Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

medium.com

Post reply on HN
Print view View original

361–370 of 391 posts

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

#361

Post by caconym_ »

tptacek wrote: post #253
caconym_ wrote: post #227

Earlier quoted context omitted.

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…

Isn't pretty much every interaction humans have with each other outside of close friends and family (and even within, to some extent) driven by market forces and/or bargaining power in some way? Some larger examples I can think of off the top of my head are the ballooning costs of healthcare in America today and the trans-Atlantic slave trade.

In the general hierarchy of victims I'm not too worried about exploited startup workers. As you say, it's obviously bad if founders deceive employees, but I'd add that there are degrees of deception and also that there's a whole culture built up around working at startups that seems to suck people in. Who benefits from that? Keep in mind that startup employees are selling themselves in the same market, with even less bargaining power than the founders looking for investment.

If America had a real social safety net and real regulations in place to protect workers, I'd say go nuts. I think market forces can be a great optimizer for efficiency, and we should embrace the core principles of economics because doing anything else is tantamount to sticking our heads in the sand. But we should not forget that people can get hurt, and/or have their full human potential dribbled away down the drain for somebody else's gain. I will keep saying those things are bad until I start saying nothing at all matters.

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

#362

Post by mlyle »

rossjudson wrote: post #309
mlyle wrote: post #275

Earlier quoted context omitted.

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 themselv…

> 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).

Usually you structure your board in a way that prevents this-- not to mention that you could likely prevail in litigation if these are the facts because the board has a fiduciary duty to all investors, not just preferred: only if there is no reasonable prospect for common to get something can you accept an offer like this. Not to mention that when a controlling shareholder enters into a transaction with the corporation they have the duty of showing that the transaction is fair for all involved.

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

#363

Post by enra »

bredren wrote: post #193
testfoobar wrote: post #97

As a former founder, I am often surprised by the incredible spend at some startups I've visited. The biggest is headcount - so many fluff jobs. How many designers does an early stage startup really need? 1, 2, 10, 20, 50? How many SREs do you need when your site is just a handful of AWS instances? How many sales people do you need when your product isn't ready for sale yet? Each employee fully loaded in the bay area…

Coinbase avoided design forever—using simply twitter bootstrap and uh not much of a logo. Not every startup can pull this off, but template designs—particularly for web are great and cheap now. Custom UI controls waste money in development and design.

About 1.5 years. Forever in startup timeline, but not forever still.

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

#364

Post by enra »

vanniv wrote: post #308
codesushi42 wrote: post #304

Earlier quoted context omitted.

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)

I think the difference is still that many dot-com era companies didn't have much or any revenues, definitely not in billions.

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

#365

Post by jdjjdflknfjj »

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.

I'm not convinced that is true. If they accepted a lower salary with the promise of stock options, they paid money. I thought it was common for startups to pay employees in stocks rather than money.

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

#366

Post by WalterBright »

4ntonius8lock wrote: post #355
WalterBright wrote: post #341

Earlier quoted context omitted.

> So people who work for a start up aren't taking risk? Not at all like the risk of putting in a big chunk of your own money. When you lose it, it's gone. Too bad, so sad. Employees have the lowest risk position. They get first claim on the money owed for their paychecks and there are many legal protections for that. The investor is frequently last in line, and gets nothing if the company bankrupts. > described in th…

The key here is deceit. I have no problem with employment where money is exchanged for time. But that wasn't the case. The employee got paid for time in the form of money and stock . You are conveniently ignoring this part. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful. As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful be…

> If the stock is worthless, why offer it?

It wasn't worthless when it was offered, the overhang deals did not come until much later, and it did not become worthless until the company sale price was agreed upon. The stock would still have been worth something if the sale price was higher than the overhang.

Getting stock does not mean it can be diluted by further stock issuances. There is no deceit there.

> Literally all I'm arguing for is a more honest (and therefore meritocratic)

Honesty has nothing to do with meritocratic. For example, the person next to you on an airplane surely paid a different price. It's neither dishonest nor meritocratic. It is what both parties agreed upon. Each person has a different level of risk tolerance and desire for money.

Everybody in a startup gets a different deal based on their ability to negotiate, what they want, their risk tolerance, and the desire of the company to get them on board.

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

#367

Post by dragonwriter »

WalterBright wrote: post #366
4ntonius8lock wrote: post #355

Earlier quoted context omitted.

The key here is deceit. I have no problem with employment where money is exchanged for time. But that wasn't the case. The employee got paid for time in the form of money and stock . You are conveniently ignoring this part. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful. As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful be…

> If the stock is worthless, why offer it? It wasn't worthless when it was offered, the overhang deals did not come until much later, and it did not become worthless until the company sale price was agreed upon. The stock would still have been worth something if the sale price was higher than the overhang. Getting stock does not mean it can be diluted by further stock issuances. There is no deceit there. > Literally…

> It wasn't worthless when it was offered

As a practical matter, it was, since it wasn't liquid and had no security against changes which would eliminate it's theoretical value before it became liquid.

