>most preferred shares isn't just protection from routine dilution
There's some misinformation there. Preferred shares do not have protection from "routine dilution". In fact, dilution is the very mechanism to sell more equity to subsequent investors at a higher price. (E.g. When Accel Partners invested $12 million for 15% equity of Facebook in 2005, they got diluted when Microsoft later invested $240 million to buy 1.6% equity in 2007.)
The "anti-dilution" provision that VCs get is not for "routine dilution". Instead, it's for a really bad event called a "down round"[1] where the next investor pays less than the current investor. We could ask The Universe why employees don't get the same anti-dilution protection but I think it's a moot point... If the company is getting devalued, employees are gonna worry way more about finding a better job somewhere else instead of staying employed on a sinking ship. In other words, a "down round anti-dilution" protection for employees is kind of mathematically pointless.
On the other hand, the type of favorable "anti dilution" for employees that most people are thinking about such as as a 1% grant at hire, and staying at 1% through all subsequent positive "up rounds", and finally at IPO -- is something even VCs don't get. Nobody has that type of dilution protection. Not the founders, nor angels, nor any investors. The closest approximation would be a provision for VCs to pay for more shares to keep their % ownership the same. That's more like "pay to play" rather than "anti dilution". In any case, people don't need that type of dilution protection because what matters is the #_of_shares_ multiplied by _price_.
There's some misinformation there. Preferred shares do not have protection from "routine dilution". In fact, dilution is the very mechanism to sell more equity to subsequent investors at a higher price. (E.g. When Accel Partners invested $12 million for 15% equity of Facebook in 2005, they got diluted when Microsoft later invested $240 million to buy 1.6% equity in 2007.)
The "anti-dilution" provision that VCs get is not for "routine dilution". Instead, it's for a really bad event called a "down round"[1] where the next investor pays less than the current investor. We could ask The Universe why employees don't get the same anti-dilution protection but I think it's a moot point... If the company is getting devalued, employees are gonna worry way more about finding a better job somewhere else instead of staying employed on a sinking ship. In other words, a "down round anti-dilution" protection for employees is kind of mathematically pointless.
On the other hand, the type of favorable "anti dilution" for employees that most people are thinking about such as as a 1% grant at hire, and staying at 1% through all subsequent positive "up rounds", and finally at IPO -- is something even VCs don't get. Nobody has that type of dilution protection. Not the founders, nor angels, nor any investors. The closest approximation would be a provision for VCs to pay for more shares to keep their % ownership the same. That's more like "pay to play" rather than "anti dilution". In any case, people don't need that type of dilution protection because what matters is the #_of_shares_ multiplied by _price_.
[1] https://www.feld.com/archives/2005/03/term-sheet-anti-diluti...