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

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

#351

Post by xpWr7r1ZeX » Sat, Oct 26, 2019, 1:39 PM UTC

harryh wrote: post #239

blihp wrote: post #229

Earlier quoted context omitted.

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.

You are that VP in the article aren't you? IMO, both of you don't know too much about how startups work. Not bad, just reality that leads to unfortunate outcomes.

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

#352

Post by xpWr7r1ZeX » Sat, Oct 26, 2019, 1:47 PM UTC

kevinskii wrote: post #199

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…

It could be. But small companies often give their employees inflated titles, where a "VP" is actually a small team lead with no executive responsibilities.

Titles are usually based on area of responsibility, at a small company you may have a small number people or no people but still have the responsibility... it's just enough for one person to handle. So it's not bad to have a VP of Engineering only manage 4 ppl.... but if everyone things a VP of Engineering is the same at small or large companies that's uninformed of reality. Title inflation helps recruit... so add that on to this as well and it's confusing. Not saying it's right, but that's how it is.

Actually, there is immense title inflation at large companies as well, just depends which company and field. Have you seen the number of VPs in the Finance industry in NYC?

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

#353

Post by tehlike » Sat, Oct 26, 2019, 3:02 PM UTC

rossjudson wrote: post #309

mlyle wrote: post #275

Earlier quoted context omitted.

Preferred stock (and specifically, liquidity preferences-- the common 1x, nonparticipating term) exists to ensure that if investors put in $10M for 20% of a company, you don't immediately sell the company for $10M and give them $2M back, and split $8M among yourselves. The deal is structured so that the investors have their option of either getting their original money returned or their share of the proportional shar…

I've been in the middle of the opposite. All numbers are synthesized. Founders set up company, initially fund it themselves, take some rounds of investment with preferred, gives up some control. Company runs low on cash, finds new investment from "trustworthy" investors, all preferred. The founders hit 49%, the investors gain control, and make a purchase offer for the precise value of the preferred shares to themselv…

Did you get a better deal out of the new gig personally?

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

#354

Post by thatthatis » Sat, Oct 26, 2019, 3:06 PM UTC

I’m of the opinion that the scariest words to a startup founder/employee should be “exit below the liquidity preference”

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

#355

Post by 4ntonius8lock » Sat, Oct 26, 2019, 3:34 PM UTC

WalterBright wrote: post #341

4ntonius8lock wrote: post #330

Earlier quoted context omitted.

So people who work for a start up aren't taking risk? Employment is more than just the paycheck. It's security. It's a career trajectory. Otherwise, why do consultants get paid more than employees? You can see it that employees take no risk. That's fine. But then I wonder why start ups tout the stocks they give? And why is it acceptable to tout something that they know has no value? The SEC has a function. To avoid d…

> So people who work for a start up aren't taking risk? Not at all like the risk of putting in a big chunk of your own money. When you lose it, it's gone. Too bad, so sad. Employees have the lowest risk position. They get first claim on the money owed for their paychecks and there are many legal protections for that. The investor is frequently last in line, and gets nothing if the company bankrupts. > described in th…

The key here is deceit.

I have no problem with employment where money is exchanged for time. But that wasn't the case.

The employee got paid for time in the form of money and stock. You are conveniently ignoring this part.

If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful.

As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust from market participants which creates friction and increases costs and decreases participation.

The argument that people's rewards, one who put in $50 in cash and another who accepted an offer that resulted in a decreased earnings of say $50 avg should be treated differently is anti-meritocratic. Both risked $50. If the employee wasn't accepting a decreased earnings potential, why offer the stock? You can't have it both ways.

Just as the company would have failed if the investors didn't invest, it would have also failed if the employees left when they saw trouble. Many extensively won't because they have shares. That's why the shares are offered in the first place. To motivate the employee. But it turns out many times those offerings are done in a deceitful manner; the people offering stocks to employees many times know those stocks are extremely unlikely to be worth anything, yet they make a concerted effort to make it appear as if those stocks are worth something.

Investors are protected from deceitful security offerings. Surely you think that's a good thing? Why not apply to all parties?

Literally all I'm arguing for is a more honest (and therefore meritocratic) code in our system when handling the exchange of time for securities, especially in the face of a large liquidity event.

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

#356

Post by superqd » Sat, Oct 26, 2019, 3:53 PM UTC

vsl wrote: post #340

superqd wrote: post #319

Earlier quoted context omitted.

There is a deep flaw in this logic. Person A and Person B are both investing the same amount, just in different forms. Person A converted their 100k into 1 year of time . Person B converted their 1 year of time into 100k of money . They both put in 100k of something , B put in 100k worth of time, A put in 100k worth of money. If we assume a fair market rate for the conversion, then essentially this is a perfect excha…

> and hence should split the reward equally Are you saying that when a company fails, all employees should return their past salaries paid by that company? Because that’s what splitting the (negative here) reward equally with investors would mean.

