If I sell my company for $1T, but I financed $999B of it, should I expect to get a payout? Financing generally requires interest. Seems like the headline is trying to invoke outrage.
Gotta do it the Adam Neumann way...
Can you elaborate?
Sell for half a billion and get nothing (2021)
161–170 of 334 posts
Re: Sell for half a billion and get nothing (2021)
#162Re: Sell for half a billion and get nothing (2021)
#163I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has…
Wow, do not understand this approach some founders take. Being “radically” transparent by showing your cap table and talking through liquidation prefs/exit scenarios with every single employee is an absolute prerequisite for me. For me this has driven loyalty and paid dividends in culture and retention. I would not work for a startup where the founder wouldn’t share that info.
How many times has a startup shown you the full cap table? Was this at the very early stage, before raising money, or even after funding rounds?
The cap table contains names of individuals. Most founders I know were reluctant to share the exact details. At the same time it's impossible to value option or equity grants without knowing valuation estimates, shares outstanding, round sizes, and liquidation preferences. Those get shared more readily.
Re: Sell for half a billion and get nothing (2021)
#164Earlier quoted context omitted.
What do you mean by that?
It's a Doctor Who reference to the episode “Blink”, which introduces a villain race of statues that can move, but only when unobserved. Incoherent snippets of dialogue seen on a DVD turns out to be half of a conversation being had with a specific viewer in the future, a transcript of which goes back in time.
Did SCP-173 rip off this premise?
Re: Sell for half a billion and get nothing (2021)
#165> Lessons Learned: Build a Very Fundable Startup > Every founder should learn from this disastrous scenario the importance of building a very healthy, fundable startup. A healthy, vibrant startup draws more investors during fundraising. The competition gives founders the leverage to negotiate for more founder-friendly terms. Healthy startups get better valuations, better terms, and raise funds with much less effort.…
Also, avoid that VC/Shareholder and blacklist them.
Why? If VCs invested $416M across 2009 (starting with the Series A) through 2017 and the company sold for $465M in mid-2018, how much value increase over the funding amounts did the company generate via its employees?
The Series E itself was 2/3 of the total funding and was about 3 years before acquisition. If we assume all of the investments happened 3 years before (rather than ranging from 3 years to almost 11 years, that's a return of under 4% per year. Investors in Fan Duel would have been just about as well off to pay down their mortgage at nearly historic low mortgage rates rather than invest in risky startups.
If I invest $400M in your company and you sell it for $400M, I think we can all agree that you should get your paycheck for the time you worked at the company, but you didn't create any value from the company.
That failure to create value on the part of FanDuel isn't anyone's "fault" per-se, but it's also not something that means that an equity payday has been earned by anyone.
Re: Sell for half a billion and get nothing (2021)
#166Earlier quoted context omitted.
I think you're in a same-same path with this. That is, If you say "No, I don't want equity", they still owe your back pay, there are multiple ways to get it, AND if either "back pay" or "equity" is to have value, they must have more funding. Which means, out of that funding can immediately come your back pay. So if you take the equity, or insist on pay, both are the same in the end. In fact, by not showing you what y…
> So if you take the equity, or insist on pay, both are the same in the end. Well, no. As you write yourself, if you insist on pay, and they cannot get funded and have to wind down, you're first in the line. You may not get a large percentage of what's owed, but you'll get something. And if they can get funded, you almost certainly can get everything owed. If you take equity and they cannot get funded, you get nothin…
Completely agree! Regarding your last paragraph, upthread wrote:
>> the start-up cannot meet its capex obligations and the current funding round is looking grim.
>> It is definitely going to be a down round and it ain't going to be pretty
Re: Sell for half a billion and get nothing (2021)
#167tldr: the founders gave their compagny to a couple of people. Some time later, those two people sold the compagny and got the cash. The founders got nothing, because it was no longer their compagny.
Re: Sell for half a billion and get nothing (2021)
#168Earlier quoted context omitted.
Gambling company should know the house always wins. If I read crunchbase correctly FanDuel got $350M in funding by 2015, and sold for $465M 9 years later, for 33% ROI, or about 3%/yr. Founders don't deserve anything just for managing to hold on to investor capital and not lose it. Investing money at below market rates is not an achievement. Founders and employees weren't robbed. Also, OP is just a bad ad.
Your timing is wrong here, which breaks your calculations. I read some other articles that said FanDuel got $75 million in 2014 and $275 million in 2015, and then they sold in 2018, so not sure where you're getting your "9 years" from.
Still not great ROI.
Re: Sell for half a billion and get nothing (2021)
#169If I sell my company for $1T, but I financed $999B of it, should I expect to get a payout? Financing generally requires interest. Seems like the headline is trying to invoke outrage.
What if you raised 500B and still got nothing? That can happen with 2x or 3x liquidation preference. IDK FanDuel structure (not in article), but they only raised ~ 400M. Yet the investors got every dime up to 550+M.
From an investor standpoint, if I were risking that much momey on a high risk venture, I would want that kind of return to make it worth while and cover the others that don't make it.
Re: Sell for half a billion and get nothing (2021)
#170FanDuel is going to do like $6B in revenue this year. This entire story above happened for three reasons: 1. The CEO made terrible decisions in regards to how much and who they raised from. They got in over their hands as the company grew and the entire founding team got fired. 2. The CEO immediately after, who took over an unprofitable business that wasn't growing and was in bad shape after the merger with DraftKing…
Not knowing anything about this my first thought was what the hell did they spend that investment on to justify it in the first place? Were they just in a user acquisition war with draft kings and spending a ton on ads?