Any shareholder of the company has shareholder rights, and in fact you would get a vote on any change in ownership of the company (of course your vote probably wouldn't matter at all, but you still have one). Another of these rights is that the executives of a company have a fiduciary duty to all shareholders in their decision making. However I can imagine situations in which the story you've described is both completely reasonable, or situations in which it is grossly illegal. But of course it would only be illegal if one or many shareholders sued the company and won, which is where the lawyer comes in.

There is no sense in sharing any more details here on HN, find a lawyer, talk with them in detail about the situation and listen to their advice.

Some recent threads:

https://news.ycombinator.com/item?id=25487130

https://news.ycombinator.com/item?id=25496166

https://news.ycombinator.com/item?id=25493646

https://news.ycombinator.com/item?id=25469435

Evaluate a startup equity offer as an investor would. Ask about the cap table (you don't need to know names, just numbers), ask about the company's financials. Ask about growth plans. Don't work there if they don't tell you these things.

Do some market analysis. Try to understand the motivations of different agents in the game (founders, VCs, potential acquirers). Watch some YC videos — they have great resources on youtube for both founders and angel investors.

Understand how stock options work, there're whole guides on this stuff nowadays. Exercise early if you have capital and conviction about the future of the company.

This stuff is complicated, might seem daunting, and will take a lot of time to really understand / master. But do this early in your career and it will pay off many times over.

this is not possible to do. Nth+ employee is almost nothing like an investor: no leverage, almost never access to the same amount of information and very last in line to cash out due to liquidation preferences. Basically, you have roughly 1/100th of leverage and information a typical company investor does so it's almost always a leap of faith, maybe based on some proxy observations. Sharing the cap table with an employee is something I've never heard of, unless maybe you're employee number 1 or so.

The game is rigged against you. You do have a lot less information. My point is more like, don't just give up and instead try to understand and learn the game, try to improve your chances. I see so many people (friends, acquaintances, coworkers) making poor decisions with these things simply because they don't learn about them, and that makes me sad. So many smart people who are able to build all these complex systems, but can't be bothered to learn about how stock options work.

Employment game is rigged from the beginning against employees. Recruiters do this stuff every day, they're way better negotiators than you. They talk to each other, they know all the tricks. They know what other companies pay in similar circumstances. Finding a good job is tough and can be pretty depressing honestly, but the worst thing you can do is give up.

Learn the system, find weaknesses. Find those gems where you do get an edge. Maybe try to get a job at a small startup where you will be that #1-10 employee. Maybe the founders will be just as inexperienced as you and so you'll be able to get all this information and get a better equity deal.

RE Cap table, you're right that no company will straight up tell you exact names and numbers. And that's fine. But you absolutely have to get at least a few of them:

* how many shares are outstanding

* what's the current fair market value for the shares

If they don't tell you these two things, you can't evaluate the equity offer. If they are more open, try to get some info about founding rounds & liquidation preferences. The smaller the company is the more willing they should be to share this information with you.

Last place I wasn’t confident of their market position so I negotiated a better salary instead of stock. On acquisition I would have made around 6 months salary which I’d earned 3x more than already with a better salary negotiation and invested it elsewhere.

YMMV but “fuck you money” stock and options payments are not the norm on startups.

It's never a good idea to take a pay cut (salary-wise) to work at a startup. Moneywise, it makes even less sense to leave public company stock (esp. FAANG whose stock is growing at a healthy clip with much lower risk) and salary compensation to go work at an early stage startup (e.g., pre series-D, let's say).

It's a sucker's deal because point-zero-whatever percent of some nondescript startup is not likely to compensate for the lower wages and benefits relative to larger companies. And there certainly are jobs where you can trade lower pay for higher stability (i.e. govt). But no one in the US tech industry (big or small) ever claimed to be about lifetime employment in recent times (well maybe some crazy outlier firm somewhere does). Your long-term financial stability is your responsibility, not theirs. The tech giants will have their layoffs sooner or later too.

