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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)

#31

Post by yieldcrv »

Analemma_ wrote: post #21
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…

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…

> startups pay options in lieu of market-rate salary

this is true but this is largely due to an unworkable tax treatment of giving out illiquid shares to employees that rely on employment for money, and the longstanding tax regime would seek to tax employees that have higher value shares even if they can't get cash to pay for it.

so this has left private companies in an uncompetitive situation with options as the poor workaround, analogous to chemotherapy where it hurts everyone in the absence of a better treatment, but you might come out ahead

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

#32

Post by lumost »

frfl wrote: post #22
AndrewKemendo wrote: post #12

I wrote this in 2015 in response to Mark Suster suggesting that founders "Run" from liquidation preference and preference overhang in early deals: "Run where? When I talk to my fellow early stage east coast founders, the majority aren’t beating away founder friendly term sheets. Even seed stage companies with revenue and traction raising relatively small amounts are giving away board seats and agreeing to multiple pr…

You wrote that back in 2015. What, in your experience, has changed since then? 2021 would've probably, I'm guessing, been a lot more favorable for founders, but 2022/23/24 is likely a lot less favorable.

Anecdotally, not much changed for East coast startups. What did change is that West coast firms came to the east coast. Whereas 10 years ago it would be noteworthy to work for an SV company - it is now typical.

I think the local market was outcompeted and absorbed outside of a few niches.

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

#33

Post by Finbarr »

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.

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

#34

Post by lumost »

AndrewKemendo wrote: post #30
frfl wrote: post #22

Earlier quoted context omitted.

You wrote that back in 2015. What, in your experience, has changed since then? 2021 would've probably, I'm guessing, been a lot more favorable for founders, but 2022/23/24 is likely a lot less favorable.

I stepped out of investing about two years ago because i couldn’t stomach the persistent narcissistic greed dressed up as virtue once I saw it for what it was. The last I saw it was just as bad and frankly getting worse for founders, as investors pulled back when the Fed moved on interest rates. Basically everyone just stopped taking risk except for the giant institutional funds and even then, as of last year were mo…

Out of curiousity - how does a VC fund hold onto "powder"? Do they have terms to invest in a liquid fund, or some other arrangement? Seems like they'd face tough returns if they held powder for long.

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

#35

Post by sb8244 »

giantg2 wrote: post #19

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.

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.

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

#36

Post by VirusNewbie »

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…

Plenty of people made millions joining series C/D deca-corns and selling in the IPO pop.

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

#37

Post by wmf »

yieldcrv wrote: post #27
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…

maybe in Silicon Valley, but in New England and other less mature markets nothing has ever changed feel free to change my view, for anyone passing by

If you won't move to get materially better funding I guess you deserve what happens next.

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

#38

Post by dheera »

giantg2 wrote: post #19

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.

Except we're talking about 100% and 200% interest rates, if you read the article.

We're talking a $1G company financing $333M and getting nothing.

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

#39

Post by dheera »

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…

If you're on really shitty acquisition terms like this, to the point where you are getting no payout for your hard work, one way you can get a small payout is to negotiate your employment contract with the new parent company to be very, very good.

Make sure they give you and all employees a nice big sign on bonus and salary. They can deduct that from the proposed acquisition price.

Is it ethical? I say yes, you should get paid more than $0 for your hard work to be handed over. Should the investors get a payout too? Yes, but they shouldn't be getting 100% of it, ever.

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

#40

Post by scarface_74 »

VirusNewbie wrote: post #36
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…

Plenty of people made millions joining series C/D deca-corns and selling in the IPO pop.

And plenty more made nothing. It’s survivorship bias in a nutshell.

You take 10 people who worked for a public BigTech company that gave cash + RSUs and 10 people who got the same in “equity” in 10 different private companies, who do you think will be ahead in 10 years? 10 years is the average amount of time it takes for the few companies that make it to have an exit event.

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