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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

#141

Post by sk5t »

adventured wrote: post #134
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…

> 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 do…

Okay, however, bear in mind that selling to investors a riskier class of equity than is their custom, will likely meet with lower valuations. In business, lower risk = more money, and vice versa.

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

#142

Post by forkLding »

asg wrote: post #6
forkLding wrote: post #2

Quick question to those in the know, what payment is the founding team getting then, the one mentioned at the end? Is that some kind of executive termination pay?

That's not the founding team, that's the current executive team -- who are getting a "retention bonus". All the founding team seem to have left the company (but presumably still hold shares)

True so basically founding team didn't get anything after 10 yrs?

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

#143

Post by jkaplowitz »

evgen wrote: post #104
Drdrdrq wrote: post #84

Earlier quoted context omitted.

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 t…

> (including several in New Jersey, which coincidentally is challenging the constitutionality of the national gambling restrictions in the Supreme Court)

An update on that: New Jersey won, 6-3, with Kagan joining the conservative wing of the court in this majority. The conclusion is that Congress and the states each have concurrent power to regulate sports gambling. Congress hadn't actually done that directly, but rather had banned states from legalizing it. That's been struck down.

Opinion analysis from the excellent SCOTUSblog: http://www.scotusblog.com/2018/05/opinion-analysis-justices-...

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

#144

Post by chrisbennet »

sonnyblarney wrote: post #125
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…

No, you'll never get preferred shares working for a startup, so don't even ask for them; it would also highlight a misunderstanding of what those shares are. Preferred shares are for investors, and they have 'preference' during liquidity, i.e. if the company is sold, they get their $X back first, then the rest is split among all shareholders etc.. 'Clawback' terms are almost always applied to investors, not employees…

Employees that get part of their payment in stock are also investors. It’s just that they have less leverage so it is understood that, unlike the other investors that have preference, employees won’t get their investment back.

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

#145

Post by jkaplowitz »

sk5t wrote: post #141
adventured wrote: post #134

Earlier quoted context omitted.

> 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 do…

Okay, however, bear in mind that selling to investors a riskier class of equity than is their custom, will likely meet with lower valuations. In business, lower risk = more money, and vice versa.

Lower valuations also mean less extreme growth expectations in order for the founders and employees to get a successful exit.

This may be a good tradeoff for a business with a long enough pre-investment runway, where the VC money is merely an optional accelerant, as the post you're replying to advocates.

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

#146

Post by sk5t »

ChuckMcM wrote: post #103
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…

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.

Possibly--factors such as liquidation preferences > 1x, dividends due on change in control, and ordinary debt can still leave nothing for common.

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

#147

Post by Eridrus »

hn_throwaway_99 wrote: post #55
JumpCrisscross wrote: post #5

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

I always wonder, though, that (usually) a good percentage of the value in these deals is the institutional knowledge of the company. The purchasing company better know the amount of ill will engendered when connected leaders like the CEO make out like bandits while everyone else gets screwed can have a serious negative effect on the value of the company.

Despite equity being worth nothing, that doesn't mean that employees are all fucked. If the company is actually buying the company for the capability they provide, rather than just customers+brand, there are usually generous offers at the new company for those that the acquiring company wants to ensure stay.

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

#148

Post by Eridrus »

bsder wrote: post #85
gkoberger wrote: post #50

Earlier quoted context omitted.

Yeah, to be clear, I'm not saying anyone did anything wrong.

Possibly, but how many more of these deals will it take until the employee pool goes away permanently? If you have the skills to be good at a startup, you can go to one of the big boys for a lot of cash.

I think this says more about top end compensation, rather than startup compensation. The effect is going to be top end employees not really being early employees at startups, but that's not necessarily bad.

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

#149

Post by sonnyblarney »

chrisbennet wrote: post #144
sonnyblarney wrote: post #125

Earlier quoted context omitted.

No, you'll never get preferred shares working for a startup, so don't even ask for them; it would also highlight a misunderstanding of what those shares are. Preferred shares are for investors, and they have 'preference' during liquidity, i.e. if the company is sold, they get their $X back first, then the rest is split among all shareholders etc.. 'Clawback' terms are almost always applied to investors, not employees…

Employees that get part of their payment in stock are also investors. It’s just that they have less leverage so it is understood that, unlike the other investors that have preference, employees won’t get their investment back.

Even though one could rhetorically try to make the case that 'employees are investors' ... really, in any common sense of the term, they are not. Employees are compensated with equity, they are not investors. Not even founders would be referred to as investors, unless they've put a meaningful amount of cash up for equity.

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

#150

Post by sgrove »

dajohnson89 wrote: post #138
hn_throwaway_99 wrote: post #122

Earlier quoted context omitted.

> 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.

Would you be willing to flesh out that comment?

As it is, I don't really understand why, and I feel it's overly negative (though I expect to understand why I'm wrong once you explain it more fully).

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