Sell for half a billion and get nothing (2021) • Hacker News Board

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

#211

Post by sokoloff » Tue, Mar 05, 2024, 1:58 PM UTC

longcrab wrote: post #205

sokoloff wrote: post #165

Earlier quoted context omitted.

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…

It seems like the suit was settled in FanDuel's favor/against the early investors/employees.

https://archive.is/vAaKC

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

#212

Post by blantonl » Tue, Mar 05, 2024, 2:01 PM UTC

LudwigNagasena wrote: post #132

whiplash451 wrote: post #108

Earlier quoted context omitted.

That's not super useful advice for founders who (really) need some investment from the get go. The lesson would rather be: don't raise so much at the seed stage. Google got started with a $100K grant. FanDuel raised $400M in four years [1] And it looks like one of the the FanDuel founders did it again [2] This is reckless and should be a massive red flag for new joiners. [1] https://en.wikipedia.org/wiki/FanDuel [2]…

So they raised $416M and sold for $465M. That's 12% ROI. The investors could just buy normal stocks and get similar returns in a year. I don't think there is anything remarkable about this case. It's not like they got a $100K grant and received nothing from a $500M sale.

This was almost loss transaction. That 12% ROI easily got eaten up in fees.

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

#213

Post by [deleted] » Tue, Mar 05, 2024, 2:04 PM UTC

nailer wrote: post #119

Analemma_ wrote: post #21

Earlier quoted context omitted.

It's not just your friend: a lot of people have given up on options. Obviously they're underrepresented here on HN because this is a startup-focused forum, but I know many, many people who have concluded "options have an EV of zero, startups pay options in lieu of market-rate salary, therefore startups are a raw deal; I will only go to FAANGs". They're sort of a dark matter universe since they are only visible in the…

Is ‘EV’ enterprise value or something else? Thanks.

[deleted]

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

#214

Post by eschneider » Tue, Mar 05, 2024, 2:08 PM UTC

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…

If they owe you back pay and they're not being transparent about their "equity offer" you need to take steps to get in line for your money NOW. Talk to a lawyer. Assuming this is the US since you're quoting dollars: if you're an employee, a complaint to the state Dept of Labor about back pay usually puts you first in line for money. If you're on contract, you might be able to get a lein on...something of value. Seriously, don't wait on this if you expect to ever get paid.

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

#215

Post by zer00eyz » Tue, Mar 05, 2024, 2:09 PM UTC

gnicholas wrote: post #103

aetherspawn wrote: post #66

Earlier quoted context omitted.

Yeah I have a small business and I sway strongly towards being contempt with letting the business grow at its own rate. No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so. It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. We’re on like plan #10 now and in hindsight if w…

> No, it won’t have a 1 bil payout Does anything have a $1B payout for the founder? I guess there are a few companies that achieve this, but it takes only a modicum of humility to realize you're not likely to be one of the most successful founders this decade.

>> Does anything have a $1B payout for the founder?

WhatsApp likely did.

Minecraft as well.

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

#216

Post by zer00eyz » Tue, Mar 05, 2024, 2:12 PM UTC

The valuable lesson you should all take away.

If the company is not public ask for a "cap table", if the answer isn't "it's in your inbox"... Then your response is: If you don not have a cap table then the shares are more or less toilet paper. You are going to take them but they are worth nothing in this deal, say "more cash please", and as salary.

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

#217

Post by tejohnso » Tue, Mar 05, 2024, 2:20 PM UTC

> 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.

> The reality was the founders couldn’t stop the deal because they also granted the same two lead investors drag along rights. This drag along right forced the other shareholders to accept the decisions made by these two investors.

So they signed a funding contract that gave two investors the right to take all the money in a certain situation and force the company to go along with it. That seems pretty insane. I think the lesson is the same as any other contract. Know what you're signing, and beware. I thought this story was going to be about some people getting screwed over somehow. This is a story about people agreeing to something that they should not have agreed to, and had to suffer the consequences.

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

#218

Post by n2d4 » Tue, Mar 05, 2024, 2:21 PM UTC

weinzierl wrote: post #195

aetherspawn wrote: post #66

Earlier quoted context omitted.

Yeah I have a small business and I sway strongly towards being contempt with letting the business grow at its own rate. No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so. It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. We’re on like plan #10 now and in hindsight if w…

Be aware of the story of Dr. Janet an Dr. James Baker, the founders of Dragon Naturally Speaking, which has been discussed here several times. They seemingly did everything right and still go screwed in the end.

What they did wrong was accepting an all-shares transaction in the acquiring company. Those come with risks, and sometimes the risk is that the company goes bankrupt a year later and you'll be left with nothing.

My understanding is that they were badly advised by Goldman Sachs. Still, "doing the right thing" sometimes includes ignoring bad advice.

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

#219

Post by aqme28 » Tue, Mar 05, 2024, 2:22 PM UTC

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…

IIRC (depending on where it's incorporated) if you exercise an option so that you own a share, you are entitled to see the cap table.

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

#220

Post by pc86 » Tue, Mar 05, 2024, 2:27 PM UTC

codegeek wrote: post #209

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…

Honestly $400M in funding with only a preference of $559M seems pretty reasonable as far as the VC world goes. That's a 39% return, which yeah is a lot, but we're also talking about half a billion dollars and when your entire business model is built on looking for 10X or 100X returns, a .39X guarantee isn't out of this world crazy. Especially when the actual exit was about half that return.