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Sell for half a billion and get nothing (2021)

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Re: Sell for half a billion and get nothing (2021)

#201

Post by Ray20 »

dclowd9901 wrote: post #99

> Because they take on significant risks, investors expect to get “VIP” head-of-line privileges to be paid upon a liquidation event such as an acquisition. I’d like to challenge this notion. Risk comes from one factor and one factor only: how much skin do you have in the game? Skin isn’t money. Skin is how much are you in for. How much would this hurt if you lost. The ultra rich, when investing, have actually very li…

>A million here, a million there. What’s the difference?

Like you said - the difference is a million here, a million there.

>They’ll still be impossibly wealthy even if everything goes tits up.

They will millions less impossibly wealthy

>Those folks should not make the big bucks in a deal.

Why? Why is it wrong for them to make the big bucks in a mutually beneficial deal?

>They haven’t risked anything

They literally risked millions

>but I see it as _the primary_ problem with either capitalism, or ultra wealth

I don't completely understand what exactly the problem is

>and the people with the most money control the system.

This is literally one of the strengths of capitalism over any other system: even people with the most money don't have control over the system.

Re: Sell for half a billion and get nothing (2021)

#202

Post by sb8244 »

Finbarr wrote: post #33
gumby wrote: post #6

Liq prefs vanished during the ZIRP and I haven’t seen them return…yet. But the founders do have some leverage. If there is no incentive to do the deal they can just… not cause the deal to happen (different from blocking it, just not working on it). This is the same reasons you see big pay packets for the execs when a company is doing poorly or is bankrupt: otherwise they could just go do something else (get a differe…

1x non participating is still the standard in most venture deals for companies doing reasonably well. But every dollar spent by startups essentially builds the preference against them. If you raise and don't spend the money, the balance sheet can be used to "offset" the liquidation preference in a sale.

I think 1x non participating is a fair deal, but watch out for anything other than that. (I wouldn't take a job if there was anything more than that. And it is something I'd ask the founders.)

Re: Sell for half a billion and get nothing (2021)

#203

Post by sb8244 »

giantg2 wrote: post #169
sb8244 wrote: post #35

Earlier quoted context omitted.

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.

That's the name of the game.

1x non participating is a fine way to offset some risk.

Anything more than that is greed.

Re: Sell for half a billion and get nothing (2021)

#204

Post by willcipriano »

choppaface wrote: post #113
DaiPlusPlus wrote: post #109

Earlier quoted context omitted.

Even if anyone gets a cool $1b, the IRS is going to come for a good chunk of that...

IRS takes less than 50%.

A lot of this confusion is people talking past eachother. For most people the level of governmental entity taxing them isn't the concern, its the amount of tax the government in general demands in particular contrasted with the level of service provided.

Add up the IRS cut, state and local, gas tax, sales tax, fees to use services already paid for with taxes and are basically required for life in the US (road tolls, document fees, vehicle registration fees, public transit fares, etc), costs for compliance with laws like hiring someone to help you file taxes or taking a day off work to renew your driver's license, higher costs for goods and services due to monopolies granted by government (drug patents where the same drug costs a quarter of what it does in the US everywhere else the world, higher than otherwise internet fees paid to entities like Comcast who are granted monopolies, hospitals that are expensive due to monopolies granted by certificates of need, etc), inflation caused by money printing to pay for foreign wars without broad popular support, housing that is more expensive due to policies that benefit homeonwers at the expense of those without assets etc, etc.

Its way more than half of your productivity that is taken, if you are productive and earn wages. Those earning capital gains are hit about half as hard, another happy little accident that benefits primarily the wealthy and powerful to add to my list above.

Oh and the best part, after paying those taxes for decades once you get sick, all of the sudden, the government and the medical industrial complex doesn't have the money to help you. You get to live in a cardboard box under a overpass.

Re: Sell for half a billion and get nothing (2021)

#205

Post by longcrab »

sokoloff wrote: post #165
gadders wrote: post #143

Earlier quoted context omitted.

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 year…

As far as I remember, there was debate around that valuation.

