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?

#61

Post by CalChris » Fri, Oct 25, 2019, 9:12 PM UTC

Heidi Roizen, VC, most definitely does not feel Former Millionaire's pain. Yes, liquidation preference overhang is the mechanism. However, the company got sold for $100M. Who sold the company? The founders + the VCs and they got theirs. They could have structured the deal to give the employees something. They didn't.

The advice here is simple. Walk. Former Millionaire owes absolutely nothing to the new company. Staying rewards this screwjob. If the founders + VCs want this Engineering VP to stay then they have to pay the VP to stay.

This could have been handled better if the founders and VCs had left something on the table for the workers. That was a choice they made.

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

#62

Post by code_duck » Fri, Oct 25, 2019, 9:12 PM UTC

thekingofh wrote: post #33

x0x0 wrote: post #10

Earlier quoted context omitted.

Very briefly: for employees to have a good outcome, the company must be a success relative to the funding . I'd love to say that founders are in the same boat as employees, but it's not true. Unethical founders can engineer situations where they alone get millions of dollars and no other employees do. That can be somewhat justifiable (eg taking $1m or something off the table in a round B for a company that eventually…

"they're previously worked with? That's a good sign." As in good, or bad?

I think the intent to say is that if people they previously worked with are willing to work with them again, that is positive because it shows that previous employees/partners haven't been screwed over.

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

#63

Post by floatrock » Fri, Oct 25, 2019, 9:13 PM UTC

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.?

A few years ago I made a visualization of vc math: http://dlopuch.github.io/venture-dealr

Predates KISS's and SAFE's and the round sizes are a bit out of date, but the you-get-nothing scenarios like liquidation preferences and down rounds are still the same.

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

#64

Post by Spooky23 » Fri, Oct 25, 2019, 9:13 PM UTC

drtillberg wrote: post #39

From a 40,000 foot view, it's odd that employees who are investing their professional effort are relegated to a lower equity tier. I think the person asking the question in the article makes a valid point: why is it fair for human capital to be devalued in this way?

The are more people looking to sell their labors than give away their money.

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

#65

Post by victoro0 » Fri, Oct 25, 2019, 9:15 PM UTC

bcrosby95 wrote: post #54

nostrademons wrote: post #27

This matters more now that the current crop of tech companies have taken so much money. In the old days, when software companies sold software rather than traditional services enhanced by software, it was common to get to profitability around the B round and then never take any more investment after that. Google took $25-35M and then nothing until IPO, running the company from 2001-2004 off cashflow. Microsoft took n…

All the companies you're talking about have 1 thing in common: they're considered successes. You're going back in time and cherry picking companies that made it out alive. The early 00s/late 90s were full of companies that took Google levels of money that crashed and burned. There were also tons of companies that took little-to-no outside funding that crashed and burned.

Well of course. If he used examples that crashed and burned the reader would not have heard of them.

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

#66

Post by buzzdenver » Fri, Oct 25, 2019, 9:16 PM UTC

mark-r wrote: post #46

One thing to remember is that the acquirer has probably done this before while the acquiree is a first-timer. The details are almost certainly going to favor the party with the most experience. I once worked for a company that was acquired. At the first all-hands meeting after the acquisition closing, the CEO was practically gloating about how cheaply he was able to get us. All because he knew how to structure the de…

Your company should have retained investment bankers. Just like you get a lawyer to represent you in court.

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

#67

Post by jariel » Fri, Oct 25, 2019, 9:16 PM UTC

nostrademons wrote: post #27

This matters more now that the current crop of tech companies have taken so much money. In the old days, when software companies sold software rather than traditional services enhanced by software, it was common to get to profitability around the B round and then never take any more investment after that. Google took $25-35M and then nothing until IPO, running the company from 2001-2004 off cashflow. Microsoft took n…

Should be noted that Stripe et. al. are paying premium salaries and as they are well funded with customers and income, they're not very risky, or rather, probably the same amount of 'employment risk' as most other private entities.

