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

#101

Post by everdev » Sun, Jul 08, 2018, 10:15 PM UTC

olliej wrote: post #82

I will reiterate my prior statements: if you take a job that pays you (in part) in stock, with no path to sell it pre-IPO, you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you. At this point there have been enough cases where startups have clawed back the shares the…

Isn't there a way to earn shares in a company that convert to cash in the event of an acquisition?

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

#102

Post by brudgers » Sun, Jul 08, 2018, 10:17 PM UTC

segmondy wrote: post #66

Gee, not even $500k or a mil? My heart breaks for them. This is why VC's are called vultures. They claim they want you to have skin in the game, yet the founders get screwed. I know folks are thinking but the VCs are not making much, so what? Their entire game is to make it all up from another startup 100x which is why they take massive equity for $$$ invested.

KKR is a private equity firm not a venture capital firm. The investment philosophies are different.

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

#103

Post by ChuckMcM » Sun, Jul 08, 2018, 10:18 PM UTC

olliej wrote: post #91

JumpCrisscross wrote: post #86

Earlier quoted context omitted.

> you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you If this is your mentality, don't work for a start-up. Employees don't get preferred stock. Founders don't get preferred stock. Your downside protection is your cash salary. Asking for preference as a non-capital…

Based on this article alone anything other than preferred stock isn’t viable. Unless executive have skin in the game - say no executive can make money off a sale of the company or a funding round unless all the employees who have been paid in stock have been given first rights to convert their stock before any member of the executive or founder team. This seems reasonable, as it prevents the founders or executive boa…

Actually, if a company exits at some multiple of the money raised, the common stock will have some value. But it is true that once a company has raised more than 50 million or so things become less likely. That is why I advise people to value their options at zero in terms of financial plans.

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

#104

Post by evgen » Sun, Jul 08, 2018, 10:20 PM UTC

Drdrdrq wrote: post #84

evgen wrote: post #75

Earlier quoted context omitted.

It may not seem 'fair', but the reality is that the company that the founders had equity in died in the 2015 round of financing. It was replaced with a company which needed to make a big bet (lots of ad spending) to stay strong in this particular market and the bet did not pay off. If you take $200M+ of financing then the people writing the check are expecting you to exit no lower than $1.5B -- ~$500M is, to use the…

If it doesn't seem fair, it usually isn't. Maybe not even if founders knew this could happen and accepted it willingly (which I doubt they did). This is just the more powerful and experienced squeezing out the weaker ones to grab as much profit as possible.

It was completely fair if you actually look at the probable course of events. In 2014 FanDuel needed money, a lot of money. They had a valuation approaching a billion but were losing ground to DraftKings and as the space was heating up they needed to grow fast. What probably added urgency to this need to grow was that both companies were starting to court various teams and leagues for partnerships, and no one wants to partner with the also-ran. FanDuel picked up the NBA and a handful of NFL teams, but DraftKings got the NHL and NFL (and the NFLPA) so DraftKings was still pulling ahead. Then in late 2015 New York and other states put the brakes on the entire industry by declaring it illegal sports betting. FanDuel has just accepted a big chunk of money and now their ability to continue operating was suddenly called into question. I have no idea what choices they made at this point, but it is pretty clear they made the wrong ones. An attempted merger with DraftKings was called off when the DoJ indicated it had anti-trust worries, and since 2016 when various state laws were changes it seems DraftKings has tacked hard into becoming an online sports book with partnerships with various casinos (including several in New Jersey, which coincidentally is challenging the constitutionality of the national gambling restrictions in the Supreme Court) while since 2016 we see a whole lot of not much from FanDuel. My guess is that when the DraftKings merged died they started spending the war chest trying to buy growth with an eye towards an exit. This is also when new management stepped in, so it is possible that the investment round was a proxy investment in a potential DraftKings buyout and when that died the company had to start looking around for a fast exit.

And please spare us all the 'powerful' squeezing out the weaker BS; the FanDuel founders would have had incredibly high-priced legal counsel for an investment round of this size and knew exactly what the upside and downside was for every possible variation of success.

