Equity Diluted @ Startup

Sep 17, 2019 11 Comments

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.

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TOP 11 Comments
  • Microsoft ufhudv
    Take to some lawyers first.
    Sep 17, 2019 0
  • Front App / Eng
    28109

    Front App Eng

    PRE
    Dropbox
    28109more
    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.
    Sep 17, 2019 0
  • Microsoft hiNi00
    Fool me once....
    Sep 17, 2019 0
  • Oracle openworld
    Yeah anti dilution clause is the way to go
    Sep 17, 2019 0
  • Microsoft Jamsa
    You know your app. Release a competitor.
    Sep 18, 2019 0
  • New / Product IRHB57
    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.
    Sep 18, 2019 4
    • DoorDash M7sU5jQi
      Got it, even though I don't think it would be a common practice. The new investors would want to see the founders hold on to the stock until IPO and later.
      Sep 18, 2019
    • Microsoft Jamsa
      It doesn’t work that way. CEO should worry about % ownership while employees should worry about cash value of their stack. If company valuation goes up by 50%, they can issue 50% more shares without diluting employees. Typically a good faith and healthy startup would issue more shares such that projected cash value for everyones stack monotonically increases with each new valuations, although it may not be proportional.
      Sep 20, 2019
  • Facebook public2
    Now you know, what's the question here?
    Sep 18, 2019 0

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