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This is a badly inaccurate description of how liquidation preferences work, both mechanically and also with respect to what's "market."

First, it's exceptionally unusual to see anything more than a 1x liquidation preference (i.e. investors receive their initial investment back before anyone else gets paid) among well-funded companies. It's somewhat common to see a 6-10% interest rate added on top, but a 3x liquidation preference is the VC equivalent of a payday loan.

The other component is whether the liquidation preference is "participating" or "non-participating." The easiest way to think about that is that a participating preference receives its initial investment back out of the sale proceeds, then shares in the remainder of the profits alongside the common stockholders. A non-participating preference is like a "greater-of" - basically downside protection in the event that the company is sold for a much lower than expected amount.

Suppose Jet's received $800m in funding like you said, and suppose the investors have gotten pretty aggressive terms - call it 6 rounds of funding that each took 20% post-money, all of which have a 1x liquidation preference and are getting 10% interest. Let's say the interest takes the preference to $1 billion because we're more or less making up numbers at this point, but we're in the right ballpark.

So the common stockholders (founders and employees) own 26% of the company at this point (.8^6), and a billion dollars comes off the top of the $3 billion sale amount. The common stockholders would therefore receive about $520 million.

The Walmart stock is publicly traded, so it's a lot like getting cash (though it may be subject to a short lock-up in a deal like this). Companies like to do combination cash/stock deals for a variety of reasons.

> First, it's exceptionally unusual to see anything more than a 1x liquidation preference (i.e. investors receive their initial investment back before anyone else gets paid) among well-funded companies

I've had options zero-out because the company, after investing with absolutely no preference given (which was part of what induced me to join), they took another round with preference funding at greater than 1x.

By "zero out," do you mean they were previously valuable and then dropped below their strike price after accounting for the > 1x preference? That sucks and I'm sorry it happened to you. It's still pretty unusual though.

Curious to hear - were any of the following factors in play: (i) the company was struggling to stay afloat, (ii) the company was located outside SF/NYC, (iii) the company had less-experienced founders?

The company was sold and my purchased shares were worth $0.00.

The founders had secured, until I joined, funding coming in without any preferences at all, or so management told me repeatedly. I don't know when that changed, or maybe management was lying to me all along.

Might be worth suing?

Another data point, I worked for a biotech that had to take a down round with 3x participating..

> For a company that needs hundreds of millions of dollars and is trying to beat Amazon? Let's say 3x.

Jet.com raised its A, A1, B1 and B2 with 1x liquidation preferences. Common will get a pay-out.

Since all of Jet's preferred stock is non-participating, their holders will probably receive a dividend, convert to common and then participate alongside everyone else. (All Jet preferred stockholders get an 8% dividend except A1, who got a flat 48¢ per share, so that's a bonus $45 or so million to preferred.)

If no employees get anything, why wouldn't they organize and threaten to quit together (leaving Walmart buying the name, a founder or two and some technology with nobody to run it) to try to stop the deal? Isn't the whole idea of accepting 1/2 salary at a start-up because of your glorious equity? Whenever I hear about these "deals" where employees end up with nothing or close to nothing, I wonder what they are thinking. Why accept that?

EDIT: I suppose if the alternative is "run out of money next month and everyone's fired anyway", then worthless equity and a possible job maintaining that code at Walmart doesn't sound so bad.

I've met plenty of startup employees who've spent years educating themselves about programming and <10 minutes reading about equity, stock options, etc.

When Myspace got bought by News Corp, some employees got almost nothing(people who came from intermix) and some got nothing(people who join myspace directly). Lots of employees left afterwards. There's a book about the whole deal called "Stealing Myspace".

There are fairly few F# jobs going around and Jet pays decent $.

It's not likely anyone is accepting 1/2 their market salary. Lots of companies are paying top dollar market only to be slightly less than Google.

Seemed like the founder worked hard to make it a nice place to work. Maybe they just like working there? :)

What you just described is basically unionization.