I have to say that I've been surprised by the reaction to this story on HN. I think the behavior of Skype's owners and executives was revolting and (echoing PG's comment on the other thread), not at all common from what I've seen & heard in my career.
I think there is also at least one clear lesson. First and foremost, choose who you work with based on their character. I think if you're across the table from Silver Lake, Tony Bates, Brian O’Shaughnessy or (as much as I hate to say it) Andreessen Horowitz, you should build in a significant "character multiple" based on how they acted here. You should also have MOFO or another top legal team on your side. If you're an engineer at any company any of these people are invested in, you should also be reading your contract extremely carefully, perhaps also with legal help. Having options that vest with "no value" is just absurd.
I'll note that I have no stake in this whatsoever, but it just makes me sick. My partner and I sold our company (for a tiny fraction of this deal's value) and spent a significant amount of the deal time negotiating on behalf of our employees after eliminating buyers who we wouldn't want to work for or didn't fully trust to take care of them. I don't want to portray us as saints (we're not, but we both highly value our reputations), but it was the right thing to do and most people I have worked with would do the same.
We're in an amazingly tight market for engineers right now. Please, choose your employer very carefully based on their reputation.
I worked for start-ups from my first job on up to three years ago (that's 10 years, because I am old). I have worked 60, 80, 100 hour weeks sometimes. Each of the start ups in which I was an engineer were successfully acquired. The owners got millions in each case, I got a net payout over the course of four start-ups of about 15 grand. Not 15 grand each, 15 grand total. Sometimes I think about what a fool I was, and how much more money I could have made working for large companies at market rates, instead of killing myself for substandard salaries, even though there was some "love of the game" involved.
Why is it that we need to exploit people in this game? Especially young engineers or execs with their first VP experiences. Some people get rich, most people are pawns.
Funny thing...the startup where I'm working is about to face this exact situation. If the acquisition being planned does happen, I'll probably gross a few grand and that's it.
As the only software engineer in the startup I've apaprently been identified as a key person in the move. I'd like to think this gives me some leverage, it would take them 3-4 months to find a replacement and get them up to speed. It was my work on early customers and technology demos that helped land the deal, yet I feel like none of that is being recognized.
The only thing you can really negotiate at this point is a "retention bonus." So my advice is to negotiate a bonus for 3-4 months that is as close to your annual salary as possible. I did something similar with my last company, but I didn't hold out for enough compensation. In hindsight, the deal would have folded without me, but I wasn't confident to ask for enough.
In fact, here's a note to founders: if you promise your employees a year's salary in case of acquisition, your people will stay with you. Say you offer that in conjunction with options, you are already a better employer than 99.9% of other founders.
If you are really a key person in the acquisition, then the whole thing could fall through if you walk away. That should give you a lot of leverage. Speak with the CEO and a lawyer to make sure you are represented fairly. "Fairly" could have lots of interpretations here; what I mean is in line with the intent of your original agreement (no shady buy-back of vested options). Negotiating a retention bonus also seems fair.
> It was my work on early customers and technology demos that helped land the deal, yet I feel like none of that is being recognized.
You've already gotten whatever compensation you're going to get for that work. If they think that they'll need more of that going forward, your next deal should reflect that.
> As the only software engineer in the startup I've apaprently been identified as a key person in the move.
Why do you think that you're a key person? Seriously - being the only software engineer isn't enough.
> I'd like to think this gives me some leverage, it would take them 3-4 months to find a replacement and get them up to speed.
If you're really key, the acquirer should be negotiating with you, not them. (I'm assuming that you don't have an employment contract that your current company can sell.)
Think about things from the acquirer's point of view. Your current company doesn't actually know what it will take to keep you around.
And from your point of view, is your current company really going to care what kind of deal you get?
All really really good points. Thanks for the reality check.