And if you're going to cite FAANG salaries and recent stock performance, then to be fair you need to compare it (also utilizing hindsight) to the fastest-growing startups with the best stock performance.

I'm not sure this is the case, since if you made an employment decision, say, 1 year ago (or whatever), FAANG was a known quantity back then, too.

You wouldn't know this year's FAANG performance, but you could arrive at reasonable-ish expectations based on previous years' performance, whereas a startup that was just getting off the ground at the time would be a total unknown even if it managed to make everybody rich in this past year.

As is common knowledge, though, the startups that make everyone rich (let's ignore the moderately successful ones for the moment because we're talking about taking reduced pay in the hope of future stock performance) are the unicorns, so statistically you should not be expecting that yours will (particularly if you're an employee who doesn't have the business-level decision-making power to significantly impact that probability).

Looking at some price curve and trusting it because of a trend in hindsight is just bad logic and dangerous investing. Those curves change quickly and unexpectedly, crashing right at the time when the most people become bullish believers due to being wrong so often otherwise. You can only trust fundamental reasons for investing, and those are way out of whack currently. I see the same story again every ten years and we are overdue.

My point isn't that the curves will stay steady or increase, but that you have historical data on them to draw an informed conclusion, bullish or bearish, which just isn't the case with startups.

In terms of risk, they are completely different animals. FAANG are included in the S&P 500 index, which automatically triggers investments from many funds that have rules about this sort of thing. Many high-growth startups do not have that going for them. Further, they often fail to sustain their meteoric growth for sustained, long periods, adding further imponderables to the mix. Having been at many such companies myself, and having friends in FAANG for roughly the same period, I find that on the whole, they are doing much better money-wise, and surprisingly, in terms of career development.

In terms of salary compensation, again, growing small-mid size companies again fall short in comparison to the FAANGs. The reason is that FAANGs have good structures set for performance management, career paths, and compensation increases. The former, in contrast, are almost always lacking in having good structure in these areas. So for the average engineer who's mulling a choice between the two, the risk/reward ratio tilts towards the FAANGs.

Note that I'm mostly talking about money, and to a much smaller extent, about average career growth here. There are still plenty of other good reasons to work at small-mid size companies, but in terms of money, it is difficult to argue that going to the FAANGs leaves you worse off than the alternative.

Most count their FAANG stock with 0 growth. You still get 180k for junior, 250k for mid level and 350k for senior per year.

Theoretically the idea is that if the company becomes a unicorn and has a huge IPO and becomes a new tech giant then employees will do really well financially. OP's story isn't that. If investors got "some" money back then it was a failure of business. Probably an acquihire. So neither investors or employees got the big success payout they were hoping for because it wasn't a big success. Investors got some money back and employees got paid a salary for however many years to work on what is probably a useless product.

Founders don't _want_ to screw over employees, but at the end of the day, they have a duty to their investors too and if the company is failing, the best thing can do is recoup something out of it.

I suspect some founders just never really get around to the up-front tasks that are necessary to take care of employees. It takes significant effort to put together an employee option plan. You also have to go to the mat for employee equity in funding negotiations, for example to top up early employees. It's easy to slight these in favor of tasks that contribute more directly to company success.

Startups are a venture. Join them if you want to join a venture. Don't join a startup for if you want stability or predictable outcomes.

In the past 12 months, there has been probably 20 tech ipos or more. These IPOs have been in the range of $5B to $100B. Each of these outcomes might net early and late employees anything from few hundreds of thousands to several millions or tens of millions.

The very first employees (first 1-5 employees) might get ~1-2% of the company for their 4 year vesting. That diluted over multiple rounds over the years might still mean the ownership is at least 0.1-0.2% or more. Company hitting $100B market cap after listing means the employee’s position is now worth $100-200M. That’s amount of money you can never earn with salaries. You can only earn it by starting a company or joining a startup early on with a good equity package. Both cases it's rare to achieve that but it does happen. Probably each IPO you see has a few of those.

The reality is that VC funded businesses need to be massively successful with maybe 10-1000x the returns to be considered a success and return something to the employees.

