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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?

#251

Post by mrnobody_67 »

bitL wrote: post #118

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 %,…

Never heard of an employee receiving preferred stock.

Anybody seen this?

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

#253

Post by tptacek »

caconym_ wrote: post #227
tptacek wrote: post #216

Earlier quoted context omitted.

Why moralize? It may be that there's nothing intrinsically unconscionable about it; it could just be a way of expressing the market power the investor and the company had when the funding deal was struck. You could similarly say a harsh down-round is unconscionable (a low valuation can just as easily wipe out returns for employees), but we tend not to think companies taking down-rounds are "unconscionable" so much as…

It seems perfectly valid to "moralize" (that word sure has some baggage, doesn't it?) about those who have power exercising it at the expense of those who don't. In fact, I'd expressly encourage it. Not saying I'm particularly worried in this case, but overall I don't think that "argument" is a very convincing one if we're actually concerned with "doing the right thing".

In the general case, when it comes to startup financing, isn't the "power" we're referring to is market or bargaining power? Venture firms compete with each other for access to viable startups. If the terms being offered to a startup include >1x or participating preferences, that says something either about the negotiating competence of the startup or about its underlying value.

Is it a moral issue if a startup isn't valuable enough to avoid punitive terms? Who's doing something wrong in that scenario?

Obviously, it's bad if founders conceal that predicament from employees. I agree with the prevailing sentiment that employees should be wary about taking equity compensation.

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

#255

Post by campfireveteran »

qroshan wrote: post #178
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.

This is why founders and employees should form worked-owned co-ops rather than be slaves to investors. If they absolutely need funding, look for angels, loans, convertible notes or ways to build slowly without giving away control to vampires.

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

#256

Post by justapassenger »

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?

Why should startups be entitled to recruit best people?

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

#257

Post by drtillberg »

auspex wrote: post #75
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?

Because the VCs are funding your salary. If the company goes under the investors lose their money. You get to keep the money (salary). So the risk is on them and there should be some protections.

But that salary is discounted based an offer of real ownership of a piece of the company. It's not clear to me why the last 20% of a salary, taken as equity, should have a lower preference in the capital structure than cash invested.

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

#258

Post by chipotle_coyote »

user5994461 wrote: post #214
jariel wrote: post #67

Earlier quoted context omitted.

Should be noted that Stripe et. al. are paying premium salaries and as they are well funded with customers and income, they're not very risky, or rather, probably the same amount of 'employment risk' as most other private entities. If they are not pushing everyone to work late hours and long weekends ... then there's little reason to expect that later employees should 'get rich' from a buyout - though they should get…

Not sure if you mean now or a few years ago. Either way, don't believe all the stripe marketing hype. I was working at a small startup circa 2015, around 100 employees. We looked carefully into payment providers to try to reduce costs. Turns out Stripe was very small, we would be their main customer with a 2 digit percentage of all transactions if we moved our payments through them. Stripe had (has?) few customers an…

While it's hard to get confirmed metrics on Stripe given that they're private, it strikes me as unlikely that a 100-person startup would have been Stripe's "main customer" in mid-2015. Analysts estimated their annual revenue to be $450M that year based on a payment volume of $20B, with customers that at that point included Lyft and Slack.

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

#259

Post by driverdan »

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…

Not only walk but name and shame the founders for allowing this to happen. No one should want to work for someone who screws their employees like that.
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