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

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

#31

Post by Dwolb »

JumpCrisscross wrote: post #27
woah wrote: post #21

Earlier quoted context omitted.

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.

Sure but those preferences only really affect equity payouts when the company’s in distress.

When selling the a non-distressed company, equity will receive cash.

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

#32

Post by greglindahl »

startupdiscuss wrote: post #30

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 chie…

Also note that the retention bonus total is known to be at least 5.5%, it's often the case that up to 10% of the purchase price in these "no money falls on common" deals is paid out to make sure that the deal closes.

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

#33

Post by TAForObvReasons »

gkoberger wrote: post #24

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.

Likely the new CEO was brought on specifically to engineer a sale. The new CEO arguably brought value to investors if the old CEO wasn't willing to sell and there was significant concern that there would be no residual value. Such is life.

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

#34

Post by barbegal »

gkoberger wrote: post #24

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.

The new CEO had previously been CFO since 2014. If his actions turned an unsalable company into a company that could be sold for $465 million then I'd say he's probably worth the $11 million. And the founding CEO surely drew a reasonable salary despite the company making a loss.

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

#35

Post by greglindahl »

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.

If you like lower risk and lower gain, sure.

The most important thing is being educated. Every time this topic comes up on HN it appears that many people are unaware that liquidation preferences are a thing and many sales that are down-rounds have no money falling on common.

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

#36

Post by JumpCrisscross »

Dwolb wrote: post #31
JumpCrisscross wrote: post #27

Earlier quoted context omitted.

> 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.

Sure but those preferences only really affect equity payouts when the company’s in distress. When selling the a non-distressed company, equity will receive cash.

> those preferences only really affect equity payouts when the company’s in distress

Liquidation preferences and bankruptcy priority only matter when a company is distressed.

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

#37

Post by hluska »

opportune wrote: post #9

Is 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.

From the perspective of a founder, I would be quite nervous about accepting an investment and drawing any kind of salary if the deal didn't include liquidation preferences. They are so standard (at least in North American tech) that if they were missing, I'd worry about their competence.

Structuring a deal without LPs would mean that founders could push for extremely early exits, cash out with modest (though life changing) returns and investors could lose most of their investments. Adding that kind of risk would make it even harder for first time founders to raise a round.

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

#39

Post by majc2 »

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…

Having recently raised a seed in the UK; there is simply no reason to accept any sort of prefs for a seed round. There is plenty of SEIS/EIS money about - and part of those tax relief schemes is the investors need to take ords or they lose the tax-relief.

Your mileage may vary etc.

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

#40

Post by opportune »

greglindahl wrote: post #10
opportune wrote: post #9

Is 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.

Yes. Liquidation preferences are a thing, and getting mad about them isn't helpful. Also, from the details in the article about "drag along" and whatnot, the typical terms for a Silicon Valley investment appear to have even more drag along to them.

It’s not about there liquidation preferences themselves IMO, it’s that they were exercised in this manner. In this case it was the investors pushing for a liquidation under the limit, not the founders
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