I know I've been identified as a key senior person in the organization from seeing some documentation that is being used in the negotiation. I was also handed a second round of preferred stock right before the talks started. There was no explanation given, but I'm guessing it was meant to temporarily keep me happy.
I realize being the only software engineer isn't enough. It our company was a web-based concern, especially so. (We're in manufacturing). Like I said earlier, I know they can find a replacement but it would steal momentum which is something the acquirer wants.
What I'm most uncertain about is how the transition will take place. I know one day we'll just be told to show up at a new office and ohOneMoreThing here's your new comp package which has been decided for you kthxbye.
I'm pretty certain the acquirer won't be approaching me. To them we look like a turnkey operation. My current company knows what it will take to keep me around because I told them so. Whether or not it's communicated upward is my concern.
> I'm pretty certain the acquirer won't be approaching me. To them we look like a turnkey operation.
Huh? "turnkey operation" does not imply "won't fall apart if the wrong people leave".
> Whether or not it's communicated upward is my concern.
Then you're hosed, going to feel used, ....
You're the only one who cares whether you get what you deserve. If you don't care either, then no one cares.
Note that the sellers want to argue that you aren't essential, because if you are, the acquirer needs to take care of you. Taking care of you increases the cost of the acquisition. (That can put the deal at risk and can reduce their payout.)
No, an earnout clause doesn't change their motivation wrt you much.
Take my contract to a lawyer and see if I have any of the leverage I "think" I have. I suspect you don't have much.
Basically if you are working for a startup, (or any company where you are building sweat equity), and your employee number is larger than 2, then you had better have what you think you are getting spelled out specifically in your contract unless you really don't care.
That said, I don't think it's that people are "out to get you" as much as they are usually rather focused during a transition on making sure they themselves are taken care of.
The leverage in this case has nothing to do with the specific employment contract and everything to do with the market for engineers right now. I suspect that having the only engineer who understands the code threaten to leave right before an acquisition actually does constitute significant leverage.
I second the advice to ask for a retention bonus. Cash compensation is the easiest way to ensure that no shenanigans can take place.
Long story short I'm definitely in an "at will" state, my employee # is higher than 2, and while I've received a small amount of restricted stock that will vest immediately upon takeover, it won't be worth much and I believe there will be an earn-out to stretch that value over a way longer period of time. So pretty much nothing of value.
If we do this deal we're all pretty much going to be slotted into the new company with predetermined titles and salary. I've already made my case to the CEO of where I expect to land on both parts, so I'm sure he knows what I'm thinking. I have absolutely no qualms about leaving for another job, so it's his choice to make. We'll see what happens.
I just don't know if there is anything else I should be doing at this point. I could make a lot of noise and make things very uncomfortable, but in the end that will probably only hurt just me.
My thought was to press for a retention employment contract, but perhaps just a retention bonus is the way to go.
Yes - this happened to me three times in my early 20-somethings.
Sadly, with the tech media reporting on all the riches being made these days, I expect it happens even more often now. It's so easy for one to be overly trusting and conned while blinded by the huge payout mirage up ahead.
I hope the Skype fiasco at least brings more awareness to the risks.
>"The key thing here is that Microsoft is going to be the company that is left holding the bag."
It's not as if Microsoft is getting a company gutted of people with technical expertise or domain expertise - and the key assets of brand, infrastructure, and technology are not being affected.
Looking at the people who have been reported to be affected by this, it is hard to see any key personnel involved. Yee Lee appears to be just another employee and the executives alluded to were at least in large part, fairly recent hires; and none of them were founders or early employees - any of those who were eligible would almost certainly have cashed out in 2005 when eBay bought the company (and potentially cashed out again when Silverlake purchased from eBay).
I would suspect that most employees who stick it out through the acquisition are looking forward to the differences of workplace environment which will come with the transition from a private equity culture to Microsoft's corporate culture.
