With board approval the majority owners can do pretty much anything. You can re-cap existing shareholders down to basically zero ownership to privilege new ones, you can screw the employee pool in favor of the investors and founders (that's pretty normal, actually, employees should always assume they'll be screwed in an exit), you can even dilute specific previous investors/founders out of the pool like what Zuck did to Saverin.
The reason you don't is that you don't want to get a reputation as a shady operator. If you recap a big VC out you're probably never going to raise again. Fuck an angel and word will get around, though it's not as bad as crossing a VC. Screwing employees is not great but news of that doesn't spread as widely so people do it a lot.
Re: "share representing ownership", there's a reason that when companies get 409a valuations for employee options they're usually valued at a small fraction of the preferred shares that investors buy. Your interest is not anywhere near as real as the people buying preferred shares until you go public.
> You can re-cap existing shareholders down to basically zero ownership to privilege new ones, you can screw the employee pool in favor of the investors and founders (that's pretty normal, actually, employees should always assume they'll be screwed in an exit), you can even dilute specific previous investors/founders out of the pool like what Zuck did to Saverin.
Isn't the majority shareholders disowning the minority shareholders security fraud?
> If you recap a big VC out you're probably never going to raise again.
Is this even possible? With how savvy most VCs are about guarantying a return from the companies they invest in, it's hard to imagine they'd leave this very obvious strategy open to exploitation.
I mean, yeah, you might never raise another round if you screw a VC, but if you screw them out of hundreds of millions of dollars, would it matter?
It's possible, it's just a terrible idea in most cases. Most VCs don't have enough control to prevent it, but it's considered a really scummy move and will kill future prospects.
The reason you don't is that you don't want to get a reputation as a shady operator. If you recap a big VC out you're probably never going to raise again. Fuck an angel and word will get around, though it's not as bad as crossing a VC. Screwing employees is not great but news of that doesn't spread as widely so people do it a lot.
Re: "share representing ownership", there's a reason that when companies get 409a valuations for employee options they're usually valued at a small fraction of the preferred shares that investors buy. Your interest is not anywhere near as real as the people buying preferred shares until you go public.