Why didn't I get any money from my startup? - A guide to Liquidation Preferences and Cap Tables
https://www.reddit.com/r/startups/comments/a8f6xz/why_didnt_...
I've posted this before but it's a great read. Even if you have millions of shares, the dilution and later investors could still leave you with nothing.
I worked for 2 startups, both failed, but I never got to see the cap table.
I worked at a startup where I joined as the second employee before they raised any money and I basically got 0.5% of the company. They went on to raise over $100 million in VC.
I got $0 for my equity. Start ups have SO many ways to screw employees out of their equity.
The most basic is that you have options that you are not allowed to sell during equity rounds. If you accept them then you need to pay the strike price and they count as taxable income even though you got shares instead of money so you just lose a lot of money.
Say what you will about Elon, but at Space X employees are allowed to sell their shares for actual money at regular intervals. Very few start ups that succeed allow their employees to do that.
90% of startups that succeed just want to grind down their employees rather than pay them the equity they earned.
At both startups we bought our shares early using Section 83(b) of the IRS tax code. That first year when we bought the shares I had to file extra paperwork but it shifts the tax rate to long term capital gains.
https://www.cooleygo.com/what-is-a-section-83b-election/
So I ended up writing checks of $60 and $100 to buy thousands of shares at $0.0001 a share. I left both startups before they went under but everyone lost that small amount. When people ask me how much money I made at the startup I joke that I lose $60.
This is excellent and illustrates that unless you have access to the cap table, you have no idea what your options are worth. Sometimes you can at least get a founder to tell you what the preference stack looks like, and what multiples were given to investors, and that might be enough to kind of sort of work out what an exit looks like.
If they are Delaware C corporations and you own at least one share, you have a legal right to demand access to the cap table.
It was registered in Delaware but it was an LLC.
I'm not a lawyer so I don't know if an LLC would have to comply in the same way.
I do know that there was an operating agreement and we had a very strange meeting at one point where the CEO and the financial guy told us that we had the right to see the operating agreement. Someone who left shortly after must have hired a lawyer and demanded that.
I did see it the operating agreement but not the cap table. When I left the company I did not even know what a cap table was so didn't even know that it was a thing that existed. I only found that reddit post a year later. I'm post that link so that people don't make the same mistakes I did. There were a lot of other questions I should have asked before joining both startups.