No, that doesn't mean that at all. If a company fails, investors don't have to return the time they've invested by putting in extra years of work, so it follows that those who invested time wouldn't return the money they received.

Investor A puts in 100k of dollars, the company fails they've lost 100k worth of dollars. Worker B puts in 100k of time, the company fails, they've lost 100k worth of years.

The point is, they are both risking equally, when compared in the same units, time or dollars, but not both. The investor is investing 100k worth of time, and the worker is also investing 100k worth of time. If the company fails, they have both lost that invested time.

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

#357

Post by superqd » Sat, Oct 26, 2019, 4:06 PM UTC

hyperliner wrote: post #336

superqd wrote: post #322

Earlier quoted context omitted.

I agree. The idea that time is not risked as an investment is, IMHO, deeply weak minded. Dollars, when used to purchase labor, are essentially acting as concentrated time. It's like a conversion from matter to energy and back. Walking around with lots of dollars is like holding lots of time, more time than you actually have life. So someone with a lot of money has, in effect, a vault of highly dense time they can chi…

Well, but Person B was compensated for her time. If you hired me to build your house for $100k, and you paid me, and then you sold the house, making a profit of $300k, would you give me $150k? Likely not. I think a better argument is below from 4ntonius8lock, who says that employees were supposed to get (a) $100k AND (b) stock of some value. But employees were not told all the rules under which (b) could be zero.

What is always overlooked is that Person A was also compensated for their dollars. Person A put in 100k and was compensated for those dollars. They didn't trade their 100k for nothing, they traded it for 100k of something of equal value - Person B's time.

Obviously works for hire do not always imply joint ownership. The reason for the discussion is that we are talking about startups built with implied joint ownership. We are trying to infer the equitable joint split for the reward in building something that is implied, often overtly, to be owned by both parties. Both parties in the two person startup are investors.

Most of the things we purchase with money (we spend time to acquire someone else's effort), are sold as someone else's time. If you pay someone to build a house, it's because they were offering that time for sale. This is why software consultants at most startups never get any equity, because their time was already on sale, and was being auctioned off.

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

#358

Post by superqd » Sat, Oct 26, 2019, 4:07 PM UTC

chrismcb wrote: post #313

techsupporter wrote: post #300

Earlier quoted context omitted.

> Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find…

They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.

If they didn't risk their time, then the investor didn't risk their money, since they too got paid for it.

Investors put in money to get something of equal value back: time. That is why there is no difference. Both parties were compensated.

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

#359

Post by superqd » Sat, Oct 26, 2019, 4:12 PM UTC

4ntonius8lock wrote: post #334

greggman2 wrote: post #288

Earlier quoted context omitted.

I'm surprised how many people don't get this part. Person A, investor puts in $100k Person B, employee gets paid $100k Company fails. Person A lost $100k Person B gained $100k This is why person A gets the lion's share of the rewards if the company succeed. Person B risked nothing. Person A risked $100k. The typical retort from Person B is they could have gone to a different company so their risk was to work for this…

I feel sorry for people who value their time at nothing.

I feel sorry for all of us who believe that money is the only thing of value that was traded in the exchange. Which essentially is your same point, I know.

All those who say, "yeah, but they got paid, the investor risked their money" completely see no value in the time that was traded for the money, which, almost by definition, cannot be the case. The money invested was done so in order to be traded for something of equal value - time. But most people do not see this, and consider themselves lucky if the person with the money was "generous" enough to let them have some of the spoils of their joint effort.

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

#360

Post by superqd » Sat, Oct 26, 2019, 4:21 PM UTC

jeremyjh wrote: post #349

superqd wrote: post #325

Earlier quoted context omitted.

I think the problem is that it's often difficult to pinpoint the crux of the unfairness, but still feel it all the same. In my opinion, the unfairness is engendered by the realization that time and money are merely different units of the same thing. Which means the investors are getting guarantees on their invested time, but the folks who did all the work are completely unable to recoup any of the time they invested.…

If the worker is paid for their time, they aren't owed anything for it. If they are taking below market - as I said that may be unfair - then at most their investment is the delta to market compensation. Also, investors puts in all the money upfront; there is a concept called time value of money that applies here, and what it means is that money paid upfront is worth more than a distribution of the same amount over t…

If the investor is paid for their dollars, then they aren't owed anything for them either by the same logic. And they most definitely are paid. Investors are compensated for their dollars because they exchange those dollars for time, just as the worker exchanges their time for dollars.

Whether an investor puts money up front or not is irrelevant, as it is only converted to time incrementally as the time is traded for it. Any excess dollars in the bank can, and frequently are, returned to the investor in an exit. Hence they only trade in dollars to match what is invested in time (when only accounting for labor).