Work at a Startup is a brilliant move and I'm looking forward to learning from it.
I don't agree that "usually startups in trouble end up dying, or getting bought in a fire sale." I don't know if anyone has a big enough data set to give us the "correct" answer.
But if you talk to thoughtful, experienced VCs and entrepreneurs who have seen many companies through their whole lifecycle (birth to IPO and beyond), I think they'll tell you that a lot of the successful startups get in significant trouble along the way. And if that trouble coincides with the need to raise a round, common stockholders get diluted.
Preferred stockholders have anti-dilution, pro rata rights, protective provisions, and cash reserves to protect them.
They don't die, they become zombies. The last startup I left 3 years ago is going to limp along forever because the investors won't kill it. At this point I believe the entire corporate entity has been restructured so that none of the original employees nor even the founder will make money in the unlikely case of a liquidity event. This isn't the only "startup" I know of in this situation. Im not really sure what the point of this is other than to give members of the SV subclass of professional startup executives and EIRs something to do...
Don't you think that most startups that get into such trouble that they have to wipe out the common shareholders end up dying? I realize there are cases where the company bounces back, but it seems like not bouncing back is more common.
I don't agree that "usually startups in trouble end up dying, or getting bought in a fire sale." I don't know if anyone has a big enough data set to give us the "correct" answer.
But if you talk to thoughtful, experienced VCs and entrepreneurs who have seen many companies through their whole lifecycle (birth to IPO and beyond), I think they'll tell you that a lot of the successful startups get in significant trouble along the way. And if that trouble coincides with the need to raise a round, common stockholders get diluted.
Preferred stockholders have anti-dilution, pro rata rights, protective provisions, and cash reserves to protect them.