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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?

#241

Post by jonathankoren »

alecbenzer wrote: post #184
badrequest wrote: post #3

As 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.

You can't possibly actually values your shares at zero. Test: can I have all of your shares? No? Well then you must value them at _something_. What if I gave you $1? 10? $100? Just because something is (even incredibly) risky doesn't mean its value is zero.

When people say that options or pre-ipo shares are “worth nothingl, it doesn’t mean that they literally have zero value on the market. They obviously have value, they have the company had a valuation at issue. It means that you shouldn’t assume you’ll see any value from them. Until a liquidity event, you’re not even a paper thousandaire.

Most private equity is worthless in a couple of years. Most companies crash before any liquidity event. Those that don reach an event, have such a preference stack, and so for such a pittance, the options are underwater.

It’s a mindset.

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

#242

Post by jonathankoren »

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’m confused. Are you saying that startups should supposed to lie and tell prospective employees that they’re going to be billionaires? Why do you think you think “the best people” are so naïve?

Never join a startup for riches. You join because you join for professional enrichment. That’s it.

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

#244

Post by bayonetz »

bb88 wrote: post #157
landryraccoon wrote: post #42

Earlier quoted context omitted.

> How is a legitimate startup supposed to recruit the best people under these conditions? Easy. Disclose the preference of the terms you got from investors to your early employees. This problem is self created. If you don't tell them the terms of your deal, they rightfully assume the terms will screw them, since otherwise why wouldn't you be transparent? Good workers rationally and rightfully go to FAANG instead of a…

So many people flock to startups because they didn't want to go work for a large soulless corporation (often taking a pay cut in lieu of equity) -- only to discover that startups can also be soulless corporations that focus on greed more than anything else. Edited to add: It would be nice if there was an equity dashboard inside each and every startup that basically said, "If the company is sold today at $100M, you ge…

Genius. Love it.

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

#245

Post by sidlls »

ram_rar wrote: post #196
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…

How does liquidation preference work, when companies go IPO?

For employee shareholders of common stock, their stock has the same market value that anyone who's buying for the first time through a broker sees. It's not like they are going to be forced to hand over proceeds of sales on the market back to investors.

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

#246

Post by sidlls »

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?

There are lots of ways to recruit in these conditions:

One is to deceive or withhold information from potential hires and hope they buy the sales pitch about the company's prospects enough to not care to ask anything.

Another is to be honest and find employees who agree with the sales pitch, even given full information.

Yet another is to just pay a high enough cash salary to attract good-enough candidates.

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

#247

Post by yumraj »

ram_rar wrote: post #196
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…

How does liquidation preference work, when companies go IPO?

At an IPO the preferred stock holders have an option to convert to common stock, which they invariably take. It's specified in the term sheet.

As such after the IPO all stocks are common stocks which are valued at the market price.

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

#248

Post by RandallBrown »

alteria wrote: post #176
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…

I received something similar with my last offer, but it also included the caveat that the shares are currently completely worthless unless we have some sort of exit, which probably wouldn't be happening in the short term.

It was pretty refreshing.

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

#249

Post by ScottBurson »

harryh wrote: post #131

FWIW, I kind of don't believe that this question is real. Questioner clams that he is a VP but also: > He has no idea how liquidation preferences work > He was "told" that the company was being acquired (instead of being involved in the sale) > No one at the company walked him through how his stock was valued, even after the acquisition. To the point that he thinks he needs to hire a lawyer. It's a fine question to u…

My thought as well.

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

#250

Post by semerda »

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.

Either way the point still stands: raising too much money transfers the economics and control away from the people involved in day to day operations.

As employees get more educated around stock options I’m certain their risk profile will change and founders will find it harder to rally a tribe around airy promises of a future exit.

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