It could have become worth something with the right set of future conditions, but those obviously did not materialize.

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

#368

Post by 4ntonius8lock »

WalterBright wrote: post #366
4ntonius8lock wrote: post #355

Earlier quoted context omitted.

The key here is deceit. I have no problem with employment where money is exchanged for time. But that wasn't the case. The employee got paid for time in the form of money and stock . You are conveniently ignoring this part. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful. As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful be…

> If the stock is worthless, why offer it? It wasn't worthless when it was offered, the overhang deals did not come until much later, and it did not become worthless until the company sale price was agreed upon. The stock would still have been worth something if the sale price was higher than the overhang. Getting stock does not mean it can be diluted by further stock issuances. There is no deceit there. > Literally…

If you agree that both put in $50 worth of something, then why does one get something while the other nothing? How is that honest? The employee was investing time for the stock, the investor fiat.

The employee was offered 1% of the company.

Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders.

The rest of the convoluted mess, while legal and negotiated and something I understand, is done in a way that is taking advantage of the information and power asymmetry of the two market participants. Just as stock swindles happened in the late 1800s.

Honest markets do create more meritocratic markets, as market participants can engage without the friction of complete distrust. Courts and systems to create trust are essential. If you don't understand that concept, then we likely won't ever agree, I think it's a pretty basic concept in capitalism and economics. It's like people who don't believe in supply and demand, if you can't agree on something so basic, then all subsequent points will be going off a different basis.

As stated in my earlier reply, look at the stock market and how it was for investors in the 18th century when there were little to no rules protecting investors and therefore there was massive friction from dishonest market participants.

Your argument can be boiled down to 'caveat emptor'. Which is an argument that lacks intellectual cohesiveness when you are simultaneously supporting the legal structure that removed such a situation from the average investor and which has allowed our markets to develop and become fully capitalized as market participation soars when honest behavior is enforced.

It amazes me that someone can honestly argue against providing time investors with the same protection as fiat investors.

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

#369

Post by WalterBright »

4ntonius8lock wrote: post #368
WalterBright wrote: post #366

Earlier quoted context omitted.

> If the stock is worthless, why offer it? It wasn't worthless when it was offered, the overhang deals did not come until much later, and it did not become worthless until the company sale price was agreed upon. The stock would still have been worth something if the sale price was higher than the overhang. Getting stock does not mean it can be diluted by further stock issuances. There is no deceit there. > Literally…

If you agree that both put in $50 worth of something, then why does one get something while the other nothing? How is that honest? The employee was investing time for the stock, the investor fiat. The employee was offered 1% of the company. Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders. The rest of the convoluted mess, while leg…

> The employee was offered 1% of the company.

No, they weren't. They were offered stock. Stock can always be diluted by future stock issues.

> Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders.

People who accept stock options and don't bother to learn about them have only themselves to blame. The information isn't hard to come by, it's all over the internet.

> It amazes me that someone can honestly argue against providing time investors with the same protection as fiat investors.

They do have the same legal and system protections. They got what they agreed to.

> Courts and systems to create trust are essential.

Yes.

What you're discounting, however, is the role of risk. Risk is always there. The larger the risk, the more potential returns there are. If you try to legally define the risk and legally force two disparate risks to be the same, the result will be all kinds of market distortions.

You argue that the risk of the employee and the investor are the same. They are not, or they would be priced the same. Is it really right to interfere in the negotiations other people are freely making?

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

#370

Post by 4ntonius8lock »

WalterBright wrote: post #369
4ntonius8lock wrote: post #368

Earlier quoted context omitted.

If you agree that both put in $50 worth of something, then why does one get something while the other nothing? How is that honest? The employee was investing time for the stock, the investor fiat. The employee was offered 1% of the company. Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders. The rest of the convoluted mess, while leg…

> The employee was offered 1% of the company. No, they weren't. They were offered stock. Stock can always be diluted by future stock issues. > Reasonable, everyday people will understand that to be 1% of all money that comes in on a sale after paying legal fees and bond holders. People who accept stock options and don't bother to learn about them have only themselves to blame. The information isn't hard to come by, i…

> They are not, or they would be priced the same.

If this was market based, you'd be right. But if it is legislative based, then this is the definition of circular logic. Given that the structure of preferential stock is legislative based, it is circular reasoning.

I count risk based on what percentage of a person's net worth and potential earnings are tied up in the securities.

That renders a different perspective of risk than just raw numbers which is what you seem to be going off of.

Your argument can be boiled down to 'caveat emptor'. Which is an argument that lacks intellectual cohesiveness when you are simultaneously supporting the legal structure that removed such a situation from the average investor.

Post reply on HN