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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)

#61

Post by lagt_t »

pclmulqdq wrote: post #11
BobbyTables2 wrote: post #9

I’ve always wondered what it means to be a “founder” when it is done with everyone else’s money. Are they not just effectively employees at that point? I fear such abuse of such just feeds a narcissistic species that focuses mainly on executive headshots and snazzy websites. Too many startup websites scream, “look, we have a website, $$$ millions, and an executive board — we’re all grown up now!” without actually hav…

Having bootstrapped and also founded VC-backed companies, the VCs are effectively making you an employee. But you get to gamble some of your paycheck, so it's a bargain a lot of people are interested in. A lot of my friends who are in the VC space see "X person sold company Y for $500 million" and sort of assume that X made at least $100 million from that transaction, when they very often didn't. The bootstrapping/sm…

After all these years of VC funding, I can't believe there is still "street cred" attached to it. Not contradicting you, I'm just flabbergasted people haven't caught on their track record.

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

#62

Post by jv22222 »

> Lessons Learned: Build a Very Fundable Startup

> Every founder should learn from this disastrous scenario the importance of building a very healthy, fundable startup. A healthy, vibrant startup draws more investors during fundraising. The competition gives founders the leverage to negotiate for more founder-friendly terms. Healthy startups get better valuations, better terms, and raise funds with much less effort.

Hmm. The lesson I learn from that is to bootstrap/self-fund, rather than get investment in the first place.

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

#63

Post by paulddraper »

Finbarr wrote: post #33
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.

That is the standard and anyone not in a firesale should expect that m

But the reason you raise is because you can turn each dollar into 1+ dollars of enterprise value.

If you raise and don't spend... You've accomplished nothing except throwing some money at lawyers.

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

#65

Post by Finbarr »

paulddraper wrote: post #63
Finbarr wrote: post #33

Earlier quoted context omitted.

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.

That is the standard and anyone not in a firesale should expect that m But the reason you raise is because you can turn each dollar into 1+ dollars of enterprise value. If you raise and don't spend... You've accomplished nothing except throwing some money at lawyers.

Sure- the happy case with VC is that companies raise and spend the money to make more. The reality case is that many companies struggle to do that, and will burn a ton of money in the process, making the liquidation preference much more painful.

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

#66

Post by aetherspawn »

jv22222 wrote: post #62

> Lessons Learned: Build a Very Fundable Startup > Every founder should learn from this disastrous scenario the importance of building a very healthy, fundable startup. A healthy, vibrant startup draws more investors during fundraising. The competition gives founders the leverage to negotiate for more founder-friendly terms. Healthy startups get better valuations, better terms, and raise funds with much less effort.…

Yeah I have a small business and I sway strongly towards being contempt with letting the business grow at its own rate.

No, it won’t have a 1 bil payout, but you make your own rules and you’ll get a healthy cash out from the dividends after only 1 year or so.

It also forces you to keep pivoting and finding a cash cow rather than assuming your initial plan was any good. We’re on like plan #10 now and in hindsight if we went with any of our original plans we’d still be burning money whereas current plan was profitable after just 1 month once we figured it out.

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

#67

Post by ojbyrne »

dheera wrote: post #39
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 shoul…

First thing I thought of after reading this - I wonder did the existing founders/employees get something like this? I suspect at least some of them did.

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

#69

Post by exogeny »

FanDuel is going to do like $6B in revenue this year. This entire story above happened for three reasons:

1. The CEO made terrible decisions in regards to how much and who they raised from. They got in over their hands as the company grew and the entire founding team got fired.

2. The CEO immediately after, who took over an unprofitable business that wasn't growing and was in bad shape after the merger with DraftKings got called off, took a deal that was the best he could do at the time. That CEO was a non-founding CFO before taking over, and was basically put in the C-Suite by KKR as a term of their investment in the business.

3. That deal to PaddyPowerBetfair, now Flutter, was completed about a year before PASPA was repealed and sports betting was legalized in the US. Had #2 happened a year later, or if #2 had happened with that information in mind, the deal terms would have been insanely different and way more valuable.

It's very easy in retrospect to say that the original CEO should have taken different terms, or that the following CEO should have taken a better deal. That's all hindsight.

All that said, I have zero sympathy for the original CEO and founders. I feel loads of sympathy for the employees, but again, if they stayed on after the deal, they're now sitting on an absolute gusher of cash.

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

#70

Post by exogeny »

throwaway4736 wrote: post #18

The CEO who signed all of those term sheets is STILL crying, like five years later, about how badly he supposedly got hosed, as if someone else’s signature is on all of those documents. It’s pathetic.

You're the only person in this thread so far who seems to have a clear understanding of who is the one to blame in this story.
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