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.
It may not seem 'fair', but the reality is that the company that the founders had equity in died in the 2015 round of financing. It was replaced with a company which needed to make a big bet (lots of ad spending) to stay strong in this particular market and the bet did not pay off. If you take $200M+ of financing then the people writing the check are expecting you to exit no lower than $1.5B -- ~$500M is, to use the parlance of this particular company, a single when the team needed a home run.
If it doesn't seem fair, it usually isn't. Maybe not even if founders knew this could happen and accepted it willingly (which I doubt they did). This is just the more powerful and experienced squeezing out the weaker ones to grab as much profit as possible.
It was completely fair if you actually look at the probable course of events. In 2014 FanDuel needed money, a lot of money. They had a valuation approaching a billion but were losing ground to DraftKings and as the space was heating up they needed to grow fast. What probably added urgency to this need to grow was that both companies were starting to court various teams and leagues for partnerships, and no one wants to partner with the also-ran. FanDuel picked up the NBA and a handful of NFL teams, but DraftKings got the NHL and NFL (and the NFLPA) so DraftKings was still pulling ahead. Then in late 2015 New York and other states put the brakes on the entire industry by declaring it illegal sports betting. FanDuel has just accepted a big chunk of money and now their ability to continue operating was suddenly called into question. I have no idea what choices they made at this point, but it is pretty clear they made the wrong ones. An attempted merger with DraftKings was called off when the DoJ indicated it had anti-trust worries, and since 2016 when various state laws were changes it seems DraftKings has tacked hard into becoming an online sports book with partnerships with various casinos (including several in New Jersey, which coincidentally is challenging the constitutionality of the national gambling restrictions in the Supreme Court) while since 2016 we see a whole lot of not much from FanDuel. My guess is that when the DraftKings merged died they started spending the war chest trying to buy growth with an eye towards an exit. This is also when new management stepped in, so it is possible that the investment round was a proxy investment in a potential DraftKings buyout and when that died the company had to start looking around for a fast exit.
And please spare us all the 'powerful' squeezing out the weaker BS; the FanDuel founders would have had incredibly high-priced legal counsel for an investment round of this size and knew exactly what the upside and downside was for every possible variation of success.
> (including several in New Jersey, which coincidentally is challenging the constitutionality of the national gambling restrictions in the Supreme Court)
An update on that: New Jersey won, 6-3, with Kagan joining the conservative wing of the court in this majority. The conclusion is that Congress and the states each have concurrent power to regulate sports gambling. Congress hadn't actually done that directly, but rather had banned states from legalizing it. That's been struck down.
Can the founders fairly ask for a cut of proceeds they didn't contribute to? It was the marketing money spent, not the engineering or the idea that made the business saleable. So the people that put their money at risk get their return (7% - barely more than a money market account), and the founders get salary.
