True Value

Startup Employees in the Dark on Equity

Startup Employees in the Dark on Equity
Y Combinator President Sam Altman. Photo by Bloomberg.

A few years ago, a venture-backed ad tech company was sold for about three times the amount that investors had put into the company—but employees got a rude surprise. The VCs who held preferred stock got $6.80 per share, while employees who held common stock got about $1.40, according to documents related to the sale. One employee recounted how that added up to just a few thousand dollars, a fraction of what he’d thought his shares were worth.

Tales of employees getting the short end of such deals abound in the tech industry. Remarkably, though, few employees appear to ask the kinds of questions that would enable them to properly value their equity packages. Of the 18 engineers, salespeople and managers interviewed for this story, none had even basic information that could shed light on the value of their stock, such as the number of shares outstanding and the company’s current valuation. As for things like liquidation preferences and other investor protections that change the math negatively for employees, forget about it. No one had a clue.

To read the full article: