My company sold for $100M and I got zilch – how can that be? • Hacker News Board

Re: My company sold for $100M and I got zilch – how can that be?

#11

Post by pc86 » Fri, Oct 25, 2019, 8:33 PM UTC

x0x0 wrote: post #9

badrequest wrote: post #3

As a normal individual contributor not at the C-level or even management level, I just assume the value of any options/shares I receive is zero unless an accountant or the IRS tells me I should believe otherwise. Too many goofy fine-print shenanigans like this to keep track of.

This doesn't sound like shenanigans. Reading between the lines: > While it hasn’t ended up becoming the unicorn I was hoping for it sounds like the company wasn't a success. It could be the preference overhang, or it could be a difficult acquisition. Fundamentally, if the company isn't a success relative to the funding , employees aren't going to get paid. Employees can get paid quite well on a $100m exit if eg the f…

Unicorn refers only to a billion dollar startup, and they sold it for 1/10 of that.

Re: My company sold for $100M and I got zilch – how can that be?

#12

Post by cj » Fri, Oct 25, 2019, 8:33 PM UTC

Liquidation Preference.

In very simple terms:

"Liquidation Preference" is an agreement between a company and an investor that when the company is acquired or IPOs, the company will pay the investor some specific amount of money BEFORE any other shareholders get paid. If the company negotiated the funding well, the liquidation preference might be 1x (basically saying the company promises to pay back, in full, the investor's original investment if the company is ever sold)

Things get scary when the liquidation preference creeps up to 2x, 3x, or higher. It's possible to raise $5mm with a 3x liquidation preference... which means that the investor will get $15mm payout BEFORE any other shareholders in the event of an exit (which means that, after raising that $5mm, the company can not have an exit less than $15mm without 100% all the proceeds going to the original investors).

Raising $5mm with a 3x liquidation preference, then selling your company for $15mm, is an easy example of how (even founders) can walk away with $0 after a $15mm sale.

Re: My company sold for $100M and I got zilch – how can that be?

#13

Post by loblollyboy » Fri, Oct 25, 2019, 8:34 PM UTC

fqw3b58w4n6 wrote: post #6

I understood none of those words.

That's the point

Re: My company sold for $100M and I got zilch – how can that be?

#14

Post by x0x0 » Fri, Oct 25, 2019, 8:35 PM UTC

pc86 wrote: post #11

x0x0 wrote: post #9

Earlier quoted context omitted.

This doesn't sound like shenanigans. Reading between the lines: > While it hasn’t ended up becoming the unicorn I was hoping for it sounds like the company wasn't a success. It could be the preference overhang, or it could be a difficult acquisition. Fundamentally, if the company isn't a success relative to the funding , employees aren't going to get paid. Employees can get paid quite well on a $100m exit if eg the f…

Unicorn refers only to a billion dollar startup, and they sold it for 1/10 of that.

Right, but my guess is people start talking about being a unicorn probably means they did a unicorn-sized funding round. So total raised is comfortably north of $0.1B.

Re: My company sold for $100M and I got zilch – how can that be?

#15

Post by SparksZilla » Fri, Oct 25, 2019, 8:35 PM UTC

toomuchtodo wrote: post #5

xingped wrote: post #2

Is there any good book for explaining all of these startup evaluation, fundraising, etc. terms, how they work, what to ask about, etc.?

In no particular order: https://www.holloway.com/g/equity-compensation (The Holloway Guide to Equity Compensation) https://gist.github.com/jdmaturen/5830b83c1425c4767f7e1bd4c9... (Who pays when startup employees keep their equity?) https://gist.github.com/yossorion/4965df74fd6da6cdc280ec57e8... (What I Wish I'd Known About Equity Before Joining A Unicorn) https://gigaom.com/2011/06/05/5-mistakes-you-cant-afford-to-..…

Andy from Holloway here. Our equity comp. guide is 100% free.

We also have a Guide on Raising Venture Capital (340 pages). We made sure to include an entire chapter on "Assessing Whether to Raise," which includes sections on alternatives to VC and how VCs can control your company. If anyone on here wants to buy it, you can get a 25% discount on it using this link: https://www.holloway.com/rvc?vip_code=VIP25

Re: My company sold for $100M and I got zilch – how can that be?

#16

Post by ethanjinsen » Fri, Oct 25, 2019, 8:39 PM UTC

cj wrote: post #12

Liquidation Preference. In very simple terms: "Liquidation Preference" is an agreement between a company and an investor that when the company is acquired or IPOs, the company will pay the investor some specific amount of money BEFORE any other shareholders get paid. If the company negotiated the funding well, the liquidation preference might be 1x (basically saying the company promises to pay back, in full, the inve…

So in your example, the investors are basically getting a 300% return if the company sells for 15M or more?

Re: My company sold for $100M and I got zilch – how can that be?

#17

Post by jpeg_hero » Fri, Oct 25, 2019, 8:40 PM UTC

Yeah, if your company raises $200m and your sell for $100m you don’t make any money.

Re: My company sold for $100M and I got zilch – how can that be?

#18

Post by jld » Fri, Oct 25, 2019, 8:40 PM UTC

cj wrote: post #12

Liquidation Preference. In very simple terms: "Liquidation Preference" is an agreement between a company and an investor that when the company is acquired or IPOs, the company will pay the investor some specific amount of money BEFORE any other shareholders get paid. If the company negotiated the funding well, the liquidation preference might be 1x (basically saying the company promises to pay back, in full, the inve…

Say a company sells 10% of itself to an investor for $10M, with a 2x preference.

If the company sells for $100M, the investor gets $20M off the top. My question: Does the investor still own 10% of the shares, and will they recoup $8M of the remaining $80M?

Is their $10M investment now worth $20M or $28M?

Re: My company sold for $100M and I got zilch – how can that be?

#19

Post by cmancini » Fri, Oct 25, 2019, 8:41 PM UTC

cj wrote: post #12

Liquidation Preference. In very simple terms: "Liquidation Preference" is an agreement between a company and an investor that when the company is acquired or IPOs, the company will pay the investor some specific amount of money BEFORE any other shareholders get paid. If the company negotiated the funding well, the liquidation preference might be 1x (basically saying the company promises to pay back, in full, the inve…

Yeah I hear the terms 'liquidation preference' much more often than 'preference overhang'.

Re: My company sold for $100M and I got zilch – how can that be?

#20

Post by jammygit » Fri, Oct 25, 2019, 8:42 PM UTC

I feel like legal manipulation is very bad for the startup ecosystem. Even here, at the YC forums, people assume their startup equity is worth $0 and advise you to go with a FAANG (or day that they broke even with friends at faangs after their exits). How is a legitimate startup supposed to recruit the best people under these conditions?