluted then what you see may differ a lot from what it ends up looking like once investors exercise their options.

> I swear, some entrepreneurs must think I stepped off the boat yesterday.

Or can be bullied into accepting, even if you aren’t clueless. I do know people like that. Conflict is more painful than loss.

IIRC (depending on where it's incorporated) if you exercise an option so that you own a share, you are entitled to see the cap table.

Intrigued as hell by this comment.

But, can you clarify? You say they should know you weren't born yesterday, but your post also implies you're working with these people.

What's the missing detail?

What are you getting out of this that makes the other red flags "worth ignoring"? What keeps you showing up?

Are we working at the same company? :)

Probably. :)

Look to your left.

And whatever it is you do, don't blink. Don't. Ever. Blink.

What do you mean by that?

It's a Doctor Who reference to the episode “Blink”, which introduces a villain race of statues that can move, but only when unobserved.

Incoherent snippets of dialogue seen on a DVD turns out to be half of a conversation being had with a specific viewer in the future, a transcript of which goes back in time.

Did SCP-173 rip off this premise?

https://scp-wiki.wikidot.com/scp-173

I think it's a pretty old idea (things which you can't look at, or which can't look at you, are certainly _very_ old mythological ideas), but... maybe? SCP showed up at about the same time as the first weeping angels Dr Who episodes.

The SCP page itself was created on 2008-07-25, while the episode aired on 2007-06-09, so it looks like the BBC was more like a year prior.

It's a quote from the Doctor Who episode "Blink"

I think it's a political statement. ‹clicks pen›

Hello, Sweetie.

What is meant by "cannot meet its capex obligations"?

Yeah this perplexed me. If they are up against it, why they are they doing capital expenditure, if they have shit all captial.

I assume its either opex (operating expenses) or they need to buy $big_thing to get to the next stage of growth.

"Obligation" implies they have some sort of requirement.

It means they’ve missed payroll. I have no idea why this poster is still working there or even considering this offer.

Your writing style is the inspiring level kind.

Leave my dude. You'll be better off

I am just outlining the current situation. Nothing stated in my grandparent comment about my future plans.

Had a one hour casual chat with a start-up game studio in early February, and the offer came through in email on Friday for significantly more money and an interesting problem.

Had a one hour on-site casual chat with an established robotics company today, that stretched out in to about five hours of casually meeting the team, grabbing coffee with the CEO and CTO and a verbal offer at the end of the day. It is for more money than my current position, but it isn't significantly more money.

I have some thinking to do over the next couple of days. Plus a few more casual chats with companies lined up. Not sure if I should pump the brakes until Game Developers Conference though and see if there is anything there that's interesting. Work tends to fall out of the trees at that place if you shake the trunk hard enough.

Are you evaluating the pay at the current place as if there was no missing back pay? As "slightly more money" sounds like "lots more" when the current place isn't making payroll

> Are you evaluating the pay at the current place as if there was no missing back pay?

Correct.

> As "slightly more money" sounds like "lots more" when the current place isn't making payroll

Also correct.

I am also evaluating the offers in terms of what I think I should be paid to make me satisfied with the compensation on offer.

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