Most likely you already know the answer.
In a fantasy scenario, you could take the stock they’re offering and demand to have a more senior stake and a 5x liquidation preference.
The full cap table will show how much each individual investor owns, and there are valid reasons to want to keep that private.
The cap table contains names of individuals. Most founders I know were reluctant to share the exact details. At the same time it's impossible to value option or equity grants without knowing valuation estimates, shares outstanding, round sizes, and liquidation preferences. Those get shared more readily.
If companies get caught doing things like this, they can be fined for tens of thousands of dollars “per offence” - which is something like the number of missed pay packets across all employees, the whole time this has been going on.
(I’m fuzzy on the details - a friend was an advisor to a startup which paid their employees in crypto. He looked into it - and made them pay everyone in dollars as a condition of having anything to do with the company.)
Look to your left.
And whatever it is you do, don't blink. Don't. Ever. Blink.
Incoherent snippets of dialogue seen on a DVD turns out to be half of a conversation being had with a specific viewer in the future, a transcript of which goes back in time.
That is, If you say "No, I don't want equity", they still owe your back pay, there are multiple ways to get it, AND if either "back pay" or "equity" is to have value, they must have more funding. Which means, out of that funding can immediately come your back pay.
So if you take the equity, or insist on pay, both are the same in the end.
In fact, by not showing you what you need to know? They're forcing you to go after any investment they get for backpay.
I've always found, in every single case, if someone doesn't want to show me something? It's because they know they're scamming you. Or selling false goods.
No one with a sensible, reasonable deal ever desires to hide what the deal is.
In fact, you should most insist and see what the founders are getting too. And the older investors. But either way, you are 100% owed salary, without dilution, and in most jurisdictions employee wages are class A, come first, before anyone gets cash -- investor or not.
Is this the case in your region?
Only after the taxman came over. And in most places the banks are preferred too.
In my case you are only first in line if you have a court order for them to pay (give them notice to pay, repeat three times, go to court). Otherwise you are above the shareholders only but it's not that hard to work around that so I have been told.
Well, no. As you write yourself, if you insist on pay, and they cannot get funded and have to wind down, you're first in the line. You may not get a large percentage of what's owed, but you'll get something. And if they can get funded, you almost certainly can get everything owed.
If you take equity and they cannot get funded, you get nothing. If they can get funded, the way they avoid showing the terms, it's extremely likely there are the kind of shenanigans TFA describes and you'll get nothing.
Really, the only scenario where taking the equity makes sense is if you believe the company will do well and the funding terms will be be favorable or at least balanced. And it sure doesn't look like that.
>> the start-up cannot meet its capex obligations and the current funding round is looking grim.
>> It is definitely going to be a down round and it ain't going to be pretty
they may also want to hide specifics if things are going great since then the employee may negotiate hard knowing how much they can get more
In Canada my understanding is that, if a company files for bankruptcy and you’re owed back pay, certainly the first recourse is getting said back pay from whatever assets the company has. But if that stone is bled dry, and employees are still screwed, the government steps in and pays their back pay (up to ~$8.5K). Not a thing in the US?
If it is a thing, the commenter would be smart to hold out for back pay. If they instead accept (almost certainly worthless) stock instead of back pay, they can likely no longer make claims like this if the company goes bankrupt.
Or can be bullied into accepting, even if you aren’t clueless. I do know people like that. Conflict is more painful than loss.
These questions should become so normalized that founders don’t bat an eye at it. If I am an early employee, we are partners. Wanting to know my percentage and the company’s liabilities before I sign is not unreasonable. I also want to hear you talk convincingly about your plans for future investment.
Had a one hour casual chat with a start-up game studio in early February, and the offer came through in email on Friday for significantly more money and an interesting problem.
Had a one hour on-site casual chat with an established robotics company today, that stretched out in to about five hours of casually meeting the team, grabbing coffee with the CEO and CTO and a verbal offer at the end of the day. It is for more money than my current position, but it isn't significantly more money.
I have some thinking to do over the next couple of days. Plus a few more casual chats with companies lined up. Not sure if I should pump the brakes until Game Developers Conference though and see if there is anything there that's interesting. Work tends to fall out of the trees at that place if you shake the trunk hard enough.
Correct.
> As "slightly more money" sounds like "lots more" when the current place isn't making payroll
Also correct.
I am also evaluating the offers in terms of what I think I should be paid to make me satisfied with the compensation on offer.
No way would I put $200K into a startup that’s facing a down round, especially not as an employee.
I assume its either opex (operating expenses) or they need to buy $big_thing to get to the next stage of growth.
Sounds like they should fire that primary stakeholder, claw back his equity, hire someone who knows what the hell they're doing, and hope to god the employees don't walk or sue the hell out of them - both of which they probably should do.
But, can you clarify? You say they should know you weren't born yesterday, but your post also implies you're working with these people.
What's the missing detail?
What are you getting out of this that makes the other red flags "worth ignoring"? What keeps you showing up?
Now, as I said, the start-up cannot meet its capex obligations and the current funding round is looking grim. It is definitely going to be a down round and it ain't going to be pretty should a term sheet get thrust under our collective noses. To get the developers motivated to stick around a little longer, "generous" equity packages are on offer, with a request to convert over-due back pay and future payments too, into equity .
When I sought transparency - "Can I see the cap table?" - "Can I see the terms of the investors?" - "Can I see anything?" - the answer was invariably "no." Essentially, they're asking me to make a nominal investment of over $200K in the company, accepting common stock in lieu of pay without any insight into the financials or the terms provided to other investors.
It's worth noting that I had previously given the start-up a sweetheart deal, significantly discounting my usual rate and offering generous payment terms, in the spirit of support and belief in the project. This makes the current scenario even more disheartening. Compound that with what has become an overall toxic environment that I have euphemistically called "challenging" when asked to sum it up, and the future isn't bright enough to wear shades.
Now this isn't exactly my first rodeo. I've seen the beautiful side of start-ups and liquidity events. And I've seen the dreadfully ugly side too. Hard lessons learned. And the ugly side shows up way more than the pretty one.
I swear, some entrepreneurs must think I stepped off the boat yesterday.