Open guide to equity compensation

One other trick I learned about and should warn others about - getting an offer for shares (an employee level %) where there is in fact no options pool and existing shares will be diluted for every new employee who joins the team. I got such an offer, and not only was this information not given to me until I asked about any events aside from funding rounds that would be dilutive, but it was presented as standard operating procedure.

>getting an offer for shares (an employee level %) where there is in fact no options pool and existing shares will be diluted for every new employee who joins the team

How's this different than if an option pool exists? The more people have options, the further the pie will be split up. Having an option pool or not doesn't change this.

First, dilution should only be happening at funding events, not every time a new senior staff person is hired, and second the dilution should affect everyone equally— founders, execs, angels, VCs.

It's super unfair to give an employee "x shares" that turn out on exit to be shares of a fixed pie that is different from the one the investors have their shares in.

there is a proxy to check this - investor quality. Every high quality investor - including YC - forces an options pool. The post-money SAFE created by YC accounts for an options pool ("The Post-Money Valuation Cap is post the Options and option pool existing prior to the Equity Financing").

high quality investors will in most cases, decline a fundraise if there is no options pool - since it signals that the founders are not serious about the most valuable asset of any startup.

The people.

When the option pool is created that is the dilutive event, so new employees getting their grants doesn't result in current employees being diluted, because the entire pool was already taken into account.

I've found getting info around stock options at startups is often really hard. It's not very transparent. For example, the total diluted shares isn't shared or sometimes even the current valuation isn't shared. LoL good luck with ever seeing a cap table. Often times that makes it impossible to even determine their value.

There can be value here for sure, but everyone dreams big, never asks questions, and never tells. My other favorite in this industry is "stealth mode" lol.

But that’s not true. An options pool containing shares owned by the company is the same from a “how much of the company do I own” perspective as unissued or even uncontemplated shares.

The only real advantage to the options pool is ease of management of the shares. There’s a lot of paperwork around issuing new shares you don’t want to do it every time you hire a programmer. And I guess you could argue that telling people the pool exists lets them not be surprised by the future dilution when they’re issued. But the pool itself hasn’t diluted anyone.

Dilution is created by increasing the number of shares held by the company’s owners. Actions like issuing shares from a pool (or the inverse, buyback or cancellation of grants) affect every shareholders relative dilution.