Between those two comments, you seem to be the sort of person who would also claim the iPhone will never sell because people want to use their phones to make calls.
Not that I'm saying you're wrong about Flattr / that business model. I just hope you are, because it's a very consumer-centric business model, and I'd love it to succeed.
Any resources online where I can read up on this process?
Stick around on HN and you'll see lots of links to angel investors, VCs, and other startup people explaining all this.
what's an 'options pool'?
The idea is that you give your employees options (or often restricted stock) so that they have a stake in the company's success. For legal reasons, the creation of any new stock must be authorized by the board of directors, and they don't want to meet every time someone new gets hired; so instead they authorize a pool of stock and tell the CEO to go ahead and hand it out. So far, so good.
The swindle comes here: VCs usually insist on the creation or expansion of an options pool before investing, and count the unissued stock as part of the valuation. Rather than paying $300k to buy 428571 shares and ending up holding 30% of the company, a VC might insist on the creation of a 20% options pool, with the result that Jack owns 1M shares (50%), there are 400k authorized but unissued shares in the pool (20%), and the VC gets 600k shares (30%) for his $300k.
Because those shares don't actually exist yet, the VC actually owns 600k / 1.6M = 37.5% of the company, even though he nominally only bought 30%.
Yes -- just like they would diluted in the next round of investment. (And really, employees working for sub-market salaries in exchange for stock options are just another type of investor.)
But the founders get diluted too. In the no-pool case, the founders have 70% of the company post-investment, whereas in the 20%-pool case, the founders have 62.5% and get diluted down to 50% as the pool is handed out.
Ah. So the time of creation of the options pool doesn't matter, since eventually the founders get down to 50%. It's a matter of whether the options pool should be created in the first place.
Care to elaborate?