How can you insure that your percentage of ownership is diluted at the same percentage of the founders?

A great post by Fred Wilson on Employee Dilution. This should serve as a good guideline. He makes a point that earlier investors get diluted more than later investors.

http://www.avc.com/a_vc/2010/10/employee-equity-dilution.html

I believe what happened is Zuck and co started a new company and issued new shares (of which the CFO got zero) then bought the old company, effectively diluting him but not others. I have to imagine this isn't easy to pull off legally.

And as long as you and the other owners are on good terms this won't happen to you. Provide value, be present, be creative and they'll have no reason to legally or illegally dilute you.

I think it's written in your investment/employment contract - whether your shares are diluted or not. Read it carefully (if you have it :)

For small equity holders, the reality is that any investment round has a likelihood of seeing you diluted far more than the high stake holding founders and key leadership group (or groups, if they're different). And by definition, agreements within the current structure tend to get replaced as part of the round.

The stance the founders take during the round will likely be decisive in how that turns out to feel for other stakeholders. Everyone should recognise that investors are looking for a certain kind of structure of core equity. But there's room for creativity.

There are two opposing tendencies here. The rule of thumb for financial investment is that the people who do best come as late as possible but by the first decisive round; the rule of thumb for the team is that the people who do best are the first in who stay around and add value. In this situation you're being pulled both ways at once!

So my thought is

1. Don't expect you can necessarily achieve your goal of diluting equally to the founders. If that's not realistic, you'll find yourself opposing a successful fund-raising round - which is absolutely not where you want to be
2. Do communicate with the founders so they know how important it is to achieve a result that will be seen as fair - and look for creative ways to achieve this (whether through equity classes, additional option schemes, general remuneration etc)

There are laws to protect minority shareholders. They will vary by state but one example (as told to me by an attorney specializing in shareholder oppression) is:

...if large numbers of shares are issued for inadequate consideration and arguably for the purpose of disadvantaging a minority shareholder, then that is a breach of fiduciary duty to the corporation and may constitute oppression of a minority shareholder—in the first case, you would have the right to bring an action on behalf of the corporation to rescind the additional stock or to force the recipients to pay.

Of course, anything you agreed to in a shareholders agreement might give away protections, but if everyone signed the same agreements, it's unlikely the language would let the majority dilute the minority.