When a Unicorn Startup Stumbles, Its Employees Get Hurt • Hacker News Board

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#101

Post by harryh » Wed, Dec 23, 2015, 6:00 PM UTC

ditonal wrote: post #33

Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook. Tech employees need to wake up about common vs preferred shares, and that the former are w…

Investors made ~no money on this deal. That's not the playbook.

Most of your comment is just wrong.

EDIT: Ah yes. Downvotes. On Hacker News you get to pick your own facts. Lolz.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#102

Post by dikaiosune » Wed, Dec 23, 2015, 6:01 PM UTC

keithpeter wrote: post #97

UK resident here: why were employees paying tax on the nominal value of the shares? Is it not possible to structure the compensation so that tax is payable when the shares are sold (capital gains) or on any dividends paid on the shares?

There's tax due on incentive stock options (ISOs, I think I have the name right?) when you exercise the option. So, if my layman understanding is correct, you get an offer to pay a discounted price on company stock whenever you want (usually based somewhat on valuation when you're hired). Then, the company's valuation increases (all on paper and in private, not public market price corrections, just whatever investors think is "fair"), and you exercise your stock option. The difference between the price you paid (your option price) and the value of the share (as determined by the private valuation) is now taxable income in the eyes of the IRS. You will owe taxes on stocks that might still end up being worthless, and your employer also has the power to prevent you from selling them before they go public/are bought out.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#103

Post by cjcole » Wed, Dec 23, 2015, 6:01 PM UTC

ditonal wrote: post #89

woah wrote: post #81

Earlier quoted context omitted.

Most of this seems like a reasonable comment, but are you actually angry that people are learning to code?

Absolutely not! I do, however, think it's extremely questionable when VCs lobby for taxpayer money to fund for-profit bootcamps that they invest in to train people for the skills their companies need. It's outsourcing the cost of training to the taxpayer, all while driving up the value of their bootcamp investments. Instead, these companies should drop their "we're a poor startup that needs people who can hit the gro…

One nit to pick: "tight-knit"

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#104

Post by nissimk » Wed, Dec 23, 2015, 6:01 PM UTC

Xcelerate wrote: post #84

nissimk wrote: post #78

Earlier quoted context omitted.

Information asymetry is the way people get screwed over in financial transactions. Most potential startup employees have no idea what common or preferred shares are. Let alone all of the other details like dilution, liquidation preference, tax implications of employee stock options and lack of liquidity in private securities. Potential startup employees should learn about these things and understand how to protect th…

Where can one learn about these?

Search for those terms in google and see what type of explanation makes the most sense to you. There are textbook definitions, legal explanations and more business oriented explanations. Read through threads like these specifically for people's anecdotes about how they got screwed over.

There's this scene in "the big short" where Eisman is talking to the credit default swap sales guys from one of the big banks. He's never traded credit default swaps before so he knows that he is at a disadvantage. He asks the sales guys, "How do I get f*cked in this deal?" And then he sticks around until they explain the scenarios to him. That's a really good lesson about financial securities. There are so many embedded options that each have a different payout scenario. You need to understand what are the potential future scenarios and how do they impact your position.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#105

Post by jpollock » Wed, Dec 23, 2015, 6:02 PM UTC

ditonal wrote: post #33

Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook. Tech employees need to wake up about common vs preferred shares, and that the former are w…

The best articles of incorporation I saw had preferred stock for the founders, but any acquisition or liquidity change would convert all preferred shares to common 1:1 and instantly vested all options.

It did cause some interesting tax issues for people when we were bought, but I don't think I'd sign any other set of terms now.

But then, the founders were very classy.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#106

Post by jcdavis » Wed, Dec 23, 2015, 6:02 PM UTC

kevinpet wrote: post #73

Can anyone provide any info on what actually happened here? The article says that the preferred was "worth" more, which is a pretty vague statement. I interpret this as meaning that they didn't convert because their liquidation preferences guaranteed a higher payout. What seems relevant to me, and anyone else who works at a pre-IPO startup, is what were the things to look for ahead of time. According to Crunchbase, G…

I think the bigger concern (as far as employees are concerned) in this particular case is that the board turned down multiple more lucrative acquisition offers.

