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

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

#231

Post by CalChris »

nostrademons wrote: post #111
CalChris wrote: post #61

Heidi Roizen, VC, most definitely does not feel Former Millionaire's pain. Yes, liquidation preference overhang is the mechanism. However, the company got sold for $100M. Who sold the company? The founders + the VCs and they got theirs. They could have structured the deal to give the employees something. They didn't. The advice here is simple. Walk. Former Millionaire owes absolutely nothing to the new company. Stayi…

She mentions this in the article - most deals are structured with carve-outs so that specifically those employees you want to stay get multi-million payouts (over multiple years) as long as they stay with the employer. If there was no such carve-out for the VP, it means the acquirer doesn't want them. The answer is still "walk", but the acquirer is not going to care. The reason to walk is that there's no sense stayin…

I'm going to plead guilty to giving up after I saw the preference overhang thrust of the article. She in fact gives a good outline of the issues involved. Maybe I had Travis Kalanick and Adam Neumann in the back of my mind.

Still the element of unfairness about is that Certain key employees were incentivized with a “ carve-out “ in order to stay through the transaction and make sure it would happen. Using the example, four years is a long time to be rewarded with squat. However, Roizen also points out that common stock is priced lower than preferred.

Usually someone like an engineering VP or a senior contributor will figure things out well before that and bail. The idea that this was somehow a surprise is difficult to accept.

Yes, it is definitely for your own self respect.

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

#233

Post by delinka »

jacquesm wrote: post #134
badrequest wrote: post #3

As a normal individual contributor not at the C-level or even management level, I just assume the value of any options/shares I receive is zero unless an accountant or the IRS tells me I should believe otherwise. Too many goofy fine-print shenanigans like this to keep track of.

The IRS has a pretty good incentive to value your options/shares as high as the can, their goals and yours are not aligned. Your accountant may be closer to the true value, but even then it may end up significantly lower or higher in practice. The only thing that accurately values your shares is a sale.

You owe tax on an exercise below market value, whether you can sell or not. This is why you get the official 409a valuation from the CFO before you file your taxes. The 409a is prepared by the company's CFO, accountants, lawyers, and somehow in conjunction with the IRS (or by IRS rules?) and is the valuation that you use to compute whether you owe tax on an exercise or not.

>The only thing that accurately values your shares is a sale.

Accurately? Perhaps. But until that sale happens, you can still be on the hook for more tax.

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

#234

Post by WheelsAtLarge »

"It's all in the fine print," and the fine print can say anything.

I would say that this is a learning lesson for all who think options will make them rich. If you're at a company make sure you get paid what you're worth in money. Don't count on options as part of your compensation. You are unlikely to get rich because of them. As we have seen over and over again.

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

#235

Post by opportune »

Balgair wrote: post #90
jammygit wrote: post #20

I feel like legal manipulation is very bad for the startup ecosystem. Even here, at the YC forums, people assume their startup equity is worth $0 and advise you to go with a FAANG (or day that they broke even with friends at faangs after their exits). How is a legitimate startup supposed to recruit the best people under these conditions?

The entire point of joining a start-up is to 'play the lotto'. You are deferring salary now for a chance at millions later. You would not do it if the expected value was negative[0]. However, it's becoming more and more obvious to even freshmen undergrads that it's all a load of hooey. Not only are the founders going to need to be super transparent with their finances to get good interviewees, but some other event wi…

There are basically two tiers of startups in my mind, those that compete with FAANGs for talent (Airbnb, for a while Uber, whatever flavor of the month) and usually are comprised of lots of ex FAANGs, and those that are second choices to FAANGs.

Most of the people I know at the first tier also joined mostly for the money. Those in the second tier, it’s because that startup was the best opportunity they had. Or in some small cases, because it gave them experience in something they couldn’t get at other companies (eg a pure ML role).

