Equity Diluted @ Startup
Hi Blind Community! This is my first post. Basically I wanted to vent about how me and my teammates who worked for a start up were finessed by the CEO. We built 3 apps from scratch with a promise that we'd get X% of the company each, but we were naive and didn't know that the shares we signed a contract for could be diluted. Now we basically have a fraction of what we thought we had. This CEO thinks himself very clever and that none of us would notice that he could dilute our shares but I did a few months after I fulfilled my contract. Now he is asking me to rejoin and work part time while in school for more equity in the company, or for an hourly rate. He needs me because I have the most familiarity with the mobile apps we built and the stack we use. The thing is the company might have a future and is gaining traction. I'm not really sure how to approach this. I was thinking of using my skills and familiarity with the stack as leverage for him to actually compensate me and my ex-teammates fairly and do the hourly rate, but I think he wouldn't respond well to that. What do you all think? TLDR: CEO takes advantage of students by promising them equity but dilutes their shares. Asks ex-teammate (me) with critical skills to rejoin.
You could try to get some sort of anti dilution clause in your contract, although that's pretty unusual and it's no guarantee they won't screw you some other way. You'll also need your own lawyer for this. I would be frank with them about your concerns. If they balk or try to weasel out of it, walk away. Ultimately you have to trust them, and if they can't earn your trust they shouldn't earn your work.
Take to some lawyers first.
Yeah anti dilution clause is the way to go
You know your app. Release a competitor.
Everyone’s shares are usually diluted with every new round. Anti dilution means for any new money the ceo would have to sell his shares and his shares only... doesn’t seem too fair.
What do you mean by sell his shares? You can also issue new stocks to maintain ownership percentage.
If there are 100 shares of the company outstanding and you’d like to raise money you can either 1)issue new shares or 2) sell existing shares. If I own 10 shares out of 100 today, I own 10%. If we issue 100 new shares, I now own 5%.
Now you know, what's the question here?
How are they diluted? If your company has raised new money and the valuation has changed failry, then it is totally fine. You own smaller percentage of a larger pie.
Fool me once....