It’s called an option, so it’s an option for employees to buy the shares with ~1/5 of the preferred share price where it was when you joined the company. Investors pay higher price for the preferred shares and one of the things they get is the liquidation preference, so they get their money back first. Good rounds and VCs do 1x liquidation preference. Bad rounds or bad VCs companies might force company to n-x liquidation preference. As a founder, you don't lose with the liquidation preferences like everyone else, so it's not in your or in the company interest to do them.

This is also where the valuation comes in. A hot startup might raise a lot of money and have a high valuation early on but won’t be able to execute and scale to the level to meet the expected valuation. Now everything below and level of that valuation is considered a failure. Then if the company cannot keep executing, raise more money or just generally lose steam, they might have to sell the company to get something. Honorable founders and management would try to help to employees to keep their jobs or even see if there is way to give any of the proceeds.

Exercising options is always risky since the startup outcomes are risky. You shouldn’t exercise with money can't afford to lose.

Savy companies and savy employees join companies with extended exercises where employees can keep their options up to 10 years without exercising. This avoids the downside risk for employee but unfortunately doesn’t help with taxes. Exercising early can start the clock for long term capital gains and some cases QSBS (tax free treatment up to $10M).

Summary: options are definitely worth it if you join the right company. When considering joining the company, think how an investor would. Would you believe in team and business and invest? Check their investors, are they reputable? Join companies with extended exercise windows, exercise early if you have the means and belief the company will succeed.

The biggest tech company IPO of 2020 was Snowflake, and that had a market cap of $75bn at peak. Most IPOs and direct listings ended up with market caps much lower. I strongly suspect there were no early hires walking away with 9 figure payouts in any of them.

It doesn’t really matter if it’s $100b or $50b. You would still make at least $50m as one of the first employees.

I know multiple _late_ stage employees that walked out with several millions. It’s not hard to believe early employees would walk with 10x or 100x that.

If can believe that angel investing can be worth it, I’m not sure why people don’t people don’t believe startup equity is not worth it. It’s the same thing, but instead of buying preferred share, you buy common shares with discounted price.

Jason Calacanis $25k angel investment in Uber was worth $100m after the ipo. As employee your equity grant would be likely 10x more than that.

Also btw, companies would love not to give out equity. You could sell it to investors at higher price and dilute the founders less as you don’t need option pools.

Unfortunately, that hasn't been true for years. VC firms stopped leaving that money on the table and have been taking those gains in the form of liquidation preferences or stock grants before IPOs that dilute employee shares.

Jason Calacanis $25k angel investment in Uber was worth $100m after the ipo. As employee your equity grant would be likely 10x more than that.

This is clearly not true; there was no "Uber Mafia" after its IPO. If anything, Uber employees were complaining about how little they saw of the IPO, on HN and reddit. And that was before Uber's stock price dropped like a sinking rock after its IPO.

This absolutely need to be conveyed to every present and future employee of startup. Unless you're founder or investor taking a risk - startup shares worth nothing.

I think startup hiring managers using worthless options as a negotiating tactic should be prosecuted for securities fraud.

Misleading employees is no less crime as misleading investors.

It sounds like the company raised a round at too high of a valuation.

The rules around options really suck here (the 90 day rule isn't the company's rule, its a tax thing). There is a reason a lot of companies are moving to RSUs: they avoid forcing early employees to make long shot bets with a significant fraction of their liquid assets (or stay at the company potentially over a decade until a liquidity event)

> It sounds like the company raised a round at too high of a valuation.

Not necessarily. A company's valuation can shift up and down due to many factors - but for whatever reason, they ended up underwater in the end.

It's also common for executives that were able to get a company to acquisition to receive a "golden parachute" - e.g. a 7-figure bonus for a turnaround CEO getting the company acquired within X months of being hired.

> The rules around options really suck here

Some companies are moving to NSOs now too, which have much more flexibility in terms of post-termination exercise windows (up to 10 years, I think).

