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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)

#321

Post by fennecbutt »

pc86 wrote: post #220
codegeek wrote: post #209

Earlier quoted context omitted.

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.

Could you explain to me the point of it, though?

What's the point of accepting 400M to build a business if you essentially don't own any of that business (because of the 559M buyout ceiling).

Were they gambling on a buyout more than 559? I don't understand why someone building a business would accept these terms.

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

#322

Post by gadders »

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…

They could have chucked them something. I'm not thinking a large %, but maybe a mill or so.

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

#323

Post by nobodywillobsrv »

Why would they sign on to this gamble though? It seems like idiocy or mis-selling. The article is frustrating as it merely explains the outcome and not how an obvious mistake was made. Basically nobody in their right mind would sign on to this and work for free.

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

#325

Post by vidarh »

rdslw wrote: post #320
vidarh wrote: post #222

Earlier quoted context omitted.

Yeah. I've not had an exit that high, but I've had an exit where my 25% initially was whittled down to 10k, and frankly I was surprised I got anything at all - in the end I was diluted to hell and back, but none of the later rounds had any liquidation preference that got triggered. It's easy to see a large exit number and assume it means it's a success, but in the case in question the (significantly more modest than…

> Taking VC cash is very often a game of deciding whether you want to gamble it all on faster growth or take less risk for less cash, but with the additional caveat that the investors you take on often will cheer for the "gamble it all" option as they have many parallel bets while you as the founder has one. This shall be printed in block letters in a red frame ahead of most Paul Graham essays about milk, honey and r…

Sure, it ought to be clearer, but apart from maybe the first time, I still would have taken VC cash because it allowed us to do things we otherwise wouldn't have been able to try, and it was a fun ride. Even without any large exits, if you negotiate then you can still come out very well.

But, yes, people ought to go into it understanding which game they're playing, and understanding that your odds are different. Not least because it might make a difference in how you judge advice from your investors.

(There's also only one decision I regret us making due to investors being too willing to take risks; in retrospect I was firmly proven right but whether the board vote going the other way would have made a financial difference in the long run I can't say)

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

#326

Post by lupire »

hn_throwaway_99 wrote: post #24
lupire wrote: post #5

Earlier 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.

I apologize. I misread something as saying the sale was this year. So the return was about 10%/yr, which is decent but not "make me a multi-multimillionaire". I presume everyone working got cash during their tenure, not just unpreferred stock.

The claim that the valuation was artificially deflated due to conflict of interest seems stronger than the concern about liquidation preferences. FanDuel's 10x valuation growth from 2015-2020 backs up the charge of deflation.

https://www.wsj.com/articles/fanduel-founders-former-employe...

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

#327

Post by scarface_74 »

VirusNewbie wrote: post #316
scarface_74 wrote: post #299

Earlier quoted context omitted.

And at a late stage, you’re not likely to see any more from your equity than working at a public BigTech company, your equity is not only locked up pre-IPO it’s also locked up post IPO. When you work for a public company, you know exactly when your RSUs are going to vest, they appear in your brokerage account and you can (and should) sell the same day and diversify.

All of the above mentioned companies have liquidity events that are not related to IPO, so your comment about lockup is not accurate. They also pay quite a bit more equity than FAANG companies, because it is overall less liquid. I'm not saying it's guaranteed to pay more than FAANG, but it's likely to work out that way.

How did that work out for late stage Uber employees?

Also, historical returns don’t take into account that we now live in a time of high interest rates and the public markets have caught on to the Ponzi schemes of non profitable tech companies IPOing

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

#328

Post by highwaylights »

lotsofpulp wrote: post #307
highwaylights wrote: post #148

Earlier quoted context omitted.

That’s the model essentially. Makes a lot of sense too. Anyone can get S&P 500 returns with little to no risk. That’s not to say they won’t lose money but it’ll be market returns either way, will be very liquid, and readily transparent to the holder. Given the risk involved in early stage investment the maths just don’t make sense for an investor to shoot for anything short of the moon. tldr; Seed funding / early sta…

> Anyone can get S&P 500 returns with little to no risk. Unless it’s buying SP500 index funds, I doubt it. Especially the last 15 years. I know quite a few people who would have been further ahead (financially) if they had just invested in SP500 and retired.

> Unless it's buying index funds.

I mean literal index funds.

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

#329

Post by lotsofpulp »

highwaylights wrote: post #328
lotsofpulp wrote: post #307

Earlier quoted context omitted.

> Anyone can get S&P 500 returns with little to no risk. Unless it’s buying SP500 index funds, I doubt it. Especially the last 15 years. I know quite a few people who would have been further ahead (financially) if they had just invested in SP500 and retired.

> Unless it's buying index funds. I mean literal index funds.

Oh, sorry, I thought you meant operating a business that does not “swing for the fences” (as opposed to ones that do that are attractive to VC).

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

#330

Post by jfray2k22 »

fennecbutt wrote: post #321
pc86 wrote: post #220

Earlier quoted context omitted.

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.

Could you explain to me the point of it, though? What's the point of accepting 400M to build a business if you essentially don't own any of that business (because of the 559M buyout ceiling). Were they gambling on a buyout more than 559? I don't understand why someone building a business would accept these terms.

It's quite possible that the founders cashed equity out of the funding round, and that could possibly be why it was such a large round. During the FinTech/Web3 boom back around 2019-2020, a ton of founders did this and it caused huge misalignments between them and their employees. Their thinking could be, "who cares if you didn't make anything from the acquisition when you've already taken $40MM off the table?"
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