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

#171

Post by kornish » Mon, Jul 09, 2018, 10:38 AM UTC

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.

Answering to some of the sibling comments:

Employees staying onboard under the assumption that their equity, which is part of their total comp, may yet be worth something - that brings on a serious opportunity cost. If someone stays at FanDuel making $160k/yr + $0 in common stock options versus $350k/yr at Google, that's a shame. If 100+ employees do it, it's tens of millions of dollars of opportunity cost.

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

#172

Post by vonmoltke » Mon, Jul 09, 2018, 11:07 AM UTC

kornish wrote: post #171

dajohnson89 wrote: post #138

Earlier quoted context omitted.

That's really a toxic assumption to make.

Answering to some of the sibling comments: Employees staying onboard under the assumption that their equity, which is part of their total comp, may yet be worth something - that brings on a serious opportunity cost. If someone stays at FanDuel making $160k/yr + $0 in common stock options versus $350k/yr at Google, that's a shame. If 100+ employees do it, it's tens of millions of dollars of opportunity cost.

> If someone stays at FanDuel making $160k/yr + $0 in common stock options versus $350k/yr at Google, that's a shame.

That kind of position at Google is one of the hardest to get in the industry. While I wouldn't label this attitude as "toxic", the idea that people from any random startup can just go get a $350k job at Google if it fails is detrimental to this industry. I doubt most of those working for FanDuel (or anywhere else, really) could clear that bar. Not to mention, Google has a limited capacity to absorb people, so the more who apply the higher the bar gets.

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

#173

Post by marcus_holmes » Mon, Jul 09, 2018, 12:22 PM UTC

rahimnathwani wrote: post #168

marcus_holmes wrote: post #167

Earlier quoted context omitted.

The options-holders and shareholders may have perfect information about the share structure and preference structure of the company, but unless they're in the room when the deal is being done, they won't know what that means in terms of final value. The value of anything is the lesser of what someone will pay for it and what the owner will sell it for. The PE team may have raised expectations about the value before t…

OK, so we agree that in order to value their shares/options, the employees need: 1) info on the share structure and preference structure 2) a somewhat accurate valuation of the company Whilst it's possible that people value their own shares wrongly due to missing/wrong info about #2: - (major) Misunderstanding or not knowing #1 almost always creates a larger error or uncertainty in the calculation, than does an error…

There is no such thing as an "accurate valuation" though.

I was just involved in the sale of a company that had no assets, an outstanding court case against it that it was losing, and a tax bill of $3.5m against it. The buyer paid $5m for it. That number was literally the fist number that I plucked out of the air during the first conversation we had with the buyer, and somehow it stuck as the deal valuation.

Unless you're in the room during the deal, you have no idea what number is going to be used.

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

#174

Post by sonnyblarney » Mon, Jul 09, 2018, 1:11 PM UTC

mrunkel wrote: post #163

srtjstjsj wrote: post #158

Earlier quoted context omitted.

Not necessarily. One pattern of PE is to buy a company, make the company borrow money, spend that money on the PE firm's other interests, and then declare bankruptcy to discharge debts. https://en.wikipedia.org/wiki/Corporate_raid Wikipedia has a nice overview of the topic of this thread: https://en.wikipedia.org/wiki/History_of_private_equity_and_... and of course KKR was the most famous corporate raider in America:…

Amusingly, this is the exact strategy explained by Ray Liotta's character in "Goodfellas" when the restaurant owner gets in bed with the Mob. Somehow it's illegal there.

Corporate raiding is not money laundering.

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

#175

Post by smarri » Mon, Jul 09, 2018, 3:02 PM UTC

Feels like the old maxim, learn from the mistakes of others. I wonder what they could have done differently? Seems like raising capital to promote the business was necessary due to competition, but ultimately the amount they raised was their trojan horse.

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

#176

Post by kenneth » Mon, Jul 09, 2018, 3:14 PM UTC

walshemj wrote: post #60

kenneth wrote: post #45

Earlier quoted context omitted.

As an investor who invests at the Seed to Series A stage, I can tell you that a non-participating 1x liquidation preference is standard. I would refuse to invest in any deals that didn't include it, but won't be asking for anything more. I think it's a pretty fair term. It prevents investors getting screwed by a sale for less than the round valuation, which could look quite attractive to a founder who could get their…

In the USA or UK ? The UK tends to have stronger protection for employee shares -not that there haven't been some dodgy deals BAXI getting taken over by carpetbaggers and screwing the owners is a well know case in the UK. And I have been on the receiving end of losing $1,000,000 at Poptel if only ICANT weren't such a bunch of ass%^&&S and the CoOp had been a bit more tech savvy - still water under the bridge. Poptel…

This is in the USA. While I've invested in a few foreign companies, I'm not familiar with how other countries deviate generally from SV norms.

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

#177

Post by olliej » Mon, Jul 09, 2018, 4:45 PM UTC

sonnyblarney wrote: post #149

chrisbennet wrote: post #144

Earlier quoted context omitted.

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.

Let’s try to rearrange this to demonstrate that your reasoning that employees are not investors is wrong:

Instead of paying employees below market rate, the startup pays employees an actual fair market rate. Note that because of the short term failure risk of a startup a fair market rate is /still/ higher than market rate and an established company. Now each time they receive a paycheck the employees give you back a chunk of the money in exchange for common shares. The end result is the employees have the same amount of cash and shares, and the company has the same amount of cash.

Employees working below market rate are investing in the company. Getting paid isn’t “security” it is the part of their income the employee is choosing not to invest in the company.

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

#178

Post by olliej » Mon, Jul 09, 2018, 4:48 PM UTC

jib wrote: post #128

olliej wrote: post #113

Earlier quoted context omitted.

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 e…

This is sunk cost reasoning. No one takes on more debt / raises more funds unless they have to. If your company needs to raise more capital your stock options are worth exactly 0 dollars. You already lost that bet, because your company isn’t solvent without external funds. The new investors may give you a new bet, but don’t think your original bet still stands - you lost that when you had to do another round of found…

No, did you actually read the article?

The “investors” changed the terms of incorporation /after/ they’d accumulated control of the company, specifically to change the payout rules so that only the VC funding got paid.

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

#179

Post by olliej » Mon, Jul 09, 2018, 4:54 PM UTC

greglindahl wrote: post #120

kinkora wrote: post #118

Earlier quoted context omitted.

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.

I’m fairly sure the employees are important - you know, the ones who make the company have any value?

That said in this case someone took external funding, those “investors” took control of the company, kicked out basically everyone who would work for them (not the company), placed their own executives in the company. Changed the terms of incorporation to make sure that no one else got money. And then the people they put in charge agreed to sell on terms that again favorited only themselves and the VCs, finally the VC ensured that the people they put in charge got paid off nicely.

Meanwhile the employees who could not influence any of this - the founders choose the funding terms - got their prior income stolen by having their investment artificially reduced to zero.

The founders fucked themselves, but also all of their employees. Who I would bet were not told that their shares were going to be artificially reduced to zero value

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

#180

Post by chrisbennet » Mon, Jul 09, 2018, 7:05 PM UTC

sonnyblarney wrote: post #149

chrisbennet wrote: post #144

Earlier quoted context omitted.

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.

I think I understand what you're saying but it seems like a distinction without a difference. "Real" investors get stock. Employees get "equity" (in some form of stock).

It seems like a fiction that benefits "real" investors at the expense of employees "investment". As long as VCs can maintain this fiction they can exploit the other stockholders. Sort of like "Well, you're just a woman, you're not a "real" fill-in-the-blank. We shouldn't have to pay you like one."