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

heraldscotland.com

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

#111

Post by protomyth »

barbegal wrote: post #25
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.

I was commenting on a headline that could of added two extra words and conveyed that this isn't just a founder problem but something that has affected all of the employees also.

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

#112

Post by jasonlotito »

JumpCrisscross wrote: post #86
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…

> 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…

> Your downside protection is your cash salary.

This salary is pretty much always lower than what you could make elsewhere. The benefit to working at a startup can be simulated by taking a well paying job at a non-startup and playing the lottery.

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

#113

Post by olliej »

JumpCrisscross wrote: post #97
olliej wrote: post #91

Earlier quoted context omitted.

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…

> Based on this article alone anything other than preferred stock isn’t viable Common stock pays when companies do well. It diverges from non-participating preferred when companies sell for less than their most-recent valuation. Investors get preferences, employees get cash salaries. > 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 hav…

Again as I have said repeatedly - the ceo got 11 million. It seems that they could have taken less and employees could have taken more.

As far as the employees losing there jobs years ago: if that had happened they would have got jobs elsewhere, maybe jobs that paid them what they were worth.

Other things that make it theft: people who got the biggest pay outs were the ones he rewrote the charter to ensure that the employees got nothing.

This is theft. If you change the value of something you have already used to pay someone, it is theft.

And yeah “it’s a lottery”, but what they did was basically the same as you buy a lottery ticket that says there a 10% chance of winning $1000 if you wait 6 months before scratching it off, and then 5 months later they say “we’ve change the reward amounts, now it’s $100. Except instead of being a lottery ticket it was the employees time, money, and cost from losing out on other opportunities.

In very simple probability terms. The value of stock as payment for employment at a startup is

ExpectedValue = amount * P(non preferred stock gets money) * ExpectedStoxkPrive

The exact amount you would accept for working at a startup obviously varies from person to person. You estimate the probability that you’ll be able to sell your stock, based on the details of the company, and offer to work in exchange for what you consider a fair amount. After that the company deliberately changes the probability of you receiving a pay out on the stock you have already been granted. That is they retroactively changed what they paid you.

Also employees don’t get cash salaries, they get a mix of cash and stock. The statement is: we know your time is worth more than we can afford to pay you in cash. So we will accept that you are reinvesting part of your earnings as a capital investment in the company.

The company depends of capital being invested until it is profitable. The stock being granted to employees is because the employees are directly investing their own money into the company.

The difference between employees and VC is the VC have enough ownership of the company to steal from the other owners.

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

#114

Post by ec109685 »

WheelsAtLarge wrote: post #53

Just because you founded a company, it does not mean you get a cut of the final sale. Starting a company is hard. You can struggle to make it profitable, never get there, and end up deeply in debt years later. Fanduel became relevant mainly because of the marketing it was able to purchase without that it would have fallen by the wayside. You need lots of money for that. The founders must have needed cash at a critica…

Those founders aren’t necessarily deeply in debt. They shifted their risk over to investors in exchange for equity.

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

#116

Post by olliej »

JumpCrisscross wrote: post #86
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…

> 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…

All employees who are getting paid below market rates are providing a direct and ongoing capital investment of their own money. At minimum they are investing the difference between their market rate salary and the amount you are paying them. That is a direct investment in the company that is no different from investments from VCs. In fact I would argue the cash investment of employees must be greater than that of any VC, because if it weren’t you would simply pay them entirely in cash. The only way paying in stock makes sense is if you recognize that they are investing more from each paycheck than your VCs are willing to pay. Otherwise your VC “partners” would insist you pay market rate and don’t issue stock.

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

#117

Post by everdev »

pdpi wrote: post #107
everdev wrote: post #101

Earlier quoted context omitted.

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?

I guess similar to how stocks work, but instead of having to wait for an IPO, the acquisition price would be distributed proportionally to all of these "acqui-stock" holders.

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

#118

Post by kinkora »

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…

That might be true but you also have this bit in the article:

> “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)"

All these guys can be classified as "late stage" employees and I can't believe that these guys were given a way much more bigger payout than to the founders or to the original team of founding employees. I am not saying they don't deserve the payout however some comments below stated that these guys are possibly the reason why the company could even have an exit thus rewarded accordingly but wouldn't one argue that if the founders did not start the company, there wouldn't be anything to sell with? I am just completely confounded how unfair compensation is regardless of what the terms of the VC were.

My honest question to YC members - What is the general advice shared between the YC community to prevent this happening to founders and/or founding employee(s)?

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

#119

Post by icedchai »

kinkora wrote: post #118
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…

That might be true but you also have this bit in the article: > “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)" Al…

Don't want this stuff to happen? Bootstrap and self-fund. If you take other people's money, you're subject to their rules.

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

#120

Post by greglindahl »

kinkora wrote: post #118
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…

That might be true but you also have this bit in the article: > “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)" Al…

It's usual to pay ~ 10% to the people who are needed to make the deal close. The founders, who have common shares and/or options, knew the terms when they started. If you think any of this is unfair, don't take external funding.
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