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

#181

Post by sonnyblarney » Mon, Jul 09, 2018, 9:35 PM UTC

chrisbennet wrote: post #180

sonnyblarney wrote: post #149

Earlier quoted context omitted.

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-th…

The distinction between investors investing actual money, and employees who are comped with equity is is not a fiction.

Investors are in a totally separate class for so many reasons, and it's why there are distinctions in the type of equity they get.

The market for both talent and capital is very liquid and there really aren't that many secrets - so the current equilibrium between capital and talent is a function of the reality of market dynamics, not some sort of 'secret marketing magic' that VC's use. Although on a case by case basis, there's going to be some leveraging by VC's on some level, one could argue the corollary is the number of completely-full-of-crap 'founders' who are full of rubbish, some of them not even aware they are, or who are simply not aware of the real amount of risk they are offering. Silicon Valley is full of people who are making things for companies that will fail, and are therefore taking huge salaries at the expense of capital.

In fact, VC as an asset class is kind of a loser overall, globally - and almost all of the returns go to the top handful of funds, so one could argue that it's the mid-to-long tail of VC's that are the 'chumps' in the equation, because they're literally losing money while staffers making 'stuff that nobody wants' are walking away with small fortunes in salary for which there was no ROI.

So 'investors' are different than 'employees who take equity as comp' - and the 'power balance' between them can favour one side or the other, even as this clear distinction remains.

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

#182

Post by sonnyblarney » Mon, Jul 09, 2018, 9:46 PM UTC

olliej wrote: post #177

sonnyblarney wrote: post #149

Earlier quoted context omitted.

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…

Yes, the 'employees are investing their time' point is an established argument, this rhetoric is well-trodden.

But they're still not investors.

Putting in a considerable amount of hard cash, is a fundamentally different thing than considering the after-tax value of some possible future gain from employment ... and then putting in hard cash. (Though it's definitely a valuable calculation to make on the part of the employee.)

If someone walks around the Valley talking about how they are 'investors' in X, Y or Z because they worked there for some time as an employee, but did not invest in a round, they will definitely be misinterpreted because the premise is simply not generally accepted. Moreover, this person would either be marked as 'not understanding what he is saying' or 'purposely misleading people'.

Consider the vastly different terms attached to the equity of either side ... and that so many actual startup employees who have done modestly well on some exit and then do 'part time' Angel investing, generally participate along the lines of classical 'investors terms' , not on the terms of the employees of the startups they fund. There's a reason that this is the common standard, and that there is no movement afoot to put investors and staffers on the same terms.

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

#183

Post by rahimnathwani » Tue, Jul 10, 2018, 1:53 AM UTC

marcus_holmes wrote: post #173

rahimnathwani wrote: post #168

Earlier quoted context omitted.

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 y…

It sounds strange that a company with 'no assets' was bought for a non-negligible sum.

If you had said 'it had no physical assets' or 'book value of its assets was zero' or similar, it would make sense.

But if literally had no assets, what was the buyer buying? The name of the company?

Back on topic: even after the 5MM exit value is known, it's impossible for me to value the shares of an employee who owns 1% of the shares. The value is almost certainly between zero and 50k, but without seeing the share docs, no one knows.

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

#184

Post by dajohnson89 » Tue, Jul 10, 2018, 2:55 AM UTC

exolymph wrote: post #164

bookofgreg wrote: post #157

Earlier quoted context omitted.

Some people find it hard to get jobs even in a strong tech market, even if they are brilliant due to a variety of circumstances including random chance that is interviews or finding the position in the first place. Blanket statements like this gloss over the human hardships involved for some, and encourages general lack of empathy among our community.

Ironically, if the initial commenter had fleshed out their position like you did, I think the reception would have been much more empathetic.

Sorry, it's just I was on mobile. And as someone below pointed out, it was a pretty emotional response for me. Apologies for the unsubstantiated and harsh allegation.

I just really object to how casually OP waved off people losing their jobs.

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

#185

Post by scurvy » Tue, Jul 10, 2018, 4:32 AM UTC

stickfigure wrote: post #154

scurvy wrote: post #153

Earlier quoted context omitted.

Stock is worth zero, but good employees will get retention packages to stick around with the new company.

What's a realistic retention package for the engineering staff in this case? I'm genuinely curious.

I'm not sure TBH. I've heard that startups and comanies in the UK generally don't offer large stock packages to employees. That could just be anecdata, but that's what I've heard.

A 6-7 figure stock-based retention package would seem normal for the 3 acquisitions I've been through. Vesting length is all over though (short as 1 year, long as 4).

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

#186

Post by marcus_holmes » Tue, Jul 10, 2018, 2:38 PM UTC

rahimnathwani wrote: post #183

marcus_holmes wrote: post #173

Earlier quoted context omitted.

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 y…

It sounds strange that a company with 'no assets' was bought for a non-negligible sum. If you had said 'it had no physical assets' or 'book value of its assets was zero' or similar, it would make sense. But if literally had no assets , what was the buyer buying? The name of the company? Back on topic: even after the 5MM exit value is known, it's impossible for me to value the shares of an employee who owns 1% of the…

Yes, basically, the name of the company. And that is an intangible asset worth entirely whatever people think it's worth. The only place where you can make any guess as to what it's worth is in the room when the deal is being done.

As you say, if you have 1% of the company, then you could have 1% of $1 (which was a serious offer for the same business made 3 years ago) or 1% of $5m. The big difference is not in the 1%, but in the sale price. To get the same difference from share structure, you'd need a variance in shareholding of 1%-1000%.

Though I'll grant you that share classes and preferences can reduce your value to 0, but it's a lot harder for preferences to raise the value an order of magnitude.

Again, if you're not in the room when the deal is done, you have no idea what anything is worth, or whose interests are really being looked after. There's all sorts of shady deals and backhanders that can go on with bonuses and commissions that mean that everyone except the shareholders come out good.

It's kinda like the old poker saying: there's always a sucker at the table. If you don't know who it is, it's you. Same for acquisitions... if you're not in the room when the deal is being done, then you're the sucker.

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

#187

Post by olliej » Tue, Jul 10, 2018, 11:35 PM UTC

JumpCrisscross wrote: post #139

olliej wrote: post #135

Earlier quoted context omitted.

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 ext…

I wouldn't if the new purchasers could - after the sale was complete - rewrite the charter to make only their shares have any value.