This is what startups pay a lawyer to do. It's not that hard: restructure the company ownership in a long document with complicated terms. Get the employee to sign it and voila, early employees are screwed. The only real response is just not signing, but they will tell you the company will die if you don't do it, and you probably will just take it rather than fighting. At least I did.
Oftentimes, the conversation is more like, "Sign this or we're shutting down and starting a new company."
But yeah. It does go down that way more often than many people know.
In fairness though, one thing I think a lot of people don't realize is that someone must've gone to bat for employees when documents like that show up. I can pretty much guarantee you that the greedy bastards in the room wanted to shut down, or layoff, and reorganize with just the employees that they needed.
Someone in the room had to say, "Hey guys, let's try this!" And that someone took a real risk at being seen as "not a team player" so to speak. (It was likely someone powerful. What I've seen is that it can be everything from a powerful VC of the religious variety, all the way to your more idealistic founder types.)
But signing something without not understanding it is too naive.
So, assume I already left the company and exercised a big bag of common options and so I have a decent amount of common shares. If they tell me to sign something that looks shady I just say: "No, it looks shady".
This. Stated another way, you need to make a decision in the very small timeframe about the tiny chance of success in the far away future, versus guaranteed success (your next paycheck) in the very close future.
This is one of biggest recent learnings. If you go to start up, make sure to understand also the legislation around labor, private contracts and equity. You will be dealing with people personalities much closer than in a big co.
I believe I am the kind of person who would just say "Go ahead, shut it down if that's the only alternative. If you would like me to sign a deal to restructure the company, then I'll happily do it, but the company needs to pay me a one time cash bonus that reflects the value of the shares that I am forfeiting".
I am not naive enough to believe it would work, as they would probably find a way to screw me regardless, but my stance would be firm.
After my experience with startups I have become completely intolerant to corporate greed and injustice, so these days I am purely in a business transaction with my employer and I know exactly what to expect and when to expect it (which is why I get paid in RSUs rather than stock options). I like to think I wouldn't fall prey to this sort of petty begging.
They usually don't need your signature anyway. They'd just say no and move on. The vote of the majority of the shareholders, or often, just the majority of the preferred shareholders, are enough.
It's better than the alternative of giving in. Shutting down / reopening the company takes $$ and I still think you'd have a decent lawsuit against the new startup.
But the new startup wouldn't yet or might not ever be worth anything and so you just gave up your steady paycheck for a chance to sue for a small percentage of possibly nothing.
But then it makes wonder, why would anyone get themselves into startups anyway? Especially when you consider the relatively low compensation and high risk.
* Great learning experience before launching your own venture
It's not for everyone, but I've interviewed dozens of developers who only want to work at startups for these reasons.
And for founders, obviously there's the upside of owning a business, the status of being funded, the ability to be your own boss and the potential for massive impact and wealth.
