Fair to ask for anti-dilution when I have a lot less equity than my partners?


3

I'm leaving an extremely well paying job, one that I'm even fairly happy with, for a startup that I think will do really well. It's been a difficult choice because I have a family and a mortgage. Since I have taken significantly less risk than my partners who have been doing this for months now without taking a penny, I'd obviously get a lot less equity, but enough equity to keep me motivated to help build this business. I'm also getting a significantly smaller salary compared to what I make now, it's enough to pay the bills and keep the food on our plates, but it's a huge risk for me regardless and sets back my families financial for sure. I believe in the team and the product, so I'm 95% sure this is the right move. Worst case is I can always get another job later.

My question is this:

Since I have a lot less equity than my partners do, is it fair to ask for an anti-dilution clause, or a clause that dilutes me less than them for when we go for subsequent investments? Depending on how much dilution occurs, I can see me start losing interest if the number gets much lower. With that said, I feel very grateful that I'm able to join this team, and the fact of the matter is, I am taking slightly less risk than my partners. Thank you for any and all feedback.

Equity Partnerships

asked Aug 15 '11 at 06:41
Blank
Imaginative
205 points

1 Answer


5

Do they have the anti-delution clause themselves?

If so the short answer is: No, it's not really fair. To get further investment in the company you all gain the benefits.

These numbers are just plucked out of the air so don't focus on the numbers.

Regarding your less interest. Lets say the company is currently worth 1 mil and you have a 10% share in it. So you'll effectively have a 100k equity and you're motivated. If the company goes well and gets more investors and now the company is worth 10 mil and you're diluted down to 5%, you're saying you're going to be less motivated with your 500k share than when you had 100k?

I think your issue is more psychological (fear based) than anything else. You'll want to be wary of unequal dilution of shares. You need to weigh up whether you can live with the risks with going with this venture more than focusing on on anti-dilution.

If it is really weighing on your mind, talk to the partners on the issue and see what they say. Let them know where you're coming from.

answered Aug 15 '11 at 08:18
Blank
Mike
310 points

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Equity Partnerships