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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

#91

Post by olliej »

JumpCrisscross wrote: post #86
olliej wrote: post #82

I will reiterate my prior statements: if you take a job that pays you (in part) in stock, with no path to sell it pre-IPO, you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you. At this point there have been enough cases where startups have clawed back the shares the…

> you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you If this is your mentality, don't work for a start-up. Employees don't get preferred stock. Founders don't get preferred stock. Your downside protection is your cash salary. Asking for preference as a non-capital…

Based on this article alone anything other than preferred stock isn’t viable. Unless executive have skin in the game - say no executive can make money off a sale of the company or a funding round unless all the employees who have been paid in stock have been given first rights to convert their stock before any member of the executive or founder team. This seems reasonable, as it prevents the founders or executive board from doing what happened here: theft.

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

#92

Post by olliej »

icedchai wrote: post #90
olliej wrote: post #78

Earlier quoted context omitted.

I made a comment along those lines on HN a few years ago, and was told in no uncertain terms that I was unrealistic in expecting to be paid my worth unless I accepted payment in lottery tickets/stock-with-no-guaranteed-conversion-clause. This article further affirms my position: it’s not just founders that got no payout, the employees didn’t either. Cool beans, you work your ass off for a company at below market rate…

It’s charter , by the way... not charta.

Goddammit, I was going “that doesn’t look even remotely right”, but my brain was fighting me the entire way. One sec while I edit the dumbass spelling away and pretended it never happened

:D

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

#93

Post by brudgers »

In some ways, this story sheds light on the philosophical differences between private equity firms like KKR [1] and venture capital. At least when it comes to the fat parts of the Bell curve (and ignoring outliers), private equity investments tend to be premised on gaining control of the companies accepting investment and seek return on each investment. The fat part of the venture capital investment Bell curve (and ignoring outliers) is looking for fantastic returns from a few companies and tends not to seek control of the companies it invests in.

To put it another way, founder friendly private equity is not really a thing and venture capital is a philosophy that is rare outside Silicon Valley (though it has become more common in the last decade or so). Venture capital is playing long odds based on possible future value, private equity seeks to buy current assets at a discount. This sort of outcome would be a hit to a venture capital firm's reputation. It's not an unexpected outcome when private equity invests.

[1]: https://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts

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

#95

Post by olliej »

oh_sigh wrote: post #83
olliej wrote: post #78

Earlier quoted context omitted.

I made a comment along those lines on HN a few years ago, and was told in no uncertain terms that I was unrealistic in expecting to be paid my worth unless I accepted payment in lottery tickets/stock-with-no-guaranteed-conversion-clause. This article further affirms my position: it’s not just founders that got no payout, the employees didn’t either. Cool beans, you work your ass off for a company at below market rate…

Selling for half a billion means nothing if you've taken hundreds of millions in outside funding

Well apparently there was enough cash to pay the current CEO 11 million. It seems that they could easily have afforded a few hundred thousand per employee, and still given an order of magnitude more money to the ceo than any of the employees.

This is theft in all but name.

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

#96

Post by icedchai »

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…

7%... that’s a sad return. They could’ve done better with more traditional investing.

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

#97

Post by JumpCrisscross »

olliej wrote: post #91
JumpCrisscross wrote: post #86

Earlier quoted context omitted.

> you should never accept anything other than the highest class of preferred stock. If the company is unwilling to give you that, then you should assume that their, or their VC, long term plan is to screw you If this is your mentality, don't work for a start-up. Employees don't get preferred stock. Founders don't get preferred stock. Your downside protection is your cash salary. Asking for preference as a non-capital…

Based on this article alone anything other than preferred stock isn’t viable. Unless executive have skin in the game - say no executive can make money off a sale of the company or a funding round unless all the employees who have been paid in stock have been given first rights to convert their stock before any member of the executive or founder team. This seems reasonable, as it prevents the founders or executive boa…

> Based on this article alone anything other than preferred stock isn’t viable

Common stock pays when companies do well. It diverges from non-participating preferred when companies sell for less than their most-recent valuation. Investors get preferences, employees get cash salaries.

> say no executive can make money off a sale of the company or a funding round unless all the employees who have been paid in stock have been given first rights to convert their stock

Everyone could convert their stock. But the stock was worthless. Preferences are obligations, like debt. If a company with $400 million in debt due on acquisition sells for $300 million, should the owners get a pay-out?

> what happened here: theft

If KKR et al hadn't invested when they did, FanDuel would have closed down. This wasn't a tradeoff between employees making money and not. It was a tradeoff between employees (a) losing their jobs years ago and (b) keeping their salaries and having the chance, if the company did well, of making more off their options. They kept their jobs. But the company didn't do terrifically well. The lotto didn't pay out, but HR did.

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

#98

Post by WheelsAtLarge »

yummybear wrote: post #61
WheelsAtLarge wrote: post #53

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 critica…

Well yeah, legally - financially. Still, it doesn't seem "fair".

I bet the founders got money out of the business when the equity firm made its investment. It's common for that to happen. I'm sure they did ok. Even after I know the outcome I would trade places with one of them.

The ones that probably got screwed are the employees that got options thinking they would cash out in the future.

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

#99

Post by brudgers »

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…

The difference is that the returns of a venture capital fund come from the performance of a few portfolio companies. The returns of a private equity fund come from the performance of most companies. Private equity investors, like KKR here, are happy with the 7% premium return because they usually get it from each investment. The 7% return from liquidation preference would be a poor performing investment in a venture capital portfolio. Another way of looking at it is that the hit to reputation that a venture capital firm would take on this outcome isn't worth the 7% return at the expense of founders. The money is in the 10x to 100x deals.

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

#100

Post by JumpCrisscross »

brudgers wrote: post #93

In some ways, this story sheds light on the philosophical differences between private equity firms like KKR [1] and venture capital. At least when it comes to the fat parts of the Bell curve (and ignoring outliers), private equity investments tend to be premised on gaining control of the companies accepting investment and seek return on each investment. The fat part of the venture capital investment Bell curve (and i…

> private equity investments tend to be premised on gaining control of the companies accepting investment and seek return on each investment

Put another way, losing money on a PE deal is terrible. Losing money on fewer than half of one's VC investments is positively great. When FanDuel sold, it didn't have enough upside left to justify pure venture capital. It was a distressed sale whose alternative was closing down shop. In this timeline, employees got a few more years of cash salaries. On the net, they did better with KKR et al than they would have without.

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