Скачать или смотреть The Real Reason Startups Give Equity

Equity isn't generosity, It's a legal wealth transfer mechanism.
Here's what they don't tell you:
🔴 THE ILLUSION
Startup offer letter:
"₹8 lakh salary + 0.5% equity"
You think:
"Wow! I'm getting ownership! I'll be rich when company exits!"
Reality:
→ 4-year vesting (you don't own it yet)
→ Dilution every funding round (0.5% becomes 0.3%)
→ Paper wealth until exit (might never happen)
→ Below-market salary for years
Equity = Golden handcuffs.
Company is locking you in for 4 years at below-market pay.

🔴 SYSTEM 1: VESTING SCHEDULES
You're offered 0.5% equity.
But it's NOT yours on Day 1.
STANDARD VESTING: 4 years with 1-year cliff
BREAKDOWN:
Year 1: 0% equity vests
→ If you leave before 12 months = You get NOTHING
→ This is "cliff protection" (protects company from job-hoppers)
Year 2: 25% of 0.5% = 0.125% vests
→ Now you own 0.125%, can leave with this
Year 3: 50% of 0.5% = 0.25% total vested
→ Cumulative
Year 4: 100% of 0.5% = 0.5% finally yours
→ Stay full 4 years to get complete equity

WHAT THIS MEANS:
Leave after 2 years? You only get 0.25% (half of promised equity).
Leave after 11 months? You get 0% (cliff).

WHY COMPANIES DO THIS:
Retention tool, They're financially incentivizing you to stay longer.
→ Early departure = You lose most equity
→ Stay 4 years = You get everything
This is NOT generosity.
This is strategic retention.

🔴 SYSTEM 2: DILUTION (The Silent Wealth Erosion)
Your 0.5% equity doesn't stay 0.5%.
Every funding round = Dilution.
EXAMPLE TIMELINE:

Day 1: You get 0.5% equity
Series A (Year 1): Company raises ₹50 crore
→ VCs get 20% equity
→ Your 0.5% becomes 0.4% (20% dilution)
Series B (Year 2): Company raises ₹200 crore
→ VCs get 15% more equity
→ Your 0.4% becomes 0.34% (15% dilution)
Series C (Year 3): Company raises ₹500 crore
→ VCs get 10% more equity
→ Your 0.34% becomes 0.3% (10% dilution)
AFTER 3 YEARS:
Your promised 0.5% is now 0.3% (40% reduction).
EXIT SCENARIO:
Company exits at ₹1,000 crore valuation.
Your 0.3% on paper = ₹3 crore.
But actually:
→ Income tax (30%+): ₹90 lakh gone
→ Liquidation preference (VCs paid first): Reduces your share
→ Reality: You get ₹1.5-2 crore
Still good money.
But NOT ₹5 crore (0.5% of ₹1,000 crore).
DILUTION = SILENT WEALTH EROSION.
Most employees don't understand this until too late.

🔴 SYSTEM 3: WHY FOUNDERS GET RICH SLOWLY (But Eventually Do)
Founders also face massive dilution, TYPICAL FOUNDER JOURNEY:
Day 1: Founders own 100% (50-50 split)
Seed Round: Give 10-15% to angels
→ Founders now: 42.5% each
Series A: Give 20% to VCs
→ Founders now: 34% each
Series B: Give 15% to VCs
→ Founders now: 29% each
Series C: Give 10% to VCs
→ Founders now: 26% each
ESOP Pool Created: 10-15% carved out for employees
→ Founders now: 22% each
By IPO/Exit:
Founders own 10-15% each (massive dilution from 50%).
BUT HERE'S WHY THEY'RE STILL RICH:

CASE STUDY: FLIPKART
Founders (Binny Bansal, Sachin Bansal):
→ Started: 100% ownership (50% each)
→ Walmart acquisition (2018): 5-7% each
→ Valuation: $16 billion

Their 5% each = $800 million each (₹6,000+ crore)
MASSIVE DILUTION (from 50% to 5%).
STILL MASSIVE WEALTH.
Why? "Better to own 5% of ₹10,000 crore—
Than 100% of ₹0."

FOUNDER ADVANTAGES vs EMPLOYEES:
1. FASTER VESTING
→ Founder equity: 2-3 year vesting
→ Employee equity: 4 year vesting
2. VOTING RIGHTS
→ Founders control decisions (despite dilution)
→ Employees: No voting rights
3. LIQUIDATION PREFERENCE
→ VCs get paid first (guaranteed return)
→ Founders get paid second
→ Employees get paid last (whatever's left)
So founders dilute heavily—
But still have control + upside.

🔴 WHEN SHOULD YOU JOIN FOR EQUITY?
✅ JOIN IF:
1. EARLY-STAGE COMPANY (Series A/B)
→ More growth potential
→ Your equity % matters more
2. EQUITY higher than 0.1%
→ Below this = Not worth the below-market salary trade-off
→ 0.01-0.05% = Basically nothing after dilution
3. CAN AFFORD BELOW-MARKET SALARY
→ Startups pay 20-40% less than Big Tech
→ Can you survive 4 years on this?
4. REALISTIC EXIT PATH (5-7 years)
→ IPO planned?
→ Acquisition likely?
→ If no clear path = Your equity might stay paper forever

🔴 THE HARD TRUTH
Startup equity CAN make you rich.
But:
→ Only if company exits successfully (10-20% chance)
→ Only if you stay 4 years (vesting)
→ Only if your % is meaningful (higher than 0.1%)
→ Only if you can afford below-market salary meanwhile

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⚠️ DISCLAIMER: This is educational content about startup equity mechanics, not financial or career advice.

💡 UNDERSTAND THE GAME: Equity can create wealth, but only if you know how vesting, dilution, and exits actually work.

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