Date: Mon, 17 Nov 2003
To: enronvalley(at)
Subject: Getting screwed by the VCs

Dear Mr. Latif:

I read the article in the Mercury News on how the VCs screwed the Nishan employees. I was not entirely surprised. What was surprising was that McDATA allowed it to happen. Unless McDATA is simply buying technology and not people, they seem to have been screwed too. They now have a bunch of disgruntled ex-Nishan employees. While it is true that anyone with an engineering job these days is lucky to have it, the ex-Nishan engineers are not likely to work with the same dedication that they did before. In reading the Mercury News article I wished that they had explored this topic in more detail, especially with McDATA management.

The central claim of the Mercury News full page add and the web site seems to be that what happened to Nishan is somehow a perversion of the economic structure that built Silicion Valley. I beg to differ. Getting rich through a startup has really always been a myth, especially for the startup employees who are not founders (e.g., the engineers who work the long hours developing technology). I wrote this web page which comments on this issue and provides a number of references to the hard times and hard knocks of startup companies.

Every-once-in-a-while there are companies that are successful and make everyone wealthy, including the engineering staff. But these companies are much more rare than most people realize. If engineers did realize how rare it was that the engineering staff makes any money on stock they would not accept stock in place of part of their salary. Rather they would insist on stock to compensate them for the longer hours, higher pressure and chance of being unemployed when the startup fails.

The only thing that is unusual in the case of Nishan is that the founders got screwed along with the rest of the staff. If the founders had become rich and the engineers who worked for Nishan had gotten the crumbs that they received in this deal, there probably would be no suit. This is, after all, how most buyouts turn out.

I suspect that the outcome of your litigation will be that the VCs did nothing illegal. Yeah, they screwed the Nishan employees, but they are the VC and this is something they could do, so they did it (see High Stakes, No Prisoners by Charles Ferguson). My advice is that you do what the engineering staff does in the case of most buyouts: chalk it up to experience and move on. Next time, don't accept VC money unless the terms are more favorable to the employees (or at least the founders).

I know that my comments may seem harsh. All of your sacrifice, dreams and hard work have not resulted in what you hoped. It was your ideas that built the company, all the VCs did was provide some money. But suing the VCs is unlikely to change anything and will introduce a huge barrier if you ever want VC money again (not to mention the legal fees).

Finally, for most of the technology professional who read the Mercury News business section, there are bigger problems than rapacious VCs. In my twenty three year career, this is the worst time I've ever seen. There is no job security, there is high unemployment, age discrimination and a dark future consisting of engineering jobs moving overseas. I currently work at the Lawrence Livermore National Labs and I have no plans to return to "The Valley". I have a job that can't be exported offshore (it requires a security clearance).

Good luck,

Ian Kaplan

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