An emergency loan with no change to the service whatsoever? They are really having a deer in the headlights moment.
Reminds me of a startup I worked with once.
The goal wasn't to make a viable product. It was to make a big splash and get bought.
10 Start a product/service
20 Make a big hype and get lots of publicity
30 Get bought by some larger company that sees you as a threat/opportunity
40 Founders get big cash payout, everyone else gets the shaft
50 GOTO 10
This unfortunately is probably the untold goal of 80% of startups around the Bay area that have unsustainable business models.
What I find ethically borderline is that no founders will admit this, they will all pretend their goal is to make it a super successful sustainable company.
As you said, the issue is that founders will usually get a moderate payout (a couple Million$), while even early employees will get almost nothing.
It is slimy, and I had to learn that the hard way. There is a lot of sleaze in our industry.
But as someone who has spent his entire career working startups, and just a human who has seen other scams before, I think the cliche about not being able to con an honest person is fairly true. If you buy the hype that you'll make an unreasonable amount of money in a short period of time, well, buyer beware.
>As you said, the issue is that founders will usually get a moderate payout (a couple Million$), while even early employees will get almost nothing.
How is that an issue? To quote Robert T. Kiyosaki's book "Rich Dad's Cashflow Quadrant: Rich Dad's Guide to Financial Freedom": "Your boss' job is not to make you rich. Your boss' job is to make sure you get your paycheck. It's your job to become rich if you want to."
Exactly, also asymmetrical decision power and non-aligned incentives.
If you are a founder and you get a proposal for a 10M$ acquisition, you know you will make something around 2-3M$, which is not too bad.
The employee however will make a small 100k if he owns 1% after dilution, which is usually not the case. This is after many years of hardwork, probably taking a paycut of at least 100k$ per year compared to a big company.
Honestly, as an employee, I don’t care. I won’t be persuaded to take a lower than market salary for the promise of equity. If the company does well and I make some money off of my equity, it’s s bonus. If not, I call my list of recruiters and have another job in 2 weeks to a month. I’m no special snowflake, good developers who keep their skill set current can easily get a job. I’m nowhere near the west coast but it’s been the case for me for 20 years.
My criteria for a job is the technology stack, the environment, and the money.
I have to 100% disagree about your assessment of ethics. If you're hiding things from your employees so you can get your bailout and shaft everyone else, how is that ethical?
You're statement has an underlying assumption that founders are hiding things from employees.
As stated above, I think its that employees aren't asking the right questions.
It's like when purchasing a vehicle; it's up to the buyer to educate themselves. Savvy buyers get better deals. We'd like to think of our industry as a meritocracy; but it's still largely based on humans with monkey brains,and greed is a powerful incentive.
Who are we talking about here--founding employees who are presumably taking lower than market salaries for more equity, or someone else?
I asked our CEO to give us an update on our runway, and he told me. I guess he could be lying, but I don't see what purpose that would serve.
At my previous company, the CFO was invited to our semi annual engineering meetings, and he'd give us the last quarterly numbers, along with a lengthy Q&A.
At the startup I co-founded before that, the CEO/co-founder was very transparent about our financials and gave me all the time I required to understand the impacts of the business decisions he was making.
Before that, at INRIX, at least once a month during our weekly all-hands, we'd get our financials detailed to us.
Being a founder requires optics, progressive disclosure, and getting creative with the representation of data, but in my experience, I've yet to be in a situation where I felt I was lied to, or purposefully misled.
I actually worked for a startup and during its last days, they had weekly meetings telling us the status. We all knew the end was coming. After we all got laid off, we took our severance, and everyone had a job in two or three weeks.
The only possibly unethical thing here is if equity was used as a carrot when hiring you. Other than that- do you like the job? Are you happy with the pay?
I find it non acceptable that founders get out of LowBall acquisitions with a couple Million$ , while early employees that worked almost as much, will in the best case get out with 100k$, in the worst case nothing (depending on the shares classes)
On the ethical side, I fully agree, however that‘s not how things work. Investors are insured through liquidation preferences. If shit hits the fan, it‘s very probable that they will get at least their money back with a firesale or an aquihire. For all of these variants of an ordered shutdown, you‘ll need some coherency though. Nobody will buy a sinking ship with 90% of the crew already gone.
Im cases like these, founders are in a strong position, even if on paper, their shares would be worth zero. So for their service to stay on deck until the last moment and let the band play (in order to save some investor money), they are usually generously paid from the remains — the term you‘re looking for is carveout.
Punishing founders will make the investors look bad and cost big money, so both sides collude at the cost of the employees.
Unfortunately, I know of a startup that did exactly this and made out like a bandit.
An acquaintance of mine started some Java/Web startup when the web and Java were just taking off (1998? 1999?). He made a lot of noise. Then he hired a top B-school alumnus to specifically get his company bought out, and promised him a large chunk (30%? I don't remember) of the company if it went for more than $X million. Well, lo and behold, the B-school guy found a sucker and the company sold for close to $50M. This guy retired right away, and now cruises around as an "angel investor".
Yeah, that was a popular pattern in the early 90s. Basically take a EE PhD thesis, dress it up and build some early engineering samples, file a patent application then go to Cisco saying "buy us or we'll make this product".
Reminds me of a startup I worked with once.
The goal wasn't to make a viable product. It was to make a big splash and get bought.