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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

#131

Post by hluska »

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

I understand what you're saying - if I was the founder here, I might be pretty pissed off too. But, I balance that with the knowledge that this company got very messy, and as founder, one of my jobs is to keep things from ever getting that messy.

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

#132

Post by carlsborg »

“Under FanDuel’s management incentive scheme, there has been a sixtyfold increase in total shares and a corresponding dilution in the rights to them. This distribution increases investors’ ownership in the company from 54 to 71 percent of the 4.4 million total shares, The Herald reported.”

Why would a merger blocked by the FTC trigger a clause like this?

From here : https://www.legalsportsreport.com/14930/fanduel-equity-inves...

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

#133

Post by [deleted] »

olliej wrote: post #116
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…

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…

[deleted]

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

#134

Post by adventured »

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…

> If this is your mentality, don't work for a start-up.

Not all start-ups are the same. My last start-up took VC from a top tier entity and exclusively used common shares for all owners, no exceptions under any circumstances. No special arrangements, every share was the same.

My current start-up will follow the same pattern. No investors will be allowed in without accepting their position as common shares. If they don't like it, they can fuck off. It's important to tell all interested investors how things are going to be up front and to stick rigidly to it. There's enough capital sloshing around right now that the tilt is aggressively in the entrepreneur's favor, use that to your advantage while you have it (it'll last until the next recession).

Build things that don't absolutely require venture capital (but can be accelerated by it if it makes sense). And or build in a very lean manner, to boost your chances. Maximize your leverage by getting as far as you can without venture capital. Under no circumstances allow venture capitalists to have anything other than common shares, with no special arrangements (their money does not get out first). But it limits the prospective VCs? See the first item.

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

#135

Post by olliej »

hn_throwaway_99 wrote: post #121
olliej wrote: post #116

Earlier quoted context omitted.

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…

But your advice is still basically "Don't work for a startup", because I still do not know of any startup that would incentivize employees with preferred shares. I think much better advice is to (a) be sure you have a good understanding of the cap table, and what the liquidation preferences are for the preferred investors, and (b) have a general sense of how likely it is for your shares to be diluted over time.

No, my advice is to balance the expected return on your stock against your personal margin of safety - startup companies have younger employees almost entirely due to the reduced cost of the risk.

My personal risk level is maybe lower than “I quit my job and started a company”, but I consider my work to have value, and I consider an employer structuring employment agreements such that my return is is given a lower precedence than another investor to be either sign that they do not value my work at at least market rate, and given the risk entailed my expected income should be much greater than market rate.

Your claim is basically: startups have been able to screw employees because that’s what startups do.

The funding your describing for example is /not/ funding, it’s an extremely high interest loan, and in that case should not be considered a share in the company.

I also realized I had not said earlier: the theft in this case did not happen when the company was sold, it happened when one group of shareholders rewrote the company charter for the express purpose of devaluing the shares belong to all employees.

This gets to the heart of my problem with the “pro let yourself get screwed” argument: because VC funding is miscategorized as ownership rather than a loan, it is in their interest to screw the people who actually invest in the company.

Maybe it makes me unemployable for believing that my work has value and my not believing that “taking on risk” should mean “others should be able to treat my investment in the company as being not real investment” is unrealistic.

But I find it hard to feel sorry for anyone stupid enough to sign a contract that has any room to legally discard your investments. Is it bullshit that this company did that? Yes. Is it the employee’s fault that they had their investment stolen: yes.

Would I ever sign a contract that allowed someone to dilute my investment in anything without compensation? Of course not, because that’s stupid.

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

#136

Post by greglindahl »

olliej wrote: post #79
greglindahl wrote: post #35

Earlier quoted context omitted.

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.

Just to clarify: how educated do you need to be? Founders don’t appear to be obligated to tell you when they make deals that effect you, and more importantly retroactively reduce how much they paid you. If you are paid in stock, and the founders make a deal that reduces the payout value of that stock (in this case to zero) they have stolen from you in a way that has no recourse. Literally they paid you with something…

Given the 8 comments you've made so far in this discussion, I'd say that my two education suggestions are spot-on.

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

#137

Post by Bahamut »

hn_throwaway_99 wrote: post #70
greglindahl wrote: post #35

Earlier quoted context omitted.

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.

> If you like lower risk and lower gain, sure. Given how much the big tech companies are paying though, especially when it comes to RSUs, I'm not sure this calculus makes sense anymore, especially for early employees. Founders may do exceptionally well on many cases, but for most early employees at startups there really isn't that much potential upside in most cases, compared to the guaranteed earnings you can get at…

Yeah, there's ample evidence that it's almost all no gain on the startup exit side, unless you got very lucky and worked for the right company.

I can confirm that RSU payouts at the giants far dwarf what you can get at almost all startups. The total comp difference is insane.

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

#138

Post by dajohnson89 »

hn_throwaway_99 wrote: post #122
JumpCrisscross wrote: post #100

Earlier quoted context omitted.

> 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…

> In this timeline, employees got a few more years of cash salaries. I think most of their employees would have easily been able to get jobs elsewhere.

That's really a toxic assumption to make.

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

#139

Post by JumpCrisscross »

olliej wrote: post #135
hn_throwaway_99 wrote: post #121

Earlier quoted context omitted.

But your advice is still basically "Don't work for a startup", because I still do not know of any startup that would incentivize employees with preferred shares. I think much better advice is to (a) be sure you have a good understanding of the cap table, and what the liquidation preferences are for the preferred investors, and (b) have a general sense of how likely it is for your shares to be diluted over time.

No, my advice is to balance the expected return on your stock against your personal margin of safety - startup companies have younger employees almost entirely due to the reduced cost of the risk. My personal risk level is maybe lower than “I quit my job and started a company”, but I consider my work to have value, and I consider an employer structuring employment agreements such that my return is is given a lower pr…

> Would I ever sign a contract that allowed someone to dilute my investment in anything without compensation? Of course not

So you’d never buy a share in a public company either, since public companies are allowed to issue additional shares to new investors when they raise capital.

I don’t see anything wrong with your view. It’s basically an extremely conservative risk tolerance perspective. But it’s extreme, and extreme views tend to leave money on the table.

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

#140

Post by stickfigure »

JumpCrisscross wrote: post #5

TL; DR FanDuel was sold for less than its liquidation preference, so common stock holders got nothing.

I'm curious - what happens to the current set of employees in this situation?

Presumably some of them have vested stock, and it just got zeroed out. If there's ever a good time to ragequit, this seems like the appropriate hour.

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