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.
Actually, if a company exits at some multiple of the money raised, the common stock will have some value. But it is true that once a company has raised more than 50 million or so things become less likely. That is why I advise people to value their options at zero in terms of financial plans.
> 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.
Again as I have said repeatedly - the ceo got 11 million. It seems that they could have taken less and employees could have taken more.
As far as the employees losing there jobs years ago: if that had happened they would have got jobs elsewhere, maybe jobs that paid them what they were worth.
Other things that make it theft: people who got the biggest pay outs were the ones he rewrote the charter to ensure that the employees got nothing.
This is theft. If you change the value of something you have already used to pay someone, it is theft.
And yeah “it’s a lottery”, but what they did was basically the same as you buy a lottery ticket that says there a 10% chance of winning $1000 if you wait 6 months before scratching it off, and then 5 months later they say “we’ve change the reward amounts, now it’s $100. Except instead of being a lottery ticket it was the employees time, money, and cost from losing out on other opportunities.
In very simple probability terms. The value of stock as payment for employment at a startup is
The exact amount you would accept for working at a startup obviously varies from person to person. You estimate the probability that you’ll be able to sell your stock, based on the details of the company, and offer to work in exchange for what you consider a fair amount. After that the company deliberately changes the probability of you receiving a pay out on the stock you have already been granted. That is they retroactively changed what they paid you.
Also employees don’t get cash salaries, they get a mix of cash and stock. The statement is: we know your time is worth more than we can afford to pay you in cash. So we will accept that you are reinvesting part of your earnings as a capital investment in the company.
The company depends of capital being invested until it is profitable. The stock being granted to employees is because the employees are directly investing their own money into the company.
The difference between employees and VC is the VC have enough ownership of the company to steal from the other owners.
No one takes on more debt / raises more funds unless they have to. If your company needs to raise more capital your stock options are worth exactly 0 dollars. You already lost that bet, because your company isn’t solvent without external funds.
The new investors may give you a new bet, but don’t think your original bet still stands - you lost that when you had to do another round of founding. You should also expect the new bet to be significantly worse than the old bet, because you have no leg to stand on in the bargaining of the terms of the new bet.
The “investors” changed the terms of incorporation /after/ they’d accumulated control of the company, specifically to change the payout rules so that only the VC funding got paid.
Your premises aren’t totally wrong, but your conclusion is off. Value post-founder to pre-IPO equity at zero and if the offer—-all things considered—-is better than any other you have available, take it.