"Early investors filed suit in New York against FanDuel's board for breach of fiduciary duty in allegedly undervaluing FanDuel to enrich themselves." ( FanDuel Wikipedia )

There was some unusual relationships in the deal, and the valuation of the company post-purchase was dramatically larger.

Not sure if suit is public, but article:

"The new lawsuit claims that the board – which allegedly included only one independent director and six directors tied to KKR and Shamrock – priced the value of FanDuel’s stake in the merged company at about $559 million. That number, the suit alleges, was no coincidence. Under FanDuel’s operative bylaws, preferred shareholders were due to receive all of the first $559 million from any merger."[1]

[1] https://www.reuters.com/article/us-otc-fanduel/fanduel-found... ( "juicy tale?" )

Re: Sell for half a billion and get nothing (2021)

#206

Post by [deleted] »

munchler wrote: post #105
justinlloyd wrote: post #45

I 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…

Working without pay is the reddest of red flags in any company. It’s not even a business at that point - it’s a volunteer gig.

[deleted]

Re: Sell for half a billion and get nothing (2021)

#207

Post by onion2k »

sb8244 wrote: post #199
jmward01 wrote: post #14

I have a friend that has given up on options. Even if he were to be #10 somewhere he would take any extra pay over any options. Stories like this show the wisdom of that. Are there really that many success stories for people other than for VCs and (maybe) founders out there anymore? Even if your options (eventually) get you 200k, how much did they cost you in years of lower pay. Even with a payout, considering intere…

I think it's worth it still. Depending a lot on the company: * Ask questions to founders if they raise on participating preferred (the worst). Don't take a job if they do or if they won't answer * Find a place with early exercise of options * Find a place with a healthy company culture. (I believe this correlates) I made a lot off of options, while having a good salary. I know others that did the same.

I made a lot off of options..

Note the past tense. The way startups operated a decade ago is quite different to the way they operate now. The tricks to get the most from employees without giving away much equity are more widely known now. I have no doubt that there are still some moral and ethical startups about, but I also think there are many, many more who give out stock with absolutely no intention of it becoming valuable in the future these days.

Re: Sell for half a billion and get nothing (2021)

#208

Post by sb8244 »

onion2k wrote: post #207
sb8244 wrote: post #199

Earlier quoted context omitted.

I think it's worth it still. Depending a lot on the company: * Ask questions to founders if they raise on participating preferred (the worst). Don't take a job if they do or if they won't answer * Find a place with early exercise of options * Find a place with a healthy company culture. (I believe this correlates) I made a lot off of options, while having a good salary. I know others that did the same.

I made a lot off of options.. Note the past tense. The way startups operated a decade ago is quite different to the way they operate now. The tricks to get the most from employees without giving away much equity are more widely known now. I have no doubt that there are still some moral and ethical startups about, but I also think there are many, many more who give out stock with absolutely no intention of it becoming…

I think this is a pessimistic view of the situation and I don't subscribe to it being the norm today.

I run a (still small, 1.5M ARR) tech startup and we treat our employees fairly. Low / clean investment table, early exercise for employees that make early employee risk effectively 0, upfront about how to deal with options, alongside market salaries.

But maybe I am not the norm and it's more common for people to get screwed over. However, I have several friends at startups that have similar recent stories with their options.

Re: Sell for half a billion and get nothing (2021)

#209

Post by codegeek »

jv22222 wrote: post #62

> 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.…

The summary is "When the FanDuel founders raised funds, two key investors received a liquidation preference that entitled them to the first $559M in an acquisition. Founders and employees would be paid only if the acquisition exceeded $559M. Because the Paddy Power Betfair was for just $465M, the founders received nothing"

Also they raised over 400M in funding. If you exit with 465M with 400 million raised in funding AND liquidation preference entitles investors to first $559M in an aquisition, of course you are going to get nothing.

The question is why they raised 400M in funding and could only exit for 465M. This tells me it was a failed business.

Re: Sell for half a billion and get nothing (2021)

#210

Post by SJMG »

rapidaneurism wrote: post #193
baq wrote: post #120

Earlier quoted context omitted.

If you’re paying taxes, you’re winning.

If you're paying taxes you should change your accountant

Yes, if you're paying taxes you should engage a wealth management team that knows about collaterialized loans.
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