There will always be hustlers a-plenty ready to exploit entrepreneurs. A few examples from my years working in Silicon Valley from the legal side (where, unfortunately, a lot of this crops up): In the days when founders were generally less informed than they are today, I would often see them fall prey to "consultants" who would promise to open doors to funding and the like in exchange for a significant equity stake i…
do a 100 to 1 reverse stock split in exchange for modest additional funding, reducing the entire equity holdings of the founders to less than 1% of the company in one fell swoop. Isn't that how facebook re-jiggered things to make up for early equity granting "mistakes?"
Not exactly. Keep in mind that the movie "The Social Network" is not a 100% accurate telling of history. In the movie Eduardo (a co-founder of Facebook and initial source of funding) has his shares diluted from 30% down to a fraction of a percent. In reality Eduardo's shares were diluted (by issuance of new stock) from about 1/4 of the company to less than 10%. And it was probably a necessary move as well, seeing as Eduardo was no longer very connected with the company (it took him some time to even discover that his share of the company had been diluted, despite having been the CFO of the company on paper. In the end he ended up realizing something like a 6 million percent return on his initial investments (according to the value of his share of Facebook at the moment).