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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?

#171

Post by riazrizvi »

Simply, the 1% ‘shares’ were actually shares in a company that only begins existing if the company you worked for surpasses some value $X. Example, if the company is sold for $X + $50 million then you have 1% of $50mm. The con with these agreements is that you, the little-person-with-no-leverage, you are not told the X while you are working there. Ask your CFO, they will say in a practiced tone, “We don’t give out that information”.

IMO the best way to tell if the company is a winner, is to see big growth in sales/market size, especially after funding rounds. If the company is on its third funding round with no revenue and no clients then it’s one of these weird VC zombie dogs that manage to get funding because of spectacular bullshit artistry by the CEO (likely with a sales background). In which case your shares are worthless but the pay/gig might be interesting.

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

#172

Post by wbronitsky »

Balgair wrote: post #90
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?

The entire point of joining a start-up is to 'play the lotto'. You are deferring salary now for a chance at millions later. You would not do it if the expected value was negative[0]. However, it's becoming more and more obvious to even freshmen undergrads that it's all a load of hooey. Not only are the founders going to need to be super transparent with their finances to get good interviewees, but some other event wi…

"The entire point of joining a start-up is to 'play the lotto'."

I don't think that's "the entire point" for all of us. I enjoy the challenges of scaling products that already have product market fit; startups are a great place to do such work. I also enjoy small, but not too small, teams; somewhere between 50 and 150 is a nice sweet spot for me. This setup is also found at many startups. Sometimes, markets lack institutional players as well. If I want to work on certain kinds of healthcare, financial technology or cryptocurrencies, startups are also a great place.

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

#173

Post by qroshan »

appleiigs wrote: post #110
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...

The author who has probably done these deals probably knows the most common occurrence and went with it?

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

#174

Post by alecbenzer »

yitchelle wrote: post #105
beambot wrote: post #45

Earlier quoted context omitted.

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?

Normally the way the preference works is that you "give up" your shares in exchange for being paid back, as if you had initially given the company a loan instead of bought equity.

E.g., you invest $1M, company sells for $15M, and you want to be able to get $2M (2x) of the $15M in exchange for your investment.

With regular preferred shares, you get paid your $2M and then that's it, your initial $1M is paid back.

With participating preferred, you get your $2M, but then act as if you still had the equity that you bought with the $1M (even though you basically already got paid back for it). So you get $2M + whatever your cut of the remaining $13M is.

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

#175

Post by rmrfnodemodules »

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?

I think this is like a negative feedback loop: People realized that working at MegaCorp makes far more money -> Startup recruiting becomes harder -> Startup doesn't have any choice but to pay more salary -> Startup needs more cash and grow even more reliant on VC -> VC gets to negotiate better preferences -> Employee common stock reduces in value

There's really not much any players in this game can do. Maybe bringing in more remote high-end workers for startups will partially solve the problem?

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

#176

Post by alteria »

joekrill wrote: post #154

> Again, let me emphasize, this is not inherently unfair. I guess our definitions of what is "unfair" are quite different. I think a better term here would be "illegal". It's most certainly not illegal - but I definitely would not consider it fair . Companies throw options at employees - or potential employees - like candy. They imply, explicitly or not, that when the company gets big and successful, these options ar…

When I received my most recent startup offer, I was handed a spreadsheet that outlined the size of my option, and what they would be worth under multiple hypothetical scenarios, including highly-optimistic >400M and >3B valuations.

While it was nice for them to do the math for me, I do think that the scenarios presented were misleading and only represent the case where everything goes exceptionally well.

Now they did caveat that these were based off of assumptions, and that I should consult my own professional advisers etc etc. But, they didn't name any of the factors that could significantly impact returns (liquidation preference, participation, caps, etc.).

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

#178

Post by qroshan »

jdjjdflknfjj wrote: post #109

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)?

Employees that are paid common stock didn't put any money. They are also paid decent salary. It is like playing a lottery, but only with opportunity cost. Not sure what needs to be protected here.

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

#179

Post by harryh »

jacquesm wrote: post #138
appleiigs wrote: post #110

Earlier quoted context omitted.

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...

There is some chance that the questioner doesn't even exist and that question was just written to be able to write the article in response to it.

I very strongly believe this to be the case. The details don't feel right.

https://news.ycombinator.com/item?id=21359698

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

#180

Post by icedchai »

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…

There are often dividends attached to preferred shares. This is basically interest, and may or may not accrue, and has to be paid out eventually. That's even more money off the top.
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