Investors and employees of Toptal, a freelancing platform with ~$200M revenue and originally funded by $1.5M in convertible notes, have ended up with no equity
but it never does (aka, gotta read the fine print.) https://www.theinformation.com/ ... Tom Dotan / @cityofthetown : After its seed investment 7 years ago, Toptal promised equity for investors and employees once it raised a new round. But then the round never came. https://www.theinformation.com/ ... Alex Konrad / @alexrkonrad : Toptal has sales near $200M, but employees and investors may never see a single share. Having major story jealousy for this deep dive by @rossmatican and @amir — a must-read for startup investors and employees in this era of convertible notes and SAFEs. https://www.theinformation.com/ ... Amir Efrati / @amir : This is the story of the most unusual software startup, in terms of structure + success, I have ever heard of: @toptal, which connects freelance engineers 👨💻👩 💻 to companies that need 'em that prolly could get $1B+ valuation today... Amir Efrati / @amir : A startup financing lawyer we interviewed said this stuff probably happens more than ya think. Unnamed SaaS startup client of his is just like Toptal; its stock-less investors can't do nothin'. Please share & let us know of other examples! http://www.theinformation.com/ ... Amir Efrati / @amir : Back to the main thing: In theory Toptal's well-known seed investors [@a16z & others listed on its website] would own 15% of its shares & many current/fmr employees (plus a co-founder) would have stock worth millions. Instead, they all got nothing... https://twitter.com/... Amir Efrati / @amir : These days funding contracts called SAFEs give founder(s) even more leverage than convertibles. @fredwilson once said they could wreak havoc. Most of the time things seem to go ok but boy was Fred right... Amir Efrati / @amir : What happens next involves unhappy ppl, a unique culture (bots calling out employees for bad grammar), & a legal fight betw Toptal's co-founders. We interviewed CEO Taso Du Val, an aspiring 🕺DJ🎵, whose argument boils down to, basically: negotiate your contract “thoroughly”... Amir Efrati / @amir : Toptal's impressive financials appear very similar to rival $UPWK (market cap $1.6B). Toptal is basically 1 year behind. But Upwork took hundreds of millions of dollars to get to IPO. Toptal raised $1.5M, and its secret sauce is interesting... Amir Efrati / @amir : Why? Contracts used to fund & staff Toptal gave the CEO power to determine whether shares would ever be doled out. The funding contracts are called convertible notes. They're common! @pg said they really took off at @ycombinator a few years ago
Context & Ripple Effects
The day before this deep dive, The Information reported that Toptal CEO Taso Du Val has retained all of Toptal's stock because the company hasn't raised since its 2012 seed. This piece supplies the mechanism: the $1.5M seed was convertible notes whose contracts left issuance of shares to the CEO's discretion, so when the promised follow-on round never came, neither investors nor employees converted.
The story lands in an arc the corpus has been tracking for years: US tech founders wresting control from VC backers and monetizing ownership themselves, while bootstrapped outliers like Toast showed that revenue — not rounds — can carry a company. Toptal is the extreme case: ~$200M in sales, no new financing, and therefore no trigger event forcing the paper promises into shares.
First-order effects
- Toptal's seed investors and employees holding those 2012 convertible notes are left with no equity in a company observers suggest could be worth over $1B, while Taso Du Val keeps 100% of the stock.
- A legal fight between Toptal's co-founders is already underway over company matters, giving the discretionary note terms their first real test.
Second-order effects
- Future seed investors and startup hires have fresh evidence to demand explicit conversion triggers, caps, and deadlines in note and SAFE contracts rather than promises keyed to 'the next round.'
- Founders watching Toptal see a template: reach profitability, never raise again, and the equity you promised evaporates — reinforcing the founder-control playbook documented across the coverage.
Third-order effects
- If profitable startups increasingly skip follow-on rounds, convertible instruments stop functioning as deferred equity and start functioning as loans repaid only at the founder's discretion — shifting risk from founders onto early investors and employees.
- The employee-equity bargain that underpins startup compensation weakens structurally: without a raise or exit to force conversion, paper grants in self-funded companies may never become shares, pushing talent toward cash-heavy offers or public-company paths like the IPO.
The trend: As more startups fund growth from revenue and stay private indefinitely, convertible-note equity promises are becoming contingent on founder discretion rather than on any financing event.