Uber plays hardball with early shareholders • Hacker News Board

Re: Uber plays hardball with early shareholders

#51

Post by xtrumanx » Fri, Jun 20, 2014, 4:24 PM UTC

robbiemitchell wrote: post #29

What a non-story. This is a typical way for a private company to manage who owns its stock -- namely investors, employees, and former employees. It's basically a right of first refusal. You sell your options back to the company at the current market rate -- the rate at which that most recent investors purchased equity. That's your liquidity. The company will do this because it believes the options are undervalued com…

> You sell your options back to the company at the current market rate -- the rate at which that most recent investors purchased equity.

Why should the "market rate" determined by the most recent round of investments? A lot could have changed since then.

> If the company doesn't want to buy them, you _should_ be free to sell to others. Restrictions in _those_ cases would be worth writing about.

The issue isn't having to sell back to Uber but having to sell it at Uber's price.

Re: Uber plays hardball with early shareholders

#52

Post by rickyc091 » Fri, Jun 20, 2014, 4:29 PM UTC

throwoptions wrote: post #19

rickyc091 wrote: post #15

Earlier quoted context omitted.

Are you upset you received options instead of cash for your bonus? If so, you could have mentioned that you would take a salary raise instead of options. There really isn't much you can do with options until they go public or the company gets bought. You can also try to sell them on Secondary Market or SharesPost.

Oh, I'm not upset, I'm doing quite well otherwise, I've just been unable to find a law firm advertising anything related to what I'm looking for, which either means to me I need a specific type of lawyer to evaluate it or any ol' lawyer might work?

Ahhh, it's probably better to have an investor look over it as they probably deal with hundreds of these. It would probably be the simplest route and they have a clear understanding of this market.

Re: Uber plays hardball with early shareholders

#53

Post by tzs » Fri, Jun 20, 2014, 4:34 PM UTC

jstalin wrote: post #28

Not sure why this is news. Virtually every privately-held corporation or LLC has a stock transfer restriction. Any company that doesn't is an outlier.

This part was interesting:

> The employee also learned that Uber had amended its bylaws more than a year earlier, in order to restrict unapproved secondary sales. It was unclear if the bylaw change actually applied to shareholders who had not been party to the vote — lawyers seem to disagree on this point of Delaware law — but Uber threatened litigation if he tried to proceed. So he held. The financial and reputational hassles of a lawsuit would have just been too much, even if he had won.

One of the main reasons to incorporate in Delaware is that they have an extensive body of settled law on complex corporate issues. That Uber has managed to handle what should have been a pretty common and routine thing in a way that apparently is unclear under Delaware law is worthy of a story.

Re: Uber plays hardball with early shareholders

#54

Post by jeremymcanally » Fri, Jun 20, 2014, 4:35 PM UTC

mikeryan wrote: post #50

Iftheshoefits wrote: post #43

Earlier quoted context omitted.

People who work for startups under conditions like these do it for a variety of reasons that have little to do with compensation in the near or medium term (even if they mistakenly believe they are being compensated fairly).

Yes but that long term compensation is pretty much entirely based around equity grants which the Parent poster is recommending never to depend on.

IMO, if you're savvy with your opportunity costs in your life (i.e., your time and whatever money you receive for it), you should never, ever accept ethereal long-term "gains" in lieu of immediate compensation. Your time investment is very real and concrete and spending it is irrevocable, and no matter how it's a "sure thing," equity in anything never is. There are far too many variables at play that you have zero control over. The founders could screw you over. You could get acqui-hired except you aren't part of the new team. The market conditions for your startup could turn out to be less than favorable. When it comes time to exercise your options, your shares could be heavily restricted and never be able to be sold or transferred. Investors could dilute the crap out of your shares to the point that you've actually lost money on the deal (which happens VERY often). Why waste a non-renewable resource like your life on something that very, very, very likely will yield you nothing?

More concretely, I would never accept a below market salary in exchange for equity in anything. I don't understand this practice. I will take equity as bonuses, perks, and so on, but I never factor it into my compensation considerations. Perhaps I'm at the place in life where risk doesn't attract me, but to me it's a foolish move even at 20 or whatever age it's apparently appropriate.

Take the real money and go buy lottery tickets. Your chance of success to become fabulously wealthy is about the same. Better yet, put it in a well-performing retirement account and guarantee yourself a bundle of money a little later in life. Why make yourself an underpaid, overworked slave for someone to make a few bucks when you could live a healthy, more comfortable life and have the same end game more reliably?

(And yes I know some people crave that sort of work environment, but I think those people are mentally ill ;))

I'm not saying you're a bad person if you prefer this situation or whatever. I just don't understand it, very likely never will understand, and at this point in life, have no interest in trying. :) I think there are a lot of people like me, though, who arrived at that conclusion the hard way by working their tails off for years and getting nothing in return, and then when it's over, looking back and seeing their mistakes in "taking the deal" so to speak.

Re: Uber plays hardball with early shareholders

#55

Post by opendais » Fri, Jun 20, 2014, 4:41 PM UTC

potatolicious wrote: post #40

opendais wrote: post #17

Earlier quoted context omitted.

I'd say the options are worth more like 5% of whatever their value is when you get them. They aren't worthless but it really is a high risk gamble that you are going to get value out of them.

