My company sold for $100M and I got zilch – how can that be? • Hacker News Board

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

#301

Post by cascom » Sat, Oct 26, 2019, 4:07 AM UTC

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’ve seen a lot a options packages awarded - and most of the time the actual options agreement goes completely unread - it’s baffling - but I think most of time senior managers are too embarrassed to let people know they don’t understand

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

#302

Post by alecbenzer » Sat, Oct 26, 2019, 4:22 AM UTC

ry454 wrote: post #298

alecbenzer wrote: post #296

Earlier quoted context omitted.

The time still isn't liquid, though. Yes, if you worked for someone for a year, you've given them $X (where $X is the paycut you took), but the founder can't just turn around and sell that $X to someone else. To the extent that they can, it's (to some extent) because the founder was able to take your time and turn it into something valuable, which is like, what founders/CEOs are supposed to do. At that point these is…

I think time is quite liquid. Let's say I get 500k/year on my current job and someone asks me to join his company for peanuts, but with a good chunk of stock. We could calculate the difference between 500k and peanuts and say that instead of joining that company, I'd pay him this difference every year. That difference would be enough to hire a small team for a small salary, but with stock options. The problem that mo…

I think you're making a fair but unrelated point.

Time isn't liquid. If instead of giving a startup time, you gave them literal cash, then it would make sense that you get preferred (instead of common) stock, to protect against the founder just selling the company immediately for the value of your cash (as was mlyle's point). If you give them your time instead, there's no risk of them immediately selling off "your time", and so it makes sense that you get common stock instead of preferred stock (at least for this one consideration).

The other general point I think you're making though, is that if we look at the value of the time being invested by a startup employee, their ROI is much worse than a literal investor in the company.

This is true, and somewhat unfortunate I think, but I think happens because VCs control larger amounts of capital and thus have more leverage. Both in terms of absolute amounts, but also how quickly they pay it out.

You taking a $400k paycut for 4 years and a VC investing $1.6M are numerically the same, but the VC gives up the $1.6M immediately, whereas you give it up over time, and can at any time decide to stop investing. When you first start, maybe your ROI is worse than a VC's, but three years in, maybe the ROI of the time your investing _then_ will have improved relative to a VC that tried to invest three years in.

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

#303

Post by rurp » Sat, Oct 26, 2019, 4:23 AM UTC

greggman2 wrote: post #288

sokoloff wrote: post #261

Earlier quoted context omitted.

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.

I'm surprised how many people don't get this part. Person A, investor puts in $100k Person B, employee gets paid $100k Company fails. Person A lost $100k Person B gained $100k This is why person A gets the lion's share of the rewards if the company succeed. Person B risked nothing. Person A risked $100k. The typical retort from Person B is they could have gone to a different company so their risk was to work for this…

> Future money is similar to saying well "if I won the lottery tomorrow".

Eh, expected value is a thing. If you lay 3:1 odds on a coin flip and then win, you get real money and are free to feel all happy about it, but you still made a poor decision.

If an employee has an FAANG offer for 300k but goes with a startup for 100k+options they are absolutely taking a risk. The expected value of those options is very real and relevant.

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

#304

Post by codesushi42 » Sat, Oct 26, 2019, 4:23 AM UTC

enra wrote: post #170

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…

Just to note that it's not useful to group all of these companies together. While they all have massive valuations, and raised lot of funding, they don't have similar businesses at all, or capital efficiencies. The market is also different today than it was with Microsoft or Google. Companies are expected and also need to grow faster (or others will). It took Microsoft 10 years to break $100M in revenue. All companie…

No you have it all wrong. Lyft, Uber, WeWork etc are burning money and failing spectacularly because they aren't software companies. They're too tied to traditional markets and their economics don't magically work out because they've tried to throw software into the mix.

We are at the inflection point where they are all about to crash and burn. Good riddance.

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

#305

Post by mlyle » Sat, Oct 26, 2019, 4:28 AM UTC

ry454 wrote: post #297

alecbenzer wrote: post #283

Earlier quoted context omitted.

This is a really good point that I hadn't considered. Employees are "investing" money in a startup too in the form of opportunity cost, but a founder can't turn around and "sell" the investment when it's just time; when it's actual cash they can. I wonder if there are stories about this happening in certain contexts that predated liquidity preferences?

Yup, that's the reason I've turned down all startup offers so far and some of them offered 2-3%. They like to hand wave about how much these 50,000 shares are going to cost or how rich I'm surely going to be even after dilution of these 2-3%, but when I tell them point blank that with my current compensation, over the course of 4 years I'm going to lose at least $1M, and ask them what I would get for a $1M investment…

> They like to hand wave about how much these 50,000 shares are going to cost or how rich I'm surely going to be even after dilution of these 2-3%, but when I tell them point blank that with my current compensation, over the course of 4 years I'm going to lose at least $1M, and ask them what I would get for a $1M investment,

There's a thing you're missing here, and it's option value. You don't commit to the lost money over 4 years all at once, while a cash investor does immediately give up present-valued money. Instead, you commit to spending a year or so there (~$250k-valued), and only if your options look like they're going to be worth a whole lot do you stay beyond that point.