I resigned at 8 weeks of no pay, and couldn’t even legally force my company to give me a redundancy (3 years service) and I’m currently fighting to my right for 2 weeks notice pay (see note 1).

When you work for a startup you don’t have any rights to anything and you shouldn’t expect them to care about you.

Note 1: all this garbage is legal in Australia where all employee rights are hinged on insolvency and “hope for an investor” counts as not trading insolvent, which makes using your employees as creditors without their permission possible.

I’ve learnt my lesson about all of this. I will only work for established companies and I encourage anyone in the job market to think twice about signing with a company.. you need to be as confident in them for their responsibilities as they need to be in you.

It sounds like things are a mess, but also see how they are doing on compulsory super (SG) payments. The ATO can get punchy if they are a long way in arrears.

(Been there, had the pain of failed startups running out of $, now working at places everyone has heard of because they do pay the bills on time.)

Because the company refused to enter insolvency, none of us qualified for the FEG and we all went broke waiting for something to happen. Those of us who had to leave, had to resign by our own doing and lost a whole bunch of entitlements.

FW told me that this was perfectly legal behavior and "unfortunately there's no law against it". The laws are a mess. In my opinion, if an employer runs 7 days or so late for payroll, then you should be able to take a redundancy on the spot, and go get a new job that pays money, and you should be able to debt collect them for that redundancy later. Otherwise you end up with this situation. Bottom line: these companies were refused credit from the bank, so they took money allocated to salaries, held salaries, and used that instead as a form of interest free credit. And some how, for all the ombudsman and bodies that we have, it is legal behavior as long as they eventually pay everyone 9 weeks later, with no extra compensation after we've all been through hell and lived like dung. And like OP said, with an investor, now they’re laughing all the way to the bank.

The executives have a fiduciary duty to act in the best interest of shareholders. That means you. What that means in an acquisition can vary a lot depending on the specific details of the deal.

This is the extent of my legal knowledge on the subject, which is why you need to talk to a lawyer. The likely result of this avenue depends a lot on the amount at stake - if you paid like $5k to exercise, you probably pay the lawyer hundreds of dollars to send a letter and then negotiate a settlement that pays you 4 or 5 figures, avoiding the expense and risk of a lawsuit on both sides. Assuming of course, that you're already a former employee - current employees can and should have negotiated waiving their shareholder rights as part of the acquisition deal, assuming that their expertise is part of how the acquiring company is valuing the deal.

Laugh all the way to the bank, most likely.

This is sad but common. Stock options in a company that hasn't gone public should be treated as a lottery ticket: It's nice if they turn out to be worth something, but their most likely value is $0.

Wouldn't it benefit the founders more in the long term to make good with their employees for the benefit of working with them in future endeavours? I guess when you're getting a 7 figure payout, it doesn't matter because you can just retire?

If you truly believe they did something nefarious to stiff the guys at the bottom of the cap structure, and it was a fairly sizable chunk of money, you (solo, not with your ex-coworkers) could take whatever documents you've got and briefly consult with a lawyer. Just an idea from someone who has never been in your situation. I've hired a lawyer (something which I am not) to bite back at people who tried to screw me a couple of times. May be futile in your situation, IDK. You have to figure out if it's really your money they're paying out, and whether there's a basis to argue that the directors violated a fiduciary duty to you.

The founders/executives would have received payouts as the board or acquirer agreed a package to keep them onboard and smooth over the acquisition. Very common. It's not fair but that's what happens. I've seen incompetents awarded millions of dollars. Boards and acquirers don't really value employees and spend very little time discussing them, unless there's a problem.

As others have said, options and stock are a lottery ticket and should be valued at $0. More than likely, the startup you are working for will fail slowly or never become a major hit.

You should actually only accept earning MORE working for a startup than a corporate because the risk is greater, you'll be less employable after and the stock you get will be worthless.

E.g. https://www.secfi.com/products/liquidity

Basically they send you money while the company is still private, and you pay it back (+ a fee) after the company has exited.

