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Comment by specular | Hacker News Reader

Very difficult to answer this with specificity, but in general there are a number of factors that influence the amount of cash you ultimately net from a sale, including:

- Cap table: what % is owed to other founders, investors, employees, etc?

- The total acquisition price may include substantial legal and other fees that will lower the actual amount received by the owners or shareholders.

- How much of the acquisition is financed through cash vs. equity? Equity may vest over a certain time period, and be subject to certain requirements (your sustained performance, ability to clear legal scrutiny, etc.).

- Taxes.

Taking all of this (and probably more) into consideration, it doesn't seem unreasonable for a founder to ultimately net <10% of the total sale price. Again, this is all wild speculation in this particular case.

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His company existed for a seven months in 2016 before being bought by Uber. It isn't clear (to me) if there were third party investors or what the cap table was, broadly. Purportedly 90 employees at time of sale to Uber.

I don't know what the CGT situation is in America, but in Australia of you own an asset (shares, property, etc) for less than 12 months before sale, capital gains tax kicks up to about 50%.

Typically you have to hold assets for a year for them to be taxed as capital gains. Otherwise it's just normal income, which caps out at 37%. Capital gains maximum rate is 20%.

37% for Federal plus State tax and CA taxes cap gains, both short and long the same. Very possible to end up at ~50% rate in CA.

Pedantically, the max cap gains rate is 23.8% with NIIT. (Also, these are the federal tax brackets; states can and mostly do impose additional taxes on both income and capital gains.)

Australian here.

That doesn’t sound right.

CGT operates by treating net capital gains as taxable income in the tax year in which an asset is sold or otherwise disposed of. If an asset is held for at least 1 year then any gain is first discounted by 50% for individual taxpayers, or by 33.3% for superannuation funds. Capital losses can be offset against capital gains. Net capital losses in a tax year cannot be offset against normal income, but may be carried forward indefinitely.

https://en.wikipedia.org/wiki/Capital_gains_tax_in_Australia

Maybe the 50% your thinking of come from this?

For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset. (The cost base of a CGT asset is largely what you paid for it, together with some other costs associated with acquiring, holding and disposing of it.)

There are three methods for working out your capital gain. You can choose the method that gives you the best result – that is, the smallest capital gain.

CGT discount method

Eligibility: For assets held for 12 months or more before the relevant CGT event. Not available to companies. For foreign resident individuals, the 50% discount is removed or reduced on capital gains made after 8 May 2012.

Description: Allows you to reduce your capital gain by 50% for resident individuals (including partners in partnerships) and trusts 33.33% for complying super funds and eligible life insurance companies.

How to do it: Subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage. See: The discount method. Indexation method

Eligibility – For assets acquired before 11.45am (by legal time in the ACT) on 21 September 1999 held for 12 months or more before the relevant CGT event.

Description: Allows you to increase the cost base by applying an indexation factor based on the consumer price index (CPI) up to September 1999. How to do it: Apply the relevant indexation factor, then subtract the indexed cost base from the capital proceeds. See: The indexation method. Other method

Eligibility: For assets held for less than 12 months before the relevant CGT event. Description: Basic method of subtracting the cost base from the capital proceeds. How to do it: Subtract the cost base (or the amount specified by the relevant CGT event) from the capital proceeds. See: The 'other' method.

https://www.ato.gov.au/General/Capital-gains-tax/Working-out...

Australian here as well.

If you own things and sell them for a capital loss you get a tax credit to use later.

If you sell for a capital gain within 12 months then you will pay tax on the full amount of profit from the sale. For individuals this is just added to your income tax.

If you sell for a capital gain having held the asset for over 12 months you get a 50% discount to how much profit is taxed.

The tax credit for a capital loss can be used to offset a capital gain but it gets applied before any discount is applied.

I am not an accountant but I have listened to one.

That sounds essentially similar to the US system except that the US long-term capital gains tax rates are not exactly 50% of income rates. They're 0% of income rates on the low end, approximately 53-68% in most of the middle tax brackets, and 64% at the high end.

his contract to sell w uber had a significant earn out, the 680m was based on hitting different tech milestones. He hit none of them before he was fired.

Ah, that's some important detail I was missing. Thanks.

Why would you ever “sell” a company under such conditions? “We pay you $1T if you write a simple loop in the next two days.” Next day when you come to work: “Fired LOL. Do not cross Start, do not collect $1T.”

Usually you don't agree to contracts that let you be fired for the sorts of things that don't end up with you in court. Buyers, being reasonable, refuse to sign contracts where they can't fire you for being a criminal.

The difference between a court and a contract like that is that the court is impartial and has a clear bar of criminality ("innocent until proven guilty" to some standard of proof), whereas it's always in the company's interest to fire you at a mere accusation of a potential crime (or non-criminal wrongdoing)...

Which is why, when you're selling a company for hundreds of millions of dollars in unvested stock, you don't sign a deal where the buyer can fire you for "mere accusations of a potential crime". Uber lost the lawsuit with Google and had to pay a quarter of a billion dollars. I'm sure their contract said something like "if you have materially misrepresented information to us that results in us getting sued for a quarter of a billion dollars, we can fire you".

Even if the contract doesn't say anything like that, they can still fire you. Misrepresenting information as part of contract negotiation is fraud.

Because that's a trick that only works once for the buyer so you know they're not going to pull it. It may not even work that one time because you'll tie them up in court.

While this is a crazy example, I have been in very similar kind of position (not $1T for a loop, though) and been worried about the strong motivation to get rid of me on certain N+364 day timelines. It didn't happen and I was treated quite honorably. I think if you want your acquisitions to go well, you don't do cheesy stuff like firing people to save money (when the integration is otherwise going quite well) or else your future acquisitions will be harder. People talk.

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