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FanDuel founders to receive no cash from sale to Paddy Power Betfair

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Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#51

Post by beager »

JumpCrisscross wrote: post #5

TL; DR FanDuel was sold for less than its liquidation preference, so common stock holders got nothing.

Just want to say thanks for jumping all over this comment thread to explain liquidation topics and scenarios. I'm alarmed how much folks who get into startups don't understand these things, and lament how much I still don't know about it all.

Then again, so much of startup culture actively conspires to make deal structure/cap tables/liquidation preferences opaque, because nobody wants to say "Hey, come work for this startup for 2σ under market salary and x% equity. Never mind that the equity will get crazy diluted and a liquidation event might get cleaned out before it ever gets to your end of the table. That is, if a liquidation event ever happens!" So I don't feel totally ignorant about not understanding it, just yearning.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#52

Post by antonvs »

wand3r wrote: post #4

“Answer this survey question to continue reading the article”. 1. This is terrible UX and while I understand the need to make money this roadblock does nothing but increase bounce rate. 2. “Continue” is pretty deceptive unless you count the article headline as part of the article. 3. I assume this survey is trash but I am going to take it as an experiment then report back. 4. I wish HN would develop a policy on artic…

The survey didn't come up for me. That kind of thing makes policies against this more difficult.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#53

Post by WheelsAtLarge »

Just because you founded a company, it does not mean you get a cut of the final sale.

Starting a company is hard. You can struggle to make it profitable, never get there, and end up deeply in debt years later.

Fanduel became relevant mainly because of the marketing it was able to purchase without that it would have fallen by the wayside. You need lots of money for that.

The founders must have needed cash at a critical time so they must have had a reason to put their shares second to the shares of the equity firm.

It makes no sense to feel bad for them. They knew what they were doing and they got more time out of the business than they would have gotten otherwise.

Yes, it's not the greatest outcome but it really is,"just business."

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#54

Post by verbify »

_bxg1 wrote: post #49
verbify wrote: post #48

Earlier quoted context omitted.

FanDuel founders = The founders of FanDuel To receive no cash = will not receive any money From sale to = as a result of the sale of (FanDuel) PaddyPower Betfair = to the company Betfair, which itself is owned by PaddyPower The founders of FanDuel will not receive any money as a result of the sale of FanDuel to the company Betfair, which itself is owned by PaddyPower.

I figured it out, I was just making a lighthearted joke

I'm another victim of Poe's law.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#55

Post by hn_throwaway_99 »

JumpCrisscross wrote: post #5

TL; DR FanDuel was sold for less than its liquidation preference, so common stock holders got nothing.

I always wonder, though, that (usually) a good percentage of the value in these deals is the institutional knowledge of the company. The purchasing company better know the amount of ill will engendered when connected leaders like the CEO make out like bandits while everyone else gets screwed can have a serious negative effect on the value of the company.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#56

Post by xchaotic »

greglindahl wrote: post #35
Bahamut wrote: post #11

Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.

If you like lower risk and lower gain, sure. The most important thing is being educated. Every time this topic comes up on HN it appears that many people are unaware that liquidation preferences are a thing and many sales that are down-rounds have no money falling on common.

If it really was lower gain then sure. But as it is, on average, startups give you more chance of ending up with nothing but an entry in a CV.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#57

Post by startupdiscuss »

greglindahl wrote: post #32
startupdiscuss wrote: post #30

Quick math here: “the aggregate value being paid for FanDuel “is approximately $465m”.” “2014 and 2015 respectively led $70 million and $275m” (345 million) “Mr King is expected to receive a payment of up to $11.3m as a result of the Paddy Power Betfair deal. The firm’s current chief technology officer Robin Spira is due to make up to $3.5m, its legal officer Christian Genetski stands to make up to $6.2m, and it chie…

Also note that the retention bonus total is known to be at least 5.5%, it's often the case that up to 10% of the purchase price in these "no money falls on common" deals is paid out to make sure that the deal closes.

Yes, and there are often transaction costs. The bankers that introduced the buyer to the seller, the lawyers that have to go over the deal terms, and the accountants and due diligence people.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#58

Post by nraynaud »

greglindahl wrote: post #35
Bahamut wrote: post #11

Stories like this seem to validate that people should choose real liquid equity of public companies over the paper equity of startups when considering employment.

If you like lower risk and lower gain, sure. The most important thing is being educated. Every time this topic comes up on HN it appears that many people are unaware that liquidation preferences are a thing and many sales that are down-rounds have no money falling on common.

employee stocks are engineered to be lower gain (impossible to sell, liquidation preferences etc.), take the cash and use it to take some risk you can control. You like risk? take the money and go to Las Vegas.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#59

Post by paulsutter »

JumpCrisscross wrote: post #12
21 wrote: post #7

I'm sympathetic towards regular people people being legally scammed by nasty contracts, but how did that happen here? This was not a clueless Joe being forced to sign a non-negotiable contract with a giant company. Presumably those clauses and investment contracts were negotiated between lawyers of both parties. Why did they accept such clauses?

> Why did they accept such clauses? They're super standard and for the most part make sense. Liquidation preferences say if your firm is worth $90 million, and I invest $10 million, I get my $10 million back before you ( i.e. the common stock holder) get anything. If the firm sells for $200 million, I get $20 million and doubled my investment. If the firm sells for $20 million, I get $10 million back and the common s…

You're describing participating preferred (that is, investors get paid out once as preferred and again after conversion to common). A liquidation preference is more common than participating, where the preferred investors get paid out (for example) at least 2X their investment (can be any multiplier, the highest I ever heard was 5X).

Most investments in Silicon Valley are clean deals, with a liquidation preference of 1X and nonparticipating preferred. Companies without a clean deal usually were too thirsty for unicorn status ($1B valuation) or had difficulty raising money.

Re: FanDuel founders to receive no cash from sale to Paddy Power Betfair

#60

Post by walshemj »

kenneth wrote: post #45
naturalgradient wrote: post #19

Can someone familiar with the current funding climate say if standard deals at all levels involve liquidation preference nowadays? As in, if Im considering a seed-round, will there be any sophisticated investors doing no preference? Have talked to some investors in the scene (UK) but cannot seem to get a clear picture on this. Is declining to accept a liquidation preference at seed level a red flag for any serious in…

As an investor who invests at the Seed to Series A stage, I can tell you that a non-participating 1x liquidation preference is standard. I would refuse to invest in any deals that didn't include it, but won't be asking for anything more. I think it's a pretty fair term. It prevents investors getting screwed by a sale for less than the round valuation, which could look quite attractive to a founder who could get their…

In the USA or UK ?

The UK tends to have stronger protection for employee shares -not that there haven't been some dodgy deals BAXI getting taken over by carpetbaggers and screwing the owners is a well know case in the UK.

And I have been on the receiving end of losing $1,000,000 at Poptel if only ICANT weren't such a bunch of ass%^&&S and the CoOp had been a bit more tech savvy - still water under the bridge.

Poptel was a worker co op btw so I had .5%

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