This story seems to have traction on two fronts, both as a Microsoft bashing peace and as a cautionary startup tale neither of which is accurate: it is unreasonable to imply that they could (let alone should) have made Skype's existing employee stock purchase agreements a point of negotiation. Likewise, Skype is not a startup. It's the Jeep of the digital age - Skype has been little more than an asset within a portfolio since 2005's purchase by eBay.
I disagree that the key asset of brand is not being affected. Skype's name is definitely being dragged through the mud. It's pretty much a certainty that Microsoft would not want to buy a company that people would feel embarrassed to say they worked for. Microsoft's senior management is already under the cloud of being perceived as screw-ups. This must be really pissing them off.
The power of the brand with whom? Engineers or consumers?
I can guarantee that not a single person on my Skype contact list will be aware of this story; and many will probably have forgotten that MSFT are in the process of buying Skype in the first place.
i think you are a bit naive - more likely that skype and microsoft competitors make sure that all the skype users and programmers know how bad skype is ,
>it is unreasonable to imply that they could (let alone should) have made Skype's existing employee stock purchase agreements a point of negotiation
If Microsoft knew that Skype's agreements exposed them to significant legal liability, which now seems the case, they would have made it a point of negotiation.
<IANAL>I don't see any meaningful legal liability for Microsoft there. </IANAL>
Microsoft might have some financial exposure which presumably they have covered - and of course it is not in Silverlake's interest to create poison pills because the relatively small profits are unlikely to balance the financial exposure from a potential Microsoft lawsuit. Not to mention that it is almost certainly in Silverlake's interest to get the deal closed, deliver profits to the LP's, and move on to look for new investments.
I would expect nothing better from a PE firm in a restructuring, but I'd like to see Andreessen Horowitz (and ideally also Microsoft) respond to this. a16z's reputation among top-tier hires at portfolio companies (and thus their reputation with entrepreneurs) is worth more to them than their gains from the Skype deal.
They didn't own 100% of the company; probably more like 5-10%. So it's really less than 1x on one of their funds at stake here.
Plus, it's not like it was "do this deal like this, or walk away entirely". What is at risk is either the $100-200mm to fix the options concerns for everyone, or at most, the breakup fee for this deal with Microsoft. Skype probably could find another buyer, even without the Microsoft deal.
Maybe Microsoft overpaid by 2x their nearest competitor. So, a16z only made $200-400mm on this vs. the best alternative (and really, I think it's less than 2x).
The reputation of a top multi-stage fund is worth more than $400mm for sure.
This is a great chance for Google to take over the market with an open source VOIP alternative. Microsoft has already started driving Skype into the ground, and if Google can integrate their new service well with Android, they would have a good shot at establishing themselves.
I have been using Google's Voice&Video chat exclusively since the day Microsoft announced the Skype purchase. Compared to skype, the experience is horrible. The audio and video quality is sensibly worse, the number of random disconnections and video freezes is pretty high. After a few minutes there is a noticeable lag in the voice connection, which gets higher with time. The general audio quality is worse then I remember having with "Speak Freely" back in the 90s, while I used a dial up modem. The Firefox plugin randomly refuses to work, and returns also random numeric error codes. Skype had, in my experience, none of these issues. Everything "just worked". Google is far, far away from that. All in all, it is so bad that it should be embarassing for Google to have it associated with its name.
The only thing going for Google is that it is, after Skype, the only cross-platform voice&video offering existing on the market.
Huh. I switched to Google Video for speaking with my parents on the other side of the world, because Skype video just plain stopped working for some weird reason. It's slightly better both in terms of sound and video, and so far I've experienced less stuttering and freezes.
For this same reason, I continue to use Skype. However, the technical issues you mentioned are nothing to Google if it puts its mind to it. The difficult part is getting a userbase that justifies those efforts. This period of market instability is the perfect opportunity to do so.
I dunno. Google's already had bright minds working on it for some time. Trying to do it in a browser will probably always be inherently problematic. Why they don't launch a standalone "Google Voice and Video" client... if there's an opportunity there, and they really want to own it, that'd be the route they should go, not more browser-plugin stuff.