If the financing is 'non-recourse', you won't have to pay it back if there never is an exit, or if there is an exit but one in which you don't make any money (like in this case)

So taking liquidity (if it is non-recourse) de-risks you from these kinds of outcomes.

Full disclosure: I'm the CEO of Secfi.

In theory, this approach could be applied when a start-up does not have cash reserves / cash generation to pay salaries.

If the start-up does not have cash reserves / cash generation to pay salaries, then the promised-equity has a very low value, so I'd expect the fee to be huge.

Let's suppose that they give $100. If we assume that half of the startup fails, if they want to break even you must return $200. If we assume that 90% of the startup fails or the employees don't get money, if they want to break even you must return $1000.

I agree.

In some situations where you are stuck working for the startup and need cash now out of illiquid startup equity / if you want to smooth out large risk that startup does not produce a profitable exit for you, then maybe this makes sense.

But, if you have the option to work somewhere else (a mature profitable company with enough scale so that your role is valuable) and getting paid 100% cash, it is quite likely that would be more profitable than working for the startup.

It's more like, IF you're in the situation where you have equity and don't want to wait for / be dependent on an exit (and whether the exit is big enough), this offers a solution.

Fees aren't as high as what gus_massa is figuring, because we don't finance early stage startups.

Plus in a lot of cases we enable long-term capital gains tax rates. (If you exercise your stock options early and end up owning the shares for 12+ months, the money you make is taxed at a lower rate – long term cap gains.)

As far as the motive/"is it right": I'm going to take a somewhat contrarian viewpoint than those presented so far, having seen this happen on both sides of table in my life.

In my experience, and in most cases, the founders aren't necessarily doing anything shitty or sociopathic. They likely raised more than they needed at a higher valuation than was deserved -- for perfectly normal reasons, such as a frothy market or the simple fact that in startupland raising money is considered a win itself -- and it caused a set of benchmarks that ultimately became impossible to overcome and thus the common stock became worthless.

Transaction happens, founders are considered key to the successful merger and the acquiring company worries that the merger won't be fruitful if they bail so they receive some compensation as a sign-on bonus and/or an earnout.

If you want to argue that early-employee non-founders get disproportionately screwed in regards to their sweat equity vs. actual equity, you're absolutely right but that's a different argument altogether.

- pay off investors enough so they agree to the deal

- pay off founders enough so they proceed and stick around: potentially via a 2-4yr earnout

- pay off key employees enough to retain them through M&A too: good chance via a 2-4yr earn out as well

- employees who contributed 5-10 years ago: only if a big enough sale that it's straight cash etc. (ex: 3X+ of amount invested)

The acquiring co will generally push hard for earnouts vs. direct compensation, and will pay more that way (or even back out w/out.) Likewise, investors may nix the deal if they don't get paid in $. A "$100M acquisition" might actually be "$70M to investors who had 2X participation on $35M raised" (accounting for 100% of equity-based payment) + "$20M as earnouts to founders/employees who go to the new co" + "$10M for bank account balance" + "$0 to employees from 10 years ago".

So no surprise if most employees don't get direct $. However, it's pretty doable for employees to get a nice earnout, and telling if the founders got a nice earnout while not getting one for their employees. Likewise, not surprising for ex-employees to washout, and it'd need to be a big success to change that - as in, investors get 1-2X+ of their money back first.

You said seven figures though; if Founder A was getting like, two or three, then nah, probably not.

Clearly preferred stockholders are the ones who are getting their money out of the pot, leaving nothing for people who can't hinder that in some way (i.e., non-executive rank-and-file employees).

As far as financials go, sounds like your company agreed to higher liquidation preferences, so probably nothing shady going on. Just poor business decisions that may have been necessary at some point.

However, when i left, i found out the biggest investor had a > 1x liquidity preference. It meant my options were worthless this entire time. It's a shame you have to know to ask about that or else you'll get sold snake oil.

My personal takeaway: choose the founder you trust. Even after such issues, I will be able to communicate with founder and get some justice.