Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.
FanDuel founders to receive no cash from sale to Paddy Power Betfair
11–20 of 187 posts
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#12I'm sympathetic towards regular people people being legally scammed by nasty contracts, but how did that happen here? This was not a clueless Joe being forced to sign a non-negotiable contract with a giant company. Presumably those clauses and investment contracts were negotiated between lawyers of both parties. Why did they accept such clauses?
> Why did they accept such clauses?
They're super standard and for the most part make sense.
Liquidation preferences say if your firm is worth $90 million, and I invest $10 million, I get my $10 million back before you (i.e. the common stock holder) get anything. If the firm sells for $200 million, I get $20 million and doubled my investment. If the firm sells for $20 million, I get $10 million back and the common splits the remaining $10 million. If the firm sells for $9 million, I get it all. This makes sense because management (a) owns lots of common stock and (b) manages the company. As a risk-sharing measure, it makes sense for the people closest to the operations (and extracting a cash salary) to bear more downside risk.
Drag-along rights are the corporate equivalent of collective action clauses [1]. They exist to prevent a person who holds two percent of the company from preventing shareholders who own 60% from selling. (Approving mergers requires supermajorities in most jurisdictions.)
[1] https://en.wikipedia.org/wiki/Collective_action_clause
Disclaimer: I am not a lawyer. This is not legal advice. Consult with a lawyer before negotiating fundraising terms.
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#13Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.
> people should choose real liquid equity of public companies over the paper equity of startups
Or ask for more cash.
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#14Is there any reason for founders to ever deal with these investors ever again? Unless the investors were trying to retire, this seems incredibly short sighted.
I'm not sure there's any lesson here.
Taking investment from scum private equity like KKR didn't turn out well? Wow, who could have predicted.
It's been well known for at least a decade what private equity does to businesses. Either the founders couldn't raise from anywhere else, or they got greedy.
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#15Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.
> people should choose real liquid equity of public companies over the paper equity of startups Or ask for more cash.
The most liquid of compensation.
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#16Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.
> people should choose real liquid equity of public companies over the paper equity of startups Or ask for more cash.
Agreed, but public companies also often will give more of that too :) .
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#17I'm sympathetic towards regular people people being legally scammed by nasty contracts, but how did that happen here? This was not a clueless Joe being forced to sign a non-negotiable contract with a giant company. Presumably those clauses and investment contracts were negotiated between lawyers of both parties. Why did they accept such clauses?
> Why did they accept such clauses? They're super standard and for the most part make sense. Liquidation preferences say if your firm is worth $90 million, and I invest $10 million, I get my $10 million back before you ( i.e. the common stock holder) get anything. If the firm sells for $200 million, I get $20 million and doubled my investment. If the firm sells for $20 million, I get $10 million back and the common s…
These clauses generally don't cause any grief if the outcome is a win or a complete failure. It's only when it's a partial failure and people are dividing up what there is -- typically less than was put in -- that these cause major differences in outcomes.
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#18I'm sympathetic towards regular people people being legally scammed by nasty contracts, but how did that happen here? This was not a clueless Joe being forced to sign a non-negotiable contract with a giant company. Presumably those clauses and investment contracts were negotiated between lawyers of both parties. Why did they accept such clauses?
If you're a minority shareholder sometimes you have no option but to accept. Changes to the articles of association of a company only have to be approved by a majority of the shareholders. This is the price you pay for raising equity capital. There is nothing particularly scammy going on here, the majority shareholders are protecting their interests and the interests of the company to the extent permitted by the law.
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#19Can someone familiar with the current funding climate say if standard deals at all levels involve liquidation preference nowadays? As in, if Im considering a seed-round, will there be any sophisticated investors doing no preference? Have talked to some investors in the scene (UK) but cannot seem to get a clear picture on this.
Is declining to accept a liquidation preference at seed level a red flag for any serious investor? What about subsequent rounds?
Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair
#20I suspect the founders took some cash off the table in prior rounds.