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?

#101

Post by munchbunny » Fri, Oct 25, 2019, 9:33 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?

> How is a legitimate startup supposed to recruit the best people under these conditions?

1. As a rule of thumb, you can't.

2. As an exception, you can if they really want to see you succeed (i.e. for your mission).

3. As an exception, you can if they're dissatisfied or bored with their FAANG career and the job represents growth or excitement that they want.

4. As an exception, you can splurge on a few key hires, in terms of salary and/or equity.

5. As an exception, you will find dark horses, people who are currently undervalued by themselves and others.

But as other posters mentioned, the reason I agree with the advice about pricing equity at $0 is because that's rationally the most likely outcome. Honesty about that fact is very much appreciated, but rationally the expected value is actually (approximately) zero.

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

#102

Post by ptaipale » Fri, Oct 25, 2019, 9:34 PM UTC

tyrust wrote: post #76

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…

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.

I think this brief summary was nice. The title to linked article was clickbaity.

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

#103

Post by tootie » Fri, Oct 25, 2019, 9:37 PM UTC

ptaipale wrote: post #102

tyrust wrote: post #76

Earlier quoted context omitted.

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.

I think this brief summary was nice. The title to linked article was clickbaity.

The headline is grabby and precisely describes the situation she's explaining.

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

#104

Post by lostdog » Fri, Oct 25, 2019, 9:39 PM UTC

harryh wrote: post #55

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?

It's not odd at all. If you start a company and you turn $200 million of investment into an exit of $100 million dollars you haven't done anything valuable. Why would you expect your stock to be worth anything?

Why should investors expect their full investment back when they did a bad job choosing who to invest in?

I don't think it's reasonable to pretend that the current system exists because it's the fairest. Investors exert more negotiating power than employees, and that's the reason they get better terms.

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

#105

Post by yitchelle » Fri, Oct 25, 2019, 9:40 PM UTC

beambot wrote: post #45

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…

Even more insidious: Participating Preferred, which is effectively double-dipping.

For those not so deep in the world of startup, can you give a layman's explanation of what Participating Preferred is?

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

#106

Post by z3t4 » Fri, Oct 25, 2019, 9:40 PM UTC

Check what the owners got, and if they got any payout with the 50% dilution event. If the owners also got nothing, then the investors took it all. But if the owners got say $50 from the deal and you got nothing for your 2% you got screwed.

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

#107

Post by kovek » Fri, Oct 25, 2019, 9:40 PM UTC

Why is it that the common shares holders are not properly informed that a certain investment round basically reduced their cash-out to 0? The incentives to invest more time into the company is greatly reduced. The person affected who is asking to Heidi said that they were working very hard, considering that they owned 1% of the shares of the company.

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

#108

Post by dmix » Fri, Oct 25, 2019, 9:40 PM UTC

testfoobar wrote: post #97

As 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…

Instagram had what, 12 employees when it got bought for 1 billion?

I worked for a small company that fired half the employees (10->5, mostly marketing/sales execs) and absolutely nothing changed. Our revenue actually increased over the next year, not to mention gross sales not paying those salaries. We were originally going to replace them but decided to wait it out for a full year because we realized we didn't need them.

They were all expert busy-workers, who used to try hard when they first joined but got lazy about 2yrs in and started phoning it in. Startups and small businesses have no time for those types of people.

The other massive expense VC-backed companies waste money on are high-paid consultants (and lawyers) from the big business corporatey world.

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

#109

Post by jdjjdflknfjj » Fri, Oct 25, 2019, 9:41 PM UTC

It sounds like an easy way to screw holders of common stock out of their money. Don't they have any protection at all? Like at least, does the agreement for "liquidation preference" have to be reasonable (like, they could go to court and challenge it, and the company would have to prove that it was a necessary deal)?

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

#110

Post by appleiigs » Fri, Oct 25, 2019, 9:41 PM UTC

jacquesm wrote: post #91

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.

This is exactly my thought. The author is just guessing. There are 95 comments here, and they are just guessing too.

The real reason of why the employee got zilch would be found by just reading the documentation - the legal agreements awarding the stock options, the purchase and sale agreements, incorporation docs...