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

#105

Post by [deleted] » Sun, Jul 08, 2018, 10:26 PM UTC

JumpCrisscross wrote: post #100

brudgers wrote: post #93

In some ways, this story sheds light on the philosophical differences between private equity firms like KKR [1] and venture capital. At least when it comes to the fat parts of the Bell curve (and ignoring outliers), private equity investments tend to be premised on gaining control of the companies accepting investment and seek return on each investment. The fat part of the venture capital investment Bell curve (and i…

> private equity investments tend to be premised on gaining control of the companies accepting investment and seek return on each investment Put another way, losing money on a PE deal is terrible. Losing money on fewer than half of one's VC investments is positively great. When FanDuel sold, it didn't have enough upside left to justify pure venture capital. It was a distressed sale whose alternative was closing down…

[deleted]

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

#106

Post by inthewoods » Sun, Jul 08, 2018, 10:33 PM UTC

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.

We don't know, as far as I can tell, if the prior CEO took money off the table during prior funding rounds. So he might have made some money.

Happy to be corrected if someone is in the know or has a reference, but it's pretty common on large fund raising rounds.

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

#107

Post by pdpi » Sun, Jul 08, 2018, 10:40 PM UTC

everdev wrote: post #101

olliej wrote: post #82

I will reiterate my prior statements: if you take a job that pays you (in part) in stock, with no path to sell it pre-IPO, you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you. At this point there have been enough cases where startups have clawed back the shares the…

Isn't there a way to earn shares in a company that convert to cash in the event of an acquisition?

Not really, not in a way that would solve this sort of problem.

Who would pay that cash? Where would the money come from? How does the buyer valuate that money coming out of somewhere when figuring out their offer? How does it interact with the preferences on the investors’ stock?

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

#108

Post by evgen » Sun, Jul 08, 2018, 10:41 PM UTC

opportune wrote: post #80

sokoloff wrote: post #77

Earlier quoted context omitted.

Isn't that a bit like asking why they sold for $465M instead of demanding $930M? Presumably, they sold for the highest amount they could get. If the company falls off the hockey stick, there may be no better time than right now to sell it for what you can get.

$465M was right at the point where investors still got ROI while investors got nothing. It’s not like they took a loss. If I were a founder I would be beyond pissed that the investors sold right in the band where they made money but not the founders and employees. Granted, I don’t know the exact terms of their contract nor the full context

Alternative explanation is that the company was already sinking. It had dropped past the point where founders and employees were going to get anything out of the deal and was started to approach the point where investors would lose money. Investors stepped in at this point and dumped the company to prevent an even bigger loss. It is unlikely the investors were waiting around for the valuation to drop to this point for the sole purpose of screwing the other parties.

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

#109

Post by bradleyjg » Sun, Jul 08, 2018, 10:47 PM UTC

olliej wrote: post #91

JumpCrisscross wrote: post #86

Earlier quoted context omitted.

> you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you If this is your mentality, don't work for a start-up. Employees don't get preferred stock. Founders don't get preferred stock. Your downside protection is your cash salary. Asking for preference as a non-capital…

Based on this article alone anything other than preferred stock isn’t viable. Unless executive have skin in the game - say no executive can make money off a sale of the company or a funding round unless all the employees who have been paid in stock have been given first rights to convert their stock before any member of the executive or founder team. This seems reasonable, as it prevents the founders or executive boa…

Your premises aren’t totally wrong, but your conclusion is off. Value post-founder to pre-IPO equity at zero and if the offer—-all things considered—-is better than any other you have available, take it.

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

#110

Post by bradleyjg » Sun, Jul 08, 2018, 10:49 PM UTC

everdev wrote: post #101

olliej wrote: post #82

I will reiterate my prior statements: if you take a job that pays you (in part) in stock, with no path to sell it pre-IPO, you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you. At this point there have been enough cases where startups have clawed back the shares the…

Isn't there a way to earn shares in a company that convert to cash in the event of an acquisition?

A company could give employees debt of some or other seniority, but I’ve never heard of a start-up doing so.