That's a nice answer but the question really needed a lot more information for it to be the right answer. There are quite a few ways in which small shareholders can get screwed, this article illustrates just one of them and quite possibly not the one that bit the questioner.
My company sold for $100M and I got zilch – how can that be?
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Re: My company sold for $100M and I got zilch – how can that be?
#92Earlier quoted context omitted.
If anyone reading this is working at a startup and values their options at zero please get in contact with me (contact info in my profile) and we'll find a way for you to sell me your equity for $1.
And if the seller in turn uses your $1 to buy a lottery ticket you both would have roughly equal chance of getting rich :)
I think that you are wrong and am demonstrating that with my willingness to put my money where my mouth is.
Re: My company sold for $100M and I got zilch – how can that be?
#93I 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?
By being transparent and giving all the numbers needed for the employee to make a good decision. For what it's worth, I've always valued options at private companies as zero in making career decisions and looking back I don't think that heuristic ever steered me wrong (even at a company that is now a "unicorn")
from experience: I am very big on transparency and honesty and while that feels good and no one ends up surprised, the problem you run into is that other companies are not particularly honest or transparent.
I would not change what we did (which was basically full disclosure) but it was challenging to deal with.
Re: My company sold for $100M and I got zilch – how can that be?
#94One 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.
Probably not a company with any professional investors on board.
Re: My company sold for $100M and I got zilch – how can that be?
#95I highly recommend reading Venture Deals by Brad Feld - this book alone lays out perfectly how minuscule are your chances of getting rich, working for a startup. The areas to lose money are: liquidation preferences, insuficient voting rights, dilution, different stock classes, general benefits to investor's equity compared to staff equity, investor drag-along, 409A valuation, options expiration or company staying pri…
Re: My company sold for $100M and I got zilch – how can that be?
#96Liquidation 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…
It always baffles me when the top comment isn't discussing the article, but provides a response to the headline as if the article doesn't even exist.
What's baffling about it? If someone were to only read the title and not the article and came to the comments section, a summary about the title would be desired. What you're probably baffled about is why do people only read the title and not the article.
Re: My company sold for $100M and I got zilch – how can that be?
#97As a former founder, I am often surprised by the incredible spend at some startups I've visited. The biggest is headcount - so many fluff jobs.
How many designers does an early stage startup really need? 1, 2, 10, 20, 50? How many SREs do you need when your site is just a handful of AWS instances? How many sales people do you need when your product isn't ready for sale yet?
Each employee fully loaded in the bay area is what like $150-$300K? 20 people like that will chew through your Series A before you know what happened.
Bad (for startups) deals get done when you start running out of runway. Once you're out of runway, you'll sign a 4x liquidation preference at a low valuation because it gets you an infusion of cash now. Now the VCs own you.
Re: My company sold for $100M and I got zilch – how can that be?
#98I 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?
> How is a legitimate startup supposed to recruit the best people under these conditions?
So, I'm post-exit from a startup I founded. It was >10x on returns, but not a supermassive company. I've also been part of a few other exits now in various capacities. So let me just tell you:
Startup founders get better stock than they give employees. They also often write themselves in super powers or special exit clauses. So for founders, the deal is nearly always better unless things get very bad (and it's usually better to wind down the company rather that push if things look that bad, a tough call).
Most folks have a very distorted view of what startup equity is. People think the equity will be worth a lot. And it could be in very specific cases, like an IPO. In those cases, stock is often great. In acquisitions, it's usually not quite as amazing.
If you do find yourself holding stock in an acquisition as an employee, usually what happens is either your stock is bought from you for a fee, or in rarer cases it's converted into company stock (which is usually the better option if it's a publicly traded company). You can expect some modest five digit sum from even the best outcomes here. But what will probably happen to said engineers or staff is that they'll get "retention bonuses." For engineers, retention bonuses for folks they want to keep on are roughly double-pay wages on a non-incremental payment schedule (e.g., 25% the first year, 25% the second year, 50% the third year) to try and get folks to stay on and embed themselves in the company. This is often a lot more valuable than the stock you're awarded if you can stick it out.
A famous explanation of a big (but not superhuge) acquisition is an old post by then-workaday engineer and founder of a small startup called GitHub named Tom-Preston Werner [0]. In that post he details the nature of his deal with Microsoft and why he didn't take the money.
Considering what he ended up with, it seems like a good deal, but only because he was one of the very few people who managed to pass a company into profitability.
[0]: https://tom.preston-werner.com/2008/10/18/how-i-turned-down-...
Re: My company sold for $100M and I got zilch – how can that be?
#99Earlier quoted context omitted.
What information asymmetry? Liquidation preferences are perfectly fair, and not at all a mystery. Especially in the year 2019 when there has been an enormous amount written about them on the internet.
The parasites writing these contracts are counting on people not taking the time to become experts in shady startup contracts. As evidenced by this article, it's working.
The contracts in question aren't shady in the majority of cases.
Again, liquidation preferences are perfectly fair.
Re: My company sold for $100M and I got zilch – how can that be?
#100As 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…
I don't mean shenanigans as a cutesy word for fraud (and to be completely fair, the author touched on how this is something the industry needs to improve at), but I merely mean that the explanation provided to most workers is "you own X number of shares in the company that are currently valued at Y", and anything missing from that summary that makes it untrue is, well, shenanigans to me.