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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?

#331

Post by [deleted] »

WalterBright wrote: post #299
4ntonius8lock wrote: post #240

Earlier quoted context omitted.

> 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…

> putting up all the work Generally speaking, the big money goes to the people who risk, not the people who work. If it didn't work that way, who would finance a risky project? Investors may or may not get paid sometime in the future, while employees get paid today, whether what they do works out or not.

[deleted]

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

#332

Post by jariel »

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…

She didn't say it was 'fair' she sad not 'inherently unfair' and that's reasonable: multipliers, loans etc. - this is all just financing.

The company performed poorly, the 'buy out' was a kind of 'neutral sale', the VCs got a 2x return and the founders got something.

To be clear: a '2x return' for the VCs is a loser - given the amount of risk they took on, they didn't get nearly the return they'd need to cover it. Imagine if you bet $1 on a long-shot that has 1/10 odds of winning, but if you win, you only 2x your money. Was that a good bet? No - terrible bet. That money could have been employed elsewhere.

The deal that the founders got might be somewhat similar - out of $100M they probably didn't get that much at all. Maybe $1-2 Million? That's again a very small bonus for several years risk. Many founders of such companies are forgoing major salaries to found companies - forgoing years of income really before it starts, and then limited income during. My hunch is that it was a 'net loss' for them: they should have just stayed on developing, consulting, lawerying, or banking or whatever.

Another way of saying this is that even at $100M valuation - there wasn't enough value created overall for it to be a real winner all around if you include risk, opportunity cost etc. etc..

At least employees got salaries, risk free - and money in the bank is worth a lot more than 'maybe future payoffs'.

It would have been nice if staffers got 'something' but even if they did allocate several million in the transaction (for example, if the founders 'took nothing') it would have still amounted to very little.

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

#333

Post by 4ntonius8lock »

chrismcb wrote: post #313
techsupporter wrote: post #300

Earlier quoted context omitted.

> Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find…

They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.

They got paid for it in the form of money and stock.

If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful (the start up and its investors). As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust which creates friction.

The argument that people's rewards, one who put in $50 in cash and another who and accepted a lower payment/higher risk which resulted in a decreased earnings potential of say $50 should be treated differently is anti-meritocratic. Both are risking $50.

BTW, if the company offered no stock to employees, we wouldn't be having this conversation. But the comments are, or should be, based on the FA of which this is a thread.

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

#334

Post by 4ntonius8lock »

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…

I feel sorry for people who value their time at nothing.

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

#335

Post by NotSammyHagar »

techslave wrote: post #266
jeremyjh wrote: post #187

Earlier quoted context omitted.

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.

They never explain the risk, the unlikelihood of selling.

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

#336

Post by hyperliner »

superqd wrote: post #322
techsupporter wrote: post #300

Earlier quoted context omitted.

> Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find…

I agree. The idea that time is not risked as an investment is, IMHO, deeply weak minded. Dollars, when used to purchase labor, are essentially acting as concentrated time. It's like a conversion from matter to energy and back. Walking around with lots of dollars is like holding lots of time, more time than you actually have life. So someone with a lot of money has, in effect, a vault of highly dense time they can chi…

Well, but Person B was compensated for her time.

If you hired me to build your house for $100k, and you paid me, and then you sold the house, making a profit of $300k, would you give me $150k? Likely not.

I think a better argument is below from 4ntonius8lock, who says that employees were supposed to get (a) $100k AND (b) stock of some value. But employees were not told all the rules under which (b) could be zero.

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

#337

Post by xmodem »

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…

At the time it seemed like a huge price. It's only what's come since that makes it look small.

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

#338

Post by vast »

nearbuy wrote: post #291
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…

You cut off the quote too early: > Again, let me emphasize, this is not inherently unfair. [...] The problem is most companies hide it. The author is saying it's not inherently unfair if the company is honest and upfront about it.

It is unfair if a bridge loan is involved. If the preferred stakeholders have the chance they will remove the commons from the equation. In the end both sides take a risk with their shares and it is usually more meaningful to people with little money.

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

#339

Post by akamaozu »

4ntonius8lock wrote: post #334
greggman2 wrote: post #288

Earlier quoted context omitted.

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…

I feel sorry for people who value their time at nothing.

Even sorrier are those who value their time more than it's worth to anyone but themselves.

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

#340

Post by vsl »

superqd wrote: post #319
greggman2 wrote: post #288

Earlier quoted context omitted.

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…

There is a deep flaw in this logic. Person A and Person B are both investing the same amount, just in different forms. Person A converted their 100k into 1 year of time . Person B converted their 1 year of time into 100k of money . They both put in 100k of something , B put in 100k worth of time, A put in 100k worth of money. If we assume a fair market rate for the conversion, then essentially this is a perfect excha…

> and hence should split the reward equally

Are you saying that when a company fails, all employees should return their past salaries paid by that company? Because that’s what splitting the (negative here) reward equally with investors would mean.

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