![]() In other words, you as entrepreneur are getting less diluted today but with some ownership risk if company value goes down (at least that’s the theory, would be interesting to see how prices adjust without anti-dilution).Īnti-dilution is usually mild. ![]() You can attack this clause conceptually but if VCs did not have any form of anti-dilution they would set the initial price lower. a subsequent financing at a lower price per share. This protection is embodied in a clause called anti-dilution protection which results in additional “bonus” shares being issued where there is a down-round, i.e. Here are some of the pathways to hell: Now we own you: Full ratchet anti-dilutionĪnti-dilution says “your company has no tangible value and as result I accept 20% ownership today but if we don’t create value I want some protection on potential share price reduction”. There are rational explanations for all of these, but as we know hell is paved with good intentions. What I wanted to do here instead is focus on a few of the clauses that entrepreneurs should absolutely avoid the wrong tradeoffs which later expose them to really “losing” their company. I see a lot of misguided commentary out there focused on the wrong issues, such as “how can you ask for liquidation preferences and call yourself entrepreneur friendly?” I am happy to answer that one if you are interested. Most sour VC-entrepreneurs relationships are simply partnerships gone bad, and divorce is never a pretty experience. Good-versus-evil is not a very constructive way of framing complex debates (remember “the war on terror” and the “axis of evil”?). The discussion seems to veer towards the “good versus evil” myth of creepy financiers intent on screwing polymath entrepreneurs out of their hard-earned wealth. If you believe the blogosphere chatter, the entrepreneur-VC relationship seems strained like at no time in the past. And if you want an intro to Atlas, send me an email. If you like it, check out Fred’s blog and tweets fdestin. This post is by Fred Destin, one of Atlas’ general partners. Thanks to Atlas Venture for supporting Venture Hacks this month. ![]() Related: 1-(wo)man startups and Ask forgiveness, not permission If you’re interested in a 6-year vesting schedule, AngelList is hiring engineers and designers. Any acceleration is likely to consider the entire grant, not a smaller 4-year grant.A new grant 4 years from now wouldn’t be as big.The clock on long-term capital gains starts as soon as you exercise the grant.The strike price is today’s strike price, not a higher strike price 4 years from now.There are a lot of benefits to getting additional equity now, instead of 4 years from now: A good way to think about that is whether we would give smaller grants if new team members were on a 4-year schedule. And we want everyone to stick around for a long time.īecause we want people who are here for the mission, not a payday.īecause it sells prospective hires: the team you’re joining isn’t going anywhere.Įveryone asks whether they get more equity to make up for the longer vesting schedule. Why?īecause it takes a long time to build something important. Every team member of AngelList is on a 6-year vesting schedule. ![]()
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