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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?

#261

Post by sokoloff »

4ntonius8lock wrote: post #240
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…

> Why shouldn't they, when they put up all the money that the company's been burning? Because there is another group that's putting up all the work. In startups, that work is generally more intense and risk laden, which is why employees are offered shares as part of compensation. Otherwise, why would they be offering shares? Both groups deserve protection. The SEC was created so that people couldn't swindle each othe…

That labor is being paid cash along the way.

It might additionally be getting common stock, under the same terms of other common shareholders, which is to say, behind the preferred shareholders, who are behind the bond holders.

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

#262

Post by randyrand »

harryh wrote: post #59
deogeo wrote: post #31

A lot of words to say something very simple - information asymmetry via contractual complexity is being abused to profit those writing the contracts.

What information asymmetry? Liquidation preferences are perfectly fair, and not at all a mystery. Especially in the year 2019 when there has been an enormous amount written about them on the internet.

When I was awarded options I was not given any paperwork other than the grant and basic info about it. How is anyone to know what documents have been written without a database of the relevant documents?

It’s bullshit to keep relevant paperwork a secret.

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

#263

Post by alecbenzer »

jonathankoren wrote: post #241
alecbenzer wrote: post #184

Earlier quoted context omitted.

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 befo…

I just don't think it's a very useful mindset. Or at least, it's not a useful way of phrasing that mindset.

You should absolutely understand the very large chance that your equity is worthless. You should absolutely 100% not plan any part of your life around the equity being worth something. You should understand that, even if the equity is ever worth something, it won't be liquid for a very, very long time.

...but all of that is different than it being worth nothing. I feel like the "your equity isn't worth anything" mindset leads to employees allowing startups to give them smaller amounts of equity than they should. It leads to employees not questioning bad practices (like 3x preferred participating shares) as much as they should.

I've had people quote the "equity is worth $0" thing to me in negotiations about equity/reups. In my head: "Oh that's actually great! You can just give me your equity then instead of me having to negotiate a reup with the company."

Said another way: let's say you find out your startup's VCs have participating preferred shares. There's a world where that's fine -- you just now need more equity to get to the same place as you would in a company that had non-participating preferred. But you need to reason about the value of your equity to reach that conclusion. "Equity is worth $0" discourages thinking about that stuff.

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

#264

Post by koolba »

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…

The comparison of “soul” at startups vs established companies reminds me of the old joke about capitalism vs. communism:

In capitalism man exploits man, in communism it’s the other way around.

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

#265

Post by techslave »

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?

it doesn’t apply

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

#266

Post by techslave »

jeremyjh wrote: post #187
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…

I think if a venture is unsuccessful employees shouldn't expect to make money from their options. A venture that raises $60MM and sells for $100MM 4 years later is a failure. Making nothing in a case like that seems fair to me. What is perhaps unfair, is if the employee worked for substantially below market wages all of that time, and particularly if they were given a much rosier picture than was accurate. But we sho…

even that is not unfair. the employee knows, or should know, the risk. they likely aren’t being compelled to work at a risky startup.

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

#267

Post by acdha »

semerda wrote: post #250
bcrosby95 wrote: post #54

Earlier quoted context omitted.

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.

I’d have an easier time agreeing with your last point if I didn’t remember thinking the same thing around 2001. Part of why this model works so well for the owners is that there’s always a fresh crop of young people who love the heavily-marketed dream and are willing to devote most of their life to making someone else rich, never realizing how badly outclassed they are by the money guys.

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

#268

Post by Florin_Andrei »

alecbenzer wrote: post #217
Florin_Andrei wrote: post #190

Earlier quoted context omitted.

How old are you?

Mid 20s, but that's not a useful way to tell someone you think they're wrong.

Yeah, it's a bit early. Omniscience starts fading out later.

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

#270

Post by techslave »

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…

yes it’s obviously a setup. just like “FAQ”s are not normally FA’d before being answered.

doesn’t take away from the article.

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