

Ask HN: What protects YC (or others) from dilution? - logn

Suppose YC invests for 5% of a company. What prevents those founders from issuing 100x the number of shares and distributing it to themselves, and not investors? Are YC shares non-dilutable? If not, how do they allow for dilution but at the same time discourage founders from making certain investor's stakes worthless?
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yogKarma
I don't think YC ever asks for no-dilution. A founder can not cheat because of
various reasons: 0\. Founders will have to dilute themselves to dilute YC 1\.
Investment is done based on a contract, which defines and controls the power
that founders have. They can't issue any number of shares to themselves
without putting in more money. 2\. If somehow, founders are able to cheat YC
that would destroy their credibility and their market valuation, resulting in
huge financial loss.

EDIT: read this: <http://www.paulgraham.com/angelinvesting.html>

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argonaut
Nothing. No. They don't.

Everyone gets diluted. VC firms and investors get diluted. There are ways to
add anti-dilution clauses. It's complicated and I don't understand how they
work. But AFAIK they are extremely rare and their presence will dissuade
investors from investing. What prevents abuse? Trust. If you're a VC firm and
you screw someone over, word will get around and all the good deals will dry
up. If you're an entrepreneur and you screw someone over, word will get around
and you'll never be able to raise money again (from the top firms, at least).

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websitescenes
Ycombinator, invest in me and I will never do that to you.

