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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?

#111

Post by nostrademons »

CalChris wrote: post #61

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. Stayi…

She mentions this in the article - most deals are structured with carve-outs so that specifically those employees you want to stay get multi-million payouts (over multiple years) as long as they stay with the employer. If there was no such carve-out for the VP, it means the acquirer doesn't want them.

The answer is still "walk", but the acquirer is not going to care. The reason to walk is that there's no sense staying in a job where your employer doesn't want you and isn't going to reward you. It's for your own self-respect, not to stick it to the man.

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

#112

Post by antiviral »

sjg007 wrote: post #86
antiviral wrote: post #71

I have found that in job negotiations, many startup founders are highly reluctant to discuss what the value of their stock option grant is worth, much less what other conditions may impact the payout. Has anyone else had this experience and what do they advise others to do when faced with the dilemma of turning down an offer due to a lack of transparency into the option grant?

Yep very little transparency. Ask these questions!! Don’t take the job? Take another job? Hope that the company will IPO? Or that an IPO is the path?

Good advice. However, from a negotiation POV, it’s difficult since there are so many alternative people who only ask how many shares they will get, and think that more shares is better than less, rather than what they are worth. It’s comical. This makes it easy to just pick one of those people and skip the few who know what’s going on. For a founder or VC, this is like free money, since you can promise whatever you want ( 100 zillion shares) and pay them whatever is convenient. Eventually, this will erode the trust needed for Silicon Valley to work.

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

#113

Post by harryh »

lostdog wrote: post #104
harryh wrote: post #55

Earlier quoted context omitted.

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.

If my example (turning $200 million into $100 million) the investors don't get their full investment back. They lose half of it.

But I get your point. And yes, it has something to do with leverage.

But I also assert that the current system is better for common shareholders as well. The idea that we could have a slightly different world in which investors acted exactly as they did today, but bought common shares instead of preferred shares is clearly wrong.

If they're buying common instead of preferred then valuations would drop significantly. Probably by over 50%. This means that either companies would be giving away much larger %s of themselves when fundraising or they would be raising much less capital (which is of course used to pay the salaries of all those common shareholders). Both are probably bad for common stockholders in most cases. Which is why we see very few companies ever do this.

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

#114

Post by zoltar »

lostdog wrote: post #104
harryh wrote: post #55

Earlier quoted context omitted.

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.

Because they can? If you don't like the terms, it's up to you to walk away.

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

#115

Post by draw_down »

dmix wrote: post #108
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…

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

Which was really a pittance.

I acknowledge hindsight is 20/20, but it's interesting to see posts here lamenting that startups hire too many people, when selling for much too little is surely a more grievous financial mistake.

Or to put it another way, if they had 75 engineers when they sold for a billion, the tragedy would still not be that they had too many engineers.

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

#116

Post by glangdale »

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.

That's the one where they get liquidity prefs up front and then also get to participate with common, right? Worked for a company that had that.

Fortunately we had a violent restructure and an insane cap table got crunched down, cleaned up and all that stuff was made null and void. Definitely a "useful crisis" as we got to an exit later without any liquidity prefs hanging over our head.

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

#117

Post by Gibbon1 »

lostdog wrote: post #104
harryh wrote: post #55

Earlier quoted context omitted.

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.

I once stumbled on a rant by a post doc CS student. In addition to an essay why being able to do type erasure is good and why actually doing type erasure is terrible. He had an essay with the observation that while capital has the ability to pull their money and reinvest it elsewhere if they dislike returns and risk, skilled workers are kinda stuck with whatever skill they've invested in. And capital can diversify while a worker usually is stuck with exactly one investment. Given that it seems shitty to give capital better tax preferences than earned income.

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

#118

Post by bitL »

For anyone thinking about working for startups:

- don't treat verbal agreements seriously

- common stock is 99.9% worthless, you want preferred stock

- liquidation preference is important, if company doesn't want to tell you, insist on market-rate salary

- if a company tries to switch from an LLC to C-Corp and move you from being a minority owner of LLC (0.1-3%) into a common-stock owner of a C-Corp with the same %, block/sue them; you were working for thieves

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

#119

Post by mark-r »

jacquesm wrote: post #94
buzzdenver wrote: post #66

Earlier quoted context omitted.

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.

Correct. The founder probably retained 90% or more of the stock, its growth was completely organic. I was very lucky to be part of it.

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

#120

Post by rb808 »

blah blah options blah preferred blah series A/B/C blah blah

The real reason they got shafted is that they weren't important enough or they didnt follow what is going on. If you have a $1m asset you shouldn't be hoping its OK when there are so many sharks in the building. Yeah it would be nice if you could trust management and VCs but you can't.

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