In addition to all the other issues mentioned here, the preferred/common split means that the preferred holders (ie the board) have much different incentives/risks than common - they can afford to "swing for the fences" due to the downside of liquidation preferences.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#107

Post by rebootthesystem » Wed, Dec 23, 2015, 6:03 PM UTC

justinph wrote: post #67

jerf wrote: post #41

Is there some other industry where, when a company stumbles, its employees don't get hurt? I live in Michigan, and when the car industry "stumbled" everyone I locally know at least knew someone who got hit, at the very very least with long-term stagnant wages even as their responsibilities amped up to cover the missing people, and they were the ones who came out relatively unscathed. I mean, the details of the articl…

At least with the auto industry, the unions were able to offer some protections for the worker. How many programmers belong to a union?

> How many programmers belong to a union?

Thankfully none.

One of the main reasons the car companies stumbled are unions. The whole thing has degenerated to insanity squared.

For example, GM had a clause in their contract requiring them to not fire employees displaced by technology or automation. In other words, if you improve your workflow and process and can do the same work with 25 people instead of 100, you can't fire the people you no-longer need. All incentives to innovate in process and technology very quickly evaporate with such insanity in place.

They reportedly had thousands of people show up for "work" every day drawing 95% salaries and full benefits only to go to this building, read the newspaper and drink coffee all day.

Unions had their day and reason to exist. I am not proposing they need to disappear. However, they need to mutate into something that works towards a mutually beneficial and sustainable ecosystem.

By pushing for, and obtaining, ridiculous grants, they create short term apparent gains and HUGE long term losses as thousands of people lose their jobs when they industry they worked in simply crumbles under the weight of onerous arrangements that cause them to lose the ability to compete and remain financially viable. In fact, if you look at Detroit, one could argue the unions went beyond costing people their jobs and companies their ability to compete, they actually succeeded at destroying a whole city.

How is this, in any imaginable reality, good?

A couple of articles:

http://www.wsj.com/articles/SB114118143005186163

This one covers other issues:

http://www.forbes.com/sites/realspin/2013/05/20/what-explain...

From the Forbes article:

"A worker might be able to retire in his early 50s and collect an annual pension of $37,500, paid wholly by GM. By 2008 there were 4.6 retired GM employees for each active worker. Did anyone think this was sustainable?"

It's called "killing the golden goose".

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#108

Post by arbitrage314 » Wed, Dec 23, 2015, 6:03 PM UTC

If you're going to work at a startup, ask for two things:

1. No employee equity whatsoever, but a slightly higher salary to make up for it 2. The ability to invest in the the next round

I've worked at a startup and done #1 and #2 above, and it's working out great. I'm very happy to be owning preferred shares.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#109

Post by mcfunley » Wed, Dec 23, 2015, 6:04 PM UTC

dradbdgj wrote: post #80

ryporter wrote: post #49

Earlier quoted context omitted.

According to the article, employees had the opportunity to sell their "worthless" shares for $3/share.

Throwaway account, reporting on the secondary market! Companies will often do everything in their power, including running roughshod over their contractural and legal obligations, to prevent employees from selling stock on the secondary market. If they're not total jerks, they will encourage you to participate in "internal buybacks". Unfortunately, these buybacks are run as a service for investors, presenting them ma…

In my case,

* Internal buybacks ("tender offers") were actually all above the current (publicly-listed) stock price. Private valuations can be pretty inflated. I think it's a good idea to take these and diversify.

* My company did use a backchannel to stop me from selling privately to one of their investors before the IPO (at roughly double the current market price). So I think the spirit of your comment is right.

Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt

#110

Post by dewitt » Wed, Dec 23, 2015, 6:04 PM UTC

blizkreeg wrote: post #100

This topic has been in conversation a lot recently. Yet I feel we only have anecdotal data. I was wondering if we can get some real numbers on employee outcomes. I created a spreadsheet that aims to capture this and hopefully, we can get some real insights and conclusive data. https://docs.google.com/spreadsheets/d/1bIYwuz3bhRWPYazVamMD... All data is anonymous. You don't even need to be logged in to edit. What do pe…

Real data is good, but that's not a good way to get real data.

I'm not a stats person, but it would seem to suffer from both an extremely small potential sample (those who read your post), a self-selection bias (those who gain an advantage by participating, e.g., the aggrevieved), and an outright unsual candidate sample pool (Hacker News).

Perhaps try something like Google Consumer Surveys, and ask a one-two question like: (1) are you currently working for a pre-IPO startup and (2) are your options underwater. Or similar.