If they are not pushing everyone to work late hours and long weekends ... then there's little reason to expect that later employees should 'get rich' from a buyout - though they should get something.

Earlier / Senior staff should get something more as well.

Worth noting: Canadian 'News Magnate' Conrad Black went to jail for 'carving out' sales of assets like this as kind of a sales fee. The shareholders not only sued him but he went to jail over it. The tiny but important difference would be the 'buyout carveouts' are backed by shareholders to incent execs to stay on while Black's dealings were ostensibly not (although they probably should have been). And of course Black was a foreigner and this has a material difference in the USA (and many other countries) where non-citizens end up getting treated differently for a variety of reasons.

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

#68

Post by harryh » Fri, Oct 25, 2019, 9:16 PM UTC

vonseel wrote: post #43

There should be a simpler way. All this crap is too complicated. Even if you manage to somehow do the research and understand it well at some point, unless your working with options grants on a regular basis, you'll probably forget it all before you ever leave the company. People don't have time to do all this stuff and not get fucked over.

It's not that complicated.

If a company exists for less money than the amount invested in the company then common stock is worth nothing.

If it exists for more than the amount invested then common stock will (almost always) be worth something.

If you exit for 3X the amount invested you've done allright and will generally see a modest return on your stock.

If you exit for 10X the amount invested you've done real good and will generally see a pretty good return on your stock.

If you're smart enough to learn how to code, you're smart enough to understand this stuff. I promise.

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

#69

Post by KallDrexx » Fri, Oct 25, 2019, 9:17 PM UTC

jammygit wrote: post #56

aetherson wrote: post #37

Earlier quoted context omitted.

In my opinion: Liquidation preference of 1x (or lower) is just sensible alignment of investor and founder incentives. The investor wants to make sure that if they buy 20% of the company for $5M, the founders aren't now incented to take advantage of them (in an extreme example: the day after the fundraising, liquidating the company for its assets, taking home $4M themselves and handing the investor back $1M. In a less…

It may be sensible for the founders and investors, but is it sensible for the employees? Many startup employees are paid to a significant extent in stock and do not understand the situation they end up in. They are also powerless and just have to trust that the founders and investors will treat them well. Rationally, this leads to many of the best people ignoring the startup world

VCs really don't care about "sweat equity" or "discounted salary equity". They believe that if you don't bring actual cash to the table then you aren't risking as much as them (even though they are only putting their clients money, not their personal money in most cases).

That's one reason I didn't have trouble bailing on a startup I helped start. We took in $1.5mm, did some things poorly (such is life but learned good lessons from them) and even with a path forward we would have still required some more investment (since we weren't profitable). Therefore I knew what the current liquidation preference was, I computed what another round's liquidation preference would add, and it became clear we'd have to sell at $30-50m just for me to start getting money.

The likelihood of that happening was small, and the feeling of being un-incentivized from selling at a respectable $20m made me realize the whole game was stupid and rigged. Now I work at a bank making almost 3x of what I made in hard cash (plus better benefits which equals hardware) and that extra money is giving me much better returns in my retirement and stock accounts, and a better quality of life (and less stress).

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

#70

Post by Analemma_ » Fri, Oct 25, 2019, 9:19 PM UTC

jammygit wrote: post #20

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?

Like other pathologies in the startup ecosystem (e.g. acquisitions like FoundationDB getting acquired by Apple and promptly killed, yanking the rug out from under everyone who built a business on it and so making it less likely anyone will trust database startups in the future), this is a tragedy of the commons: it's rational, if extremely scummy, for an individual founder to accept liquidation preferences that fuck over their ICs, but as people keep doing it, it's gradually emptying the talent pool as engineers realize the game is rigged.

I don't have a good answer for this. Humanity in general is terrible at coordination problems like this, even when our survival is on the line, so I'm not sure how a purely capitalist endeavor like startups are supposed to do anything about it.