Ask HN: I think my company might be selling. What should I be doing to prepare?

Shareholder/liquidity preference is very important... for example if you are VC backed and there are multiple classes of stock, eg. common vs preferred, you will probably find that preferred stock holders have payout preference. Even if you own a large chunk of common stock the purchase price might not be high enough to take care of preferred stock holders with any significant amount of money left for common shareholders. Generally, at a certain acquisition price preferred stock is converted to common and all shareholders treated equally.

Best thing is to have someone review all your stock agreements and such.

Anecdotally, the last company I worked for was eventually acquired (long after I left) for low 9 figures. Turned out the price was just enough to pay back investors and other shareholders got nothing... I imagine that felt pretty shity for folks who spent years building "equity."

Figure out what percentage of the company you own. Saying you have something like 50,000 options is meaningless unless you know what others own. 50,000 options could be .001% of the company or it could be 10%. You have no idea.

They'll probably hate you if you ask to see the CAP table, but that's the info you want. Don't be shocked if your options end up being less than 1% of the company even if you were one of the first 10 employees.

Personally, I was part of a 15 person angel-funded startup that sold to a private company for 30mm at the direction of a VC firm. They bought out all of my options at full value.

I had less than 1% equity. I didn't get much money but got about enough to make my salary what it would have been if I'd been working for a bigger company. That's it, but it was about what I expected and seemed fair given how my salary/options were presented to me when I was hired.

Once sold, the new company will either fire you pretty quickly (within 6 months), or will create some silly incentive plan to try to get you to stay. I stayed on with about a 20% salary increase, which brought my salary up to the market rate for a big company. I was happy with this agreement.

Be prepared for a lot of office politics and difficulty integrating with the acquiring company. This will be the hardest part. It's substantially more complicated than the financial part of the sale.

Seems like every comment at this stage is about getting shafted when your startup gets an exit. Other than supposed the lack of politics and more bleeding edge tech - what is the point of working at a startup if you aren't looking for an exit? (Especially for early hires)

I want to point out that dilution isn't strictly bad if the final sale price of the company is high enough. E.g. if the company sold for a billion, then 0.01% would be a cool million dollars. It's better to own 0.01% of a billion dollar company than 10% of a million dollar company.

Dilution can be beneficial in cases when diluting equity for cash in the short term would lead to an increase in the overall value of the company in the long term (e.g. the tradeoff most venture backed companies make when swinging for the fences).

The kicker here is that most companies are not billion dollar companies or even multi-hundred million dollar companies. Essentially, the role of dilution is different at different stages of funding and company growth. It can be a bad thing, especially if improperly used during a company exit like an acquisition. It can also be a good thing if it ultimately leads to a higher overall exit in the future.

It's a financial tool that can be properly or improperly used and one which a regular employee doesn't have control over. That's why being able to trust leadership is critical when joining a startup. If you think the CEO won't do the right thing when the time comes to do the right thing, then all bets are off and your equity means nothing even if the company achieves moderate success.

I know that most of what I wrote is super basic, but I've been seeing more and more comments around here that imply that all dilution is bad no matter the circumstances. But that just isn't the case.

FYI 0.01% * 1 billion = 100k