Startups define different classes of stock. The class A shareholders are the founders and investors. Everyone else gets class B shares. The A class shares don't get diluted, and they are inherently worth more anyway.
VCs get preferential shares, not common. Preferential shares have economic rights to protect the investors, but more importantly they usually have extra control rights like veto abilities, board seats, IPO control, or ability to sack the founder (which may even cut out the founder's voting rights by sunsetting their class A common into class B common shares).
Employees get a third tier of stock (e.g. options that convert to non-voting class B common shares).
After IPO the preferential sheets becomes common shares. The dual A class may be removed or have sunset clauses because large public investors prefer one plain common share class.
Not a VC - so take above as written by a student. Founders in zero sense have the same voting control as VCs.
Edit: VCs play the same game over and over again, against different innocent founders. VCs know how to stack everything in their favour - especially using social cues and "norms" that benefit them. My favourite article on this is: https://siliconhillslawyer.com/2019/02/18/relationships-and-...
Pref shares with a 1x preference are still worth like 10x common stock in early stage companies and it’s common for employed to get fucked by this.
Founders don’t get preferred shares (I think it’s really, really rare). There is founder pref stock, which is somewhat different. It’s common for founders to cash out some shares along the way, though.
If they were in job where they were saving $50k a year, then after becoming a founder they should be getting $50k worth of preferential shares per year because they are investing that much in the business.
Not that I've actually ever heard of founders getting preferential shares to match their dollars invested.
So that's a scam by the founders to the employees, in my book. It's fine, it's just that I am not sure young professionals joining a startup know that.
Said differently, if you join a startup, you should not work too much without compensation, and you should not care about making it super valuable, because you don't benefit from it. If you have a super good idea or realise you have expertise that would make the startup valuable, you should leave and become a founder yourself.
Would you mind asking before saying what I have been promised?
Also it feels like you have never been in a startup. The whole language of growth everywhere, the "billion-dollar startup", the "becoming a unicorn", this is all suggesting that "you're part of it and it matters to you if it becomes a unicorn". But it doesn't, really. Because you get diluted.
At this day and age, if you don't understand dilution before you join, it's entirely on you.
This isn't a new concept - it was the case decades ago. Even when I left school over 15 years ago, the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."
And class A vs class B isn't even a rich vs everyone else thing. I have class A shares in an LLC, where even the (richer) founders are class B. The operating agreement is that we class A folks are "guaranteed" a fixed rate of return on our investment, and the class B folks don't get anything unless we get at least that rate of return. This is very normal in that industry.
I don't know what to tell you. Young graduates get an offer to work at a startup, nobody tells them how it works. They are just excited, as I was. And they don't think about "what happens if the startup is successful" because they do know it probably won't be.
And when the startup is successful (happened to me) is when they realise that they got scammed. But all they can do is see their founders become rich and tell everyone why THEY deserve it because it was THEIR idea and THEY are the best.
> the standard advice when trying to get a job with a startup was "Get a good salary and value the equity at zero."
That does not say AT ALL that the founder gets rich when you get nothing. It says "be careful, most startups fail, so make sure you get a salary". Usually that salary is subpar.
That one is covered under the standard advice of "comparison is the thief of joy".
>Usually that salary is subpar.
If it was subpar, then the salary would not have been accepted.
Turns out it was. Young graduate excited with the mission, and all that bullshit.
It would be a scam if they promised you 0.2% of the company but then it was diluted to 0.1%. and nobody prevents you from asking i think. Otherwise it's no more a scam than a lottery ticket commercial showing the guy who won a Ferrari.
I guess being honest brings about too many opportunities for people who don’t understand the finances to make (or be perceived to make ) promises they can’t keep. So you might as well just get into a race to present the most ridiculous stuff possible.