Item — HN Reader

I think you're talking about liquidation preferences: http://stockoptioncounsel.com/blog/negotiating-equity-what-i...

For founders:

There's many reasons why this happens, but one of them is the negotiating power of the founders & drivers of the company. If you're desperate for cash to stay around and nobody will give it to you, you may have to take a worse deal (award preferred shares that guarantee first portion of any future windfall to holders of the shares). To guard against this, as a founder you need to steer the company so they have the right negotiating position (so you can get future investors as close to the same liquidation preferences as you).

For potential employees:

This is trickier, since you almost never have the full picture of the cap table and financial situation of the company you're considering joining. There are probably some telltale signs to look for:

- startup has raised lots of $ quickly but hasn't scaled up revenue nearly as quickly - startup is being very secretive about the size of the options pool ("we're excited to offer you 10,000 shares at 0.00001 price!" .. "How many total shares are there? What's the denominator?" .. "We can't tell you!") - you could always ask the founders (if the startup is small enough) out right about their philosophy & vision for fundraising

This is just based on my limited experience, hearsay, what I've read online, etc. Take it all with a grain of salt!

All you are saying is very much correct, but it is not what I'm talking about. In the situation I'm referring to, the terms were always clean, in other words:

- 1x liquidation preferences for all rounds

- Non-participating preferred stocks

- The company sold at a valuation significantly higher than its last valuation and they still had a boatload of cash in the bank, so they strictly sold from a position of power

Another HN user just commented down below adding more info to the shady practices I'm talking about, giving them the proper names: recapitalization and carve-out.

In SuS, YC recommends disclosing to employees both the number of shares they will receive, and the percent of shares. If a company refused to give the denominator, I'd refuse to accept them and ask for a 5k raise instead.

Does anyone take employee equity seriously anymore? Its expected value is so, so low

Do you receive shares without knowing the total amount of shares at some places? That's insane.