FanDuel founders to receive no cash from sale to Paddy Power Betfair • Hacker News Board

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#21

Post by woah » Sun, Jul 08, 2018, 7:12 PM UTC

naturalgradient wrote: post #19

Can 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 in…

Just raised a seed on convertible notes, was never asked for any kind of preference

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#22

Post by JumpCrisscross » Sun, Jul 08, 2018, 7:12 PM UTC

naturalgradient wrote: post #19

Can 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 in…

> Is declining to accept a liquidation preference at seed level a red flag for any serious investor?

Investors may be receptive to nixing liquidation preferences, particularly early on, if the founder agrees in writing to take no employment benefits. Asking an investor to relinquish their downside protection while retaining your own (a cash salary) is cause for further questions.

That said, it's awkward to (a) ask for capital while (b) prominently communicating that you see the risk of selling the business below where they've valuing it as being non-negligible. If you, as the founder, have that little faith in the venture, a better conversation may be hand about what can be done to increase your confidence in it.

Liquidation preferences aren't required, particularly later on. But you’ll give up on other terms by filtering for investors who don't care for them.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#23

Post by dawnerd » Sun, Jul 08, 2018, 7:13 PM UTC

JumpCrisscross wrote: post #13

Bahamut wrote: post #11

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.

> people should choose real liquid equity of public companies over the paper equity of startups Or ask for more cash.

Did that once. Turned out to be the right move as the company went public and their stock worth basically nothing by the time we could sell.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#24

Post by gkoberger » Sun, Jul 08, 2018, 7:13 PM UTC

There's a lot more here, including responses from the founders: https://twitter.com/Suhail

Seems the founding CEO spent 10 years there and got nothing, but a new CEO of 6 months walked away with $11MM.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#25

Post by barbegal » Sun, Jul 08, 2018, 7:14 PM UTC

protomyth wrote: post #3

THE PRIVATE equity backers of Scottish technology business FanDuel have completed their boardroom coup by ensuring that none of the firm’s founders or employees will be able to share in the proceeds of its impending sale to Paddy Power Betfair. That's slightly more people than just the founders. I'm sure the employees were expecting some compensation.

In a company which isn't generating a profit such as FanDuel employee equity is pretty much worthless. If you get offered equity in a startup you should value it at nothing unless the financials are very solid and the employees between them have a sizeable stake such that their interests are well represented at the board level.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#26

Post by gnicholas » Sun, Jul 08, 2018, 7:15 PM UTC

21 wrote: post #7

I'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?

I had the same reaction about these both being sophisticated parties with legal representation. Probably the founders were either more optimistic about the likely outcome (so there would have been cash leftover for them) or they were under pressure when the deal was being struck.

I don’t have any inside information about what happened — this is just generic speculation about what might have led to this outcome.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#27

Post by JumpCrisscross » Sun, Jul 08, 2018, 7:16 PM UTC

woah wrote: post #21

naturalgradient wrote: post #19

Can 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 in…

Just raised a seed on convertible notes, was never asked for any kind of preference

> Just raised a seed on convertible notes, was never asked for any kind of preference

Notes are debt. They're inherently higher than stock on the capital structure. They may convert into shares with no preference. But as long as they're notes, they're higher than even preferences shares.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#28

Post by sytse » Sun, Jul 08, 2018, 7:18 PM UTC

woah wrote: post #21

naturalgradient wrote: post #19

Can 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 in…

Just raised a seed on convertible notes, was never asked for any kind of preference

That ask will happen on conversion by the A round investor.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#29

Post by naturalgradient » Sun, Jul 08, 2018, 7:18 PM UTC

JumpCrisscross wrote: post #22

naturalgradient wrote: post #19

Can 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 in…

> Is declining to accept a liquidation preference at seed level a red flag for any serious investor? Investors may be receptive to nixing liquidation preferences, particularly early on, if the founder agrees in writing to take no employment benefits. Asking an investor to relinquish their downside protection while retaining your own (a cash salary) is cause for further questions. That said, it's awkward to (a) ask fo…

Thank you for the response. It seems like liquidation preferences really come into play at growth stage when things get 'messier' due to capital needs, and declining them at seed round would send a very negative signal because the valuation must grow for any kind of success beyond the seed round?

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#30

Post by startupdiscuss » Sun, Jul 08, 2018, 7:20 PM UTC

Quick math here:

“the aggregate value being paid for FanDuel “is approximately $465m”.”

“2014 and 2015 respectively led $70 million and $275m” (345 million)

“Mr King is expected to receive a payment of up to $11.3m as a result of the Paddy Power Betfair deal. The firm’s current chief technology officer Robin Spira is due to make up to $3.5m, its legal officer Christian Genetski stands to make up to $6.2m, and it chief financial officer Andy Giancamilli is due to receive up to $5m” (Those add up to $26 m)

So it looks like the investors got just over 7% return on a venture investment. (Which is not an unusual ask for preferred shares).