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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)

#81

Post by whiterknight »

lumost wrote: post #34
AndrewKemendo wrote: post #30

Earlier quoted context omitted.

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.

Hold treasuries?

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

#82

Post by thenoblesunfish »

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…

The first time I was strongly considering a startup I had to essentially treat the options as worthless. Both because of the usual fact that most startups fail, but because of stuff like in the article: I couldn't convince myself in any way that there wouldn't be people ahead of me in the line if the company was sold, despite the fact that the founders themselves seemed totally honest.

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

#83

Post by smurda »

This is happening more now.

Liquidation preference was included in 20% of all Series B-E Silicon Valley venture financings in Q3 last year.

When a company is not doing well and there are no other investors who will finance the next stage of the company, investors have the leverage and can include a liq pref and drag along to force other shareholders to sell.

https://assets.fenwick.com/banner-images/Silicon-Valley-Vent...

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

#84

Post by aledalgrande »

justinlloyd wrote: post #45

I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has…

Leave my dude. You'll be better off

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

#85

Post by b112 »

petesergeant wrote: post #16
ackbar03 wrote: post #10

of course, hindsight is 20/20, but... Why did they accept the deal with the investors?? That seems like a horrible deal? Google search shows they only raised $416mio total, roughly speaking anything above that and below $559mio the investors could have accepted, pocketed a quick and tidy profit, screw everyone else, and nobody can do anything about it. Or is that too naive of me?

Because the founders assumed they'd be able to turn the money invested into more than a 2x return

Indeed. And the founders agreed to this, and to the liquidation preference too. They knew the terms, knew what they were getting, and could have decided to not engage.

(They took millions, and surely must have engaged an excellent lawyer and sought advice, right? So they knew, or should have known.)

I agree that this can suck, but at the same time... would anyone be sad for the investors if they lost it all too? At least the founders and employees likely received some form of salary.

If anything, it is the employees that are out. The founders negotiated these terms, knew of what they committed to. The employees took options, likely without full optics into all of this.

edit: other parts of this say the CEO agreed to the terms, after the founders were pushed out. Still, what I say stands. The employees are the ones losing here, everyone else had optics into what the deal was.

Something to always think of when an employee and being offered terms. Insistence to know the funding arrangement seems key. Even perhaps the contractual option to be able to get your shares out, cashed, as part of any new funding deal seems prudent.

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

#86

Post by whiterknight »

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.

And why would the technicalities of the contract make any difference to the sentiment of not being paid for your work?

Situations evolve. You hope you get the contracts right, but you also hope you have trust to work with people as they do.

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

#87

Post by justinlloyd »

whiterknight wrote: post #78
justinlloyd wrote: post #45

I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has…

Are we working at the same company? :)

Probably. :)

Look to your left.

And whatever it is you do, don't blink. Don't. Ever. Blink.

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

#88

Post by throwawaysleep »

justinlloyd wrote: post #45

I am currently working with a start-up where the company is incapable of meeting its capex obligations. The founder raised a good amount of capital from investors a few years ago, and that provided a decent runway, but there's no traction, no KPIs, and whilst we've built some impressive technology, impressive technology does not bring in revenue. One of the problems (amongst many) is that the primary stakeholder has…

> I swear, some entrepreneurs must think I stepped off the boat yesterday.

Or can be bullied into accepting, even if you aren’t clueless. I do know people like that. Conflict is more painful than loss.

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

#89

Post by esafak »

smurda wrote: post #83

This is happening more now. Liquidation preference was included in 20% of all Series B-E Silicon Valley venture financings in Q3 last year. When a company is not doing well and there are no other investors who will finance the next stage of the company, investors have the leverage and can include a liq pref and drag along to force other shareholders to sell. https://assets.fenwick.com/banner-images/Silicon-Valley-Ven…

Great document, but I could not find any mention of "drag along".

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

#90

Post by b112 »

exogeny wrote: post #69

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 DraftKing…

You know #3 is curious to me. I wonder what sort of optics the investors had on this, and if there were side deals after the forced sale.
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