5% is IMO extremely generous. Basically what that means is that there is a 5% chance that: 1 - Your options will fully vest before you leave the company due to internal or external factors 2 - The company will reach an exit (as opposed to flop over and die) 3 - The company will reach an exit sizable enough that after accounting for cut price, your options are still worth the value when you got them (accounting for in…

I wasn't advocating you take a pay cut for options. ;)

But I think $0 is wrong as well.

http://online.wsj.com/news/articles/SB1000087239639044372020...

75% fail. 11% go public or acquired.

It is a lottery ticket but those don't sell at $0.

Re: Uber plays hardball with early shareholders

#56

Post by cpwright » Fri, Jun 20, 2014, 4:45 PM UTC

ganeumann wrote: post #34

opendais wrote: post #6

Earlier quoted context omitted.

Yes, but they should pay market rates for the stock. The article made it sound like they were trying to buy it up at $4 billion evaluation when they knew they'd be auctioning some off for $10+ billion.

Not that I think Uber is handling this constructively, but there's a valid reason why they would not offer the valuation bandied about in the press: they are not buying the same equity as the $17 billion+ equity. The venture investors bought Preferred equity, the shares being sold by the employee are almost certainly Common equity. Common equity is worth less than Preferred equity. The times I have seen offers to buy…

They shouldn't have paid for a $17 billion valuation, but if there was a firm offer of $200 a share, they should have had to match the $200 a share instead of offering $135 (which was quoted as a $4B valuation). This would imply a valuation of around $6B.

Re: Uber plays hardball with early shareholders

#57

Post by opendais » Fri, Jun 20, 2014, 4:45 PM UTC

ganeumann wrote: post #34

opendais wrote: post #6

Earlier quoted context omitted.

Yes, but they should pay market rates for the stock. The article made it sound like they were trying to buy it up at $4 billion evaluation when they knew they'd be auctioning some off for $10+ billion.

Not that I think Uber is handling this constructively, but there's a valid reason why they would not offer the valuation bandied about in the press: they are not buying the same equity as the $17 billion+ equity. The venture investors bought Preferred equity, the shares being sold by the employee are almost certainly Common equity. Common equity is worth less than Preferred equity. The times I have seen offers to buy…

If they had an offer for $200 per share, they should get $200 per share even if Uber is the one buying it instead.

> Two months ago, an early Uber employee thought that he had found a buyer for his vested stock, at $200 per share.

Sorry I wasn't clear by what I meant by "market rates".

Re: Uber plays hardball with early shareholders

#58

Post by robbiemitchell » Fri, Jun 20, 2014, 4:55 PM UTC

xtrumanx wrote: post #51

robbiemitchell wrote: post #29

What a non-story. This is a typical way for a private company to manage who owns its stock -- namely investors, employees, and former employees. It's basically a right of first refusal. You sell your options back to the company at the current market rate -- the rate at which that most recent investors purchased equity. That's your liquidity. The company will do this because it believes the options are undervalued com…

> You sell your options back to the company at the current market rate -- the rate at which that most recent investors purchased equity. Why should the "market rate" determined by the most recent round of investments? A lot could have changed since then. > If the company doesn't want to buy them, you _should_ be free to sell to others. Restrictions in _those_ cases would be worth writing about. The issue isn't having…

It's true that a lot could have changed since the previous investment round, but isn't that often the case in venture capital funding?

Paying a different price for one person's equity changes the valuation for everyone as the new market rate. This can be bad for an individual (could be sold for higher on private market) but also good (prevents someone else from selling at a major discount). Companies want to control valuation much more closely than that, so valuation is pegged to investment or some other major event.

Whether that's a good way to do things would be a nice discussion topic, but that's not the same as saying uber in particular is playing hardball. A little bit of research would reveal that it's standard practice.

Re: Uber plays hardball with early shareholders

#59

Post by simulate » Fri, Jun 20, 2014, 5:03 PM UTC

pjc50 wrote: post #27

jeremymcanally wrote: post #16

It's amazing to me what companies will stick in these contracts, and how deep down the rabbit hole they'll stick it. It's their stock to do it with, of course, but it's just annoying that seemingly employee-centric companies will do such seemingly abusive things. For example, I've seen instances of sale restrictions being four contracts deep (e.g., "shall be governed by (x) agreement", and that agreement says "shall…

never depend on it as part of your compensation in any way This is very true. I've been in the position of having worthless share options before. It's something everyone who's tempted to work 80 hour weeks because they have share options should remember. You should also remember the Google cook, who had $200m in options that the company tried to do him out of because he wasn't a developer .

Are we talking about Charlie Ayers, the Google Cook? He earned $26 million from his options, not $200 million. He also had over 150 employees and 5 executive chefs reporting to him. He did well and was fortunate but he also wasn't just some guy in a lunch room preparing cafeteria food.

EDIT: There is a nice description of Ayers in wikipedia: http://en.wikipedia.org/wiki/Charlie_Ayers

Re: Uber plays hardball with early shareholders

#60

Post by ganeumann » Fri, Jun 20, 2014, 5:14 PM UTC

cpwright wrote: post #56

ganeumann wrote: post #34

Earlier quoted context omitted.

Not that I think Uber is handling this constructively, but there's a valid reason why they would not offer the valuation bandied about in the press: they are not buying the same equity as the $17 billion+ equity. The venture investors bought Preferred equity, the shares being sold by the employee are almost certainly Common equity. Common equity is worth less than Preferred equity. The times I have seen offers to buy…

They shouldn't have paid for a $17 billion valuation, but if there was a firm offer of $200 a share, they should have had to match the $200 a share instead of offering $135 (which was quoted as a $4B valuation). This would imply a valuation of around $6B.

That would certainly seem fair.