Heck, perhaps this is part of what facebook's recent spate of desktop-engineer-hiring is going after?
Part of what I see is that Google does not have a good model for making Google Voice profitable given their revenue model because it doesn't drive eyeballs to Google search and the advertising customer base, and because datamining the communications of Google Voice's users for the sort of keywords and profiles useful for search has a huge potential for social blowback - imagine how some people would react to web page ad placement based on last night's booty call - not to mention the possible legal problems given the diversity of wiretap laws, e.g. state by state in the U.S. never mind world wide variations.
[Edit] Given changes in Google's leadership and the apparent emphasis on core function which seems to be underway along with the limited rollout which Google has done for Voice, I would not be surprised if it is destined for the same fate as Google Health over the next few years.
I have far better experience with Google Voice quality when calling phones, but also find it disconnects with gvoice-gvoice so prefer Skype when possible. But with Skype-Skype calls, video conferencing etc and the ease of use with older family members, Skype has become so useful quite frankly I'm afraid that if Skype dies we'll put thrown back into the land of having no single point of guaranteed communication between all types of computer users. I hope that Skype succeeds for this reason alone.
The Microsoft and Skype deal just received regulatory approval on June 17th from FTC. There may be still be other regulatory hurdles to still pass in other regions.
The events in the article happened before that and it is unlikely that Skype would receive direction from Microsoft prior to closing.
Further, this is not Microsoft's first acquisition and the pattern is more consistent with PE than Microsoft.
If you have evidence to the contrary, I'd be very interested.
Technology is only one part of a solution. And in this case arguably a small one. The reason people use Skype is because all other people are on there. It's also synonymous with voice and video calling. Owning a "position" is an other important value.
Facebook seems like the only company that can bring a real network of users to something like this. Google has GMail, but they haven't been able to translate it into any type of social experience at scale.
Interestingly, Facebook is another player that also uses XMPP for messaging. If they really wanted to get into the VOIP game it would be relatively trivial for Facebook to roll a client, implement federation and allow the network effect to run wild.
Agree Facebook is the player that could be a serious competitor to Skype.
But their strategy would indicate that they wouldn't implement federation. They would create their own closed system. Facebook is all about growing the value of their social graph, but with very limited interconnection or federation.
I am a little bit surprised Microsoft seems OK with this. I believe they still can take a stand and tell Skype management they are not going to get away with this.
Also, "Upon the launch of the iPhone 4, Jobs promised that Apple would work in due course with standards bodies to make the FaceTime protocol an open standard." (http://en.wikipedia.org/wiki/Facetime)
I wonder if this is a side-effect of (relatively) high engineering salaries. Financiers say 'ok, fine we can take paying $100k a year because we can write out your options at will.'. It may be a wider symptom of VC starting to attract more cut-throat PE firms.
I think there is also at least one clear lesson. First and foremost, choose who you work with based on their character. I think if you're across the table from Silver Lake, Tony Bates, Brian O’Shaughnessy or (as much as I hate to say it) Andreessen Horowitz, you should build in a significant "character multiple" based on how they acted here. You should also have MOFO or another top legal team on your side. If you're an engineer at any company any of these people are invested in, you should also be reading your contract extremely carefully, perhaps also with legal help. Having options that vest with "no value" is just absurd.
I'll note that I have no stake in this whatsoever, but it just makes me sick. My partner and I sold our company (for a tiny fraction of this deal's value) and spent a significant amount of the deal time negotiating on behalf of our employees after eliminating buyers who we wouldn't want to work for or didn't fully trust to take care of them. I don't want to portray us as saints (we're not, but we both highly value our reputations), but it was the right thing to do and most people I have worked with would do the same.
We're in an amazingly tight market for engineers right now. Please, choose your employer very carefully based on their reputation.