No, they weren't. They were offered stock. Stock can always be diluted by future stock issues.
> Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders.
People who accept stock options and don't bother to learn about them have only themselves to blame. The information isn't hard to come by, it's all over the internet.
> It amazes me that someone can honestly argue against providing time investors with the same protection as fiat investors.
They do have the same legal and system protections. They got what they agreed to.
> Courts and systems to create trust are essential.
Yes.
What you're discounting, however, is the role of risk. Risk is always there. The larger the risk, the more potential returns there are. If you try to legally define the risk and legally force two disparate risks to be the same, the result will be all kinds of market distortions.
You argue that the risk of the employee and the investor are the same. They are not, or they would be priced the same. Is it really right to interfere in the negotiations other people are freely making?
I think your argument is at best disingenuous. People leading startups know that people taking stock as a good part of their equity know that the vast majority of startup employees actually don't know how stock equity works in those circumstances. They don't like it when they ask for more cash comp, and it's to the benefit of the company founders that regular employees don't understand. It's also the case that people should educate them.
But like we make laws controlling how real estate loans work to protect people from shysters, we should probably have a lot more required documentation for companies that offer stock in pre-ipo companies.
If this was market based, you'd be right. But if it is legislative based, then this is the definition of circular logic. Given that the structure of preferential stock is legislative based, it is circular reasoning.
I count risk based on what percentage of a person's net worth and potential earnings are tied up in the securities.
That renders a different perspective of risk than just raw numbers which is what you seem to be going off of.
Your argument can be boiled down to 'caveat emptor'. Which is an argument that lacks intellectual cohesiveness when you are simultaneously supporting the legal structure that removed such a situation from the average investor.
> Which is an argument that lacks intellectual cohesiveness when you are simultaneously supporting the legal structure that removed such a situation from the average investor.
Not exactly. The courts are there to enforce the contracts, and protect against fraud. They are not there to protect people from making ignorant decisions and failing to do things like read the contracts they sign. They are not there to remove risk.
Some people say that free markets don't work unless there is perfect information on both sides. This is incorrect. Imperfect information is called risk and is always priced in. The overhang in stocks comes about because investing in the company is perceived as extremely risky.
No, they weren't. They were offered stock. Stock can always be diluted by future stock issues.
> Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders.
People who accept stock options and don't bother to learn about them have only themselves to blame. The information isn't hard to come by, it's all over the internet.
> It amazes me that someone can honestly argue against providing time investors with the same protection as fiat investors.
They do have the same legal and system protections. They got what they agreed to.
> Courts and systems to create trust are essential.
Yes.
What you're discounting, however, is the role of risk. Risk is always there. The larger the risk, the more potential returns there are. If you try to legally define the risk and legally force two disparate risks to be the same, the result will be all kinds of market distortions.
You argue that the risk of the employee and the investor are the same. They are not, or they would be priced the same. Is it really right to interfere in the negotiations other people are freely making?