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

#306

Post by dmix » Sat, Oct 26, 2019, 4:28 AM UTC

draw_down wrote: post #115

dmix wrote: post #108

Earlier quoted context omitted.

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…

A billion dollars for a 2yr old company in a highly competitive mobile space is a pretty good deal...

They probably saw the risk in FB or Snapchats or w/e competing with them. It was just photos with filters at that point. Not a massive social network like it's become.

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

#307

Post by vanniv » Sat, Oct 26, 2019, 4:36 AM UTC

mattmaroon wrote: post #295

nostrademons wrote: post #77

Earlier quoted context omitted.

For brevity I omitted all of the dot-com flameouts and also the Web 2.0 startups that never got off the ground, but IMHO they support my larger point. In the late 90s we had a lot of companies that took a lot of money, and the founders and employees got nothing out of them other than painful experiences. When you look at one of the successful "fat" startups (PayPal), Max Levchin's take ($34M) of the $1.6B acquisition…

But what if your competitor is willing to lose lots of money on large amounts of invested capital until you are out of business? Uber and Lyft have it tough in that regard. At the end of the day they've got product market fit in a profitable industry. I mean the very worst case is they become more efficient cab companies, and cab companies have been making money for a very long time. Their prices are artificially low…

Then you have a lousy business model, and you aren't going to make lots of money, and you aren't going to create lots of value, and, as a result, probably won't get a massive payout.

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

#308

Post by vanniv » Sat, Oct 26, 2019, 4:38 AM UTC

codesushi42 wrote: post #304

enra wrote: post #170

Earlier quoted context omitted.

Just to note that it's not useful to group all of these companies together. While they all have massive valuations, and raised lot of funding, they don't have similar businesses at all, or capital efficiencies. The market is also different today than it was with Microsoft or Google. Companies are expected and also need to grow faster (or others will). It took Microsoft 10 years to break $100M in revenue. All companie…

No you have it all wrong. Lyft, Uber, WeWork etc are burning money and failing spectacularly because they aren't software companies. They're too tied to traditional markets and their economics don't magically work out because they've tried to throw software into the mix. We are at the inflection point where they are all about to crash and burn. Good riddance.

Those companies aren't that different than the dot-com era companies.

"We're not $boring_business, we're $boring_business_but_internet" (or, today, it'd be boring but mobile)

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

#309

Post by rossjudson » Sat, Oct 26, 2019, 4:50 AM UTC

mlyle wrote: post #275

Conan_Kudo wrote: post #145

Earlier quoted context omitted.

And employees deserve to be sandbagged? That seems monumentally unfair...

Preferred stock (and specifically, liquidity preferences-- the common 1x, nonparticipating term) exists to ensure that if investors put in $10M for 20% of a company, you don't immediately sell the company for $10M and give them $2M back, and split $8M among yourselves. The deal is structured so that the investors have their option of either getting their original money returned or their share of the proportional shar…

I've been in the middle of the opposite. All numbers are synthesized. Founders set up company, initially fund it themselves, take some rounds of investment with preferred, gives up some control. Company runs low on cash, finds new investment from "trustworthy" investors, all preferred. The founders hit 49%, the investors gain control, and make a purchase offer for the precise value of the preferred shares to themselves, which they decide to accept. All common shareholders are instantly out in the cold, with nothing (including the founders, who were utterly screwed).

The first thing they did was fire the founders, of course.

So...foolish founders? Yes. But wait! Foolish investors? YES!!

Because they absolutely screwed every employee, almost all the employees walked the afternoon we were informed.

I've never been prouder of the people I worked with. I think there were four people (tech support/admin) left out of 20 or so. Hard to remember now...so long ago.

For several hours the shitball investors were exceptionally proud of themselves...and then they realized they'd bought a pile of PCs they had no idea how to use. Plus bonus shitty furniture! And goodbye investment, of course.

We all formed a new company within a few weeks. The original founders somehow got money to get us started again...which we did, from absolutely nothing. We rewrote a similar product suite (but better!) in about 9 months, and went to the next big industry show with it.

Shitball investors found out, and promptly sued us (mild shock), claiming without evidence that we must have stolen the code on the way out. Since I was there for every single line of code we wrote the second time around, it was infuriating.

The ball bounces through the courts...they continued to harass us...and all does not necessarily end well.

In any case, don't lose control ;)

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

#310

Post by adrr » Sat, Oct 26, 2019, 4:51 AM UTC

mrnobody_67 wrote: post #251

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?

Never seen it. Founder shares are common shares so it’s in their interest to preserve the value.