Here is the truth beyond the hype when it comes to venture funding. Most employees get the short end of the stick when a startup raises funds.

The hype presents any money raised as a great success. Often, the story goes like this: We got $X million in funding, so we must be doing well

As a company gets more funding, employee stock options lose value due to the new venture capital. VCs and founders usually keep their ownership percentage through pro-rata rights. But employees do not. Each new round of venture capital dilutes employees. This combined with other culture killing moves by a startup can kill a company.

This is especially true in the case of startups that do many rounds of fundraising. As a startup continues raising funds, this further dilutes the employees each time. Sometimes to the point that their stock options become worthless.

There are many options a startup can take to better protect employees and ensure that their equity is protected over fundraising rounds. Some ideas can be found here for example.

So, the next time you read a press release about a startup that raised new funding be a little more skeptical. Consider how the dilution affects employee equity. The truth beyond the hype is that venture funding is not all good.