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

#236

Post by rectang »

munchbunny wrote: post #101
jammygit wrote: post #20

I feel like legal manipulation is very bad for the startup ecosystem. Even here, at the YC forums, people assume their startup equity is worth $0 and advise you to go with a FAANG (or day that they broke even with friends at faangs after their exits). How is a legitimate startup supposed to recruit the best people under these conditions?

> How is a legitimate startup supposed to recruit the best people under these conditions? 1. As a rule of thumb, you can't. 2. As an exception, you can if they really want to see you succeed (i.e. for your mission). 3. As an exception, you can if they're dissatisfied or bored with their FAANG career and the job represents growth or excitement that they want. 4. As an exception, you can splurge on a few key hires, in…

6. As an exception, you can offer workplace flexibility that the bigs don't offer. For instance, a 30 hour week.

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

#237

Post by jacquesm »

delinka wrote: post #233
jacquesm wrote: post #134

Earlier quoted context omitted.

The IRS has a pretty good incentive to value your options/shares as high as the can, their goals and yours are not aligned. Your accountant may be closer to the true value, but even then it may end up significantly lower or higher in practice. The only thing that accurately values your shares is a sale.

You owe tax on an exercise below market value, whether you can sell or not. This is why you get the official 409a valuation from the CFO before you file your taxes. The 409a is prepared by the company's CFO, accountants, lawyers, and somehow in conjunction with the IRS (or by IRS rules?) and is the valuation that you use to compute whether you owe tax on an exercise or not. >The only thing that accurately values your…

Oh absolutely. People tend to forget that options and illiquid stock still count for the taxman.

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

#238

Post by habnds »

WheelsAtLarge wrote: post #234

"It's all in the fine print," and the fine print can say anything. I would say that this is a learning lesson for all who think options will make them rich. If you're at a company make sure you get paid what you're worth in money. Don't count on options as part of your compensation. You are unlikely to get rich because of them. As we have seen over and over again.

in a perfect world options would (literally) be a bonus. In the real world people are playing stock market with their careers.

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

#239

Post by harryh »

blihp wrote: post #229
harryh wrote: post #131

FWIW, I kind of don't believe that this question is real. Questioner clams that he is a VP but also: > He has no idea how liquidation preferences work > He was "told" that the company was being acquired (instead of being involved in the sale) > No one at the company walked him through how his stock was valued, even after the acquisition. To the point that he thinks he needs to hire a lawyer. It's a fine question to u…

The title is not a meaningful gauge of a person's knowledge or experience. It wouldn't be unheard of for a VP at a company with 50 employees to have similar responsibilities as a manager at a company with 1000 employees. They could also be VP of Engineering/Customer Service/etc. which would typically not be expected to have much, if any, legal or finance knowledge.

Ya, I'm not saying I'm 100% confident in my assessment. Just saying that reading it feels pretty fishy.

Just my opinion.

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

#240

Post by 4ntonius8lock »

nostrademons wrote: post #27

This matters more now that the current crop of tech companies have taken so much money. In the old days, when software companies sold software rather than traditional services enhanced by software, it was common to get to profitability around the B round and then never take any more investment after that. Google took $25-35M and then nothing until IPO, running the company from 2001-2004 off cashflow. Microsoft took n…

> Why shouldn't they, when they put up all the money that the company's been burning?

Because there is another group that's putting up all the work. In startups, that work is generally more intense and risk laden, which is why employees are offered shares as part of compensation. Otherwise, why would they be offering shares? Both groups deserve protection.

The SEC was created so that people couldn't swindle each other in a legal manner. It works to some degree for investors who are, by the definition of these types of investors, rich ($1mm in assets or $200k/income). But it clearly isn't working for the people doing the work.

So our system protects the rich, but not the people who apply a trade. If you think that's ok, fine. But I find it terribly unfair.

Joint stock companies exist as a result of legislation, the separation of capital and management requires courts for mediation. I can't see why someone wouldn't support changing it to be more equitable to all involved, especially if it is done based on merit (where labor and capital are both weighed as equal inputs at the time of distribution of large liquidity events)

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