Sources: - https://www.crunchbase.com/organization/loom
- https://www.forbes.com/sites/stevenli1/2022/03/14/nearly-bro...
- https://twitter.com/andrew__reed/status/1712458243883110599?...
(Edit: formatting)
I know that VCs typically have some kind of "upside protection" in later rounds that guarantees them first money out in the event of a sale on some multiple of their investment, but I don't know what terms are common.
Investors frequently have clauses (warrants/ratchet) to increase their position if the sale wasn't at some threshold, which will affect (to downside) the basis for Employees payout.
If the Employee thought the stock was at $150/share at 1.5B they will get less than $97 on payout.
Not only do the investors have priority shares over employees, each investor can negotiate a guaranteed multiple. For example if they put in 100 million for 10% ownership but also had a 5X multiple guarantee and a sale price of 1 billion then the 500 million they walk away with ends up being 50% of the sale price. That part of the agreement isn't made public as far as I know.
Will the investors insist that it all come out of the founders' percentage of the pie, or can I argue that the better-incentived employees mean a bigger and more likely pie, so VC terms shoudl be less grabby?
Will VCs react negatively to "being soft on" employees, even if it all comes out of founders' slice?
Do early employees get ISOs, other options, RSUs, or something else?
The only good answer to this is 1) don't raise more VC money than you really need, and 2) don’t raise money at a valuation way above what your company is actually worth.
The problem in the scenario here is that they sold for below the valuation of their last funding round, and the size of their last funding round was ginormous.
When you raise hundreds of millions at a $1.5b valuation, you’re expected to sell above $1.5b at some point in the future. Any less and you didn’t live up to the opportunity that you pitched investors (and the financial outcomes for everyone deteriorates when you sell for way less than your valuation).
Or do I have to look like much more a traditional fundamentals investment, than a semirandom lottery ticket (or growth scam to exit)?
Successful startup companies can and should compensate employees well with both cash and stock. It's only incompetence and greed that endangers this outcome. VC expectations are a red herring, only bad VCs are so short-sighted as to deprive a founder of one of the major tools of team-building (truly valuable company equity).
As a founder, there are forces you have to fight against from first principles using your moral compass via a thoughtful fundraising strategy, but it can be done.
I think the end result is that it's probably not possible to pay employees with meaningful equity anymore so you'll have to go back to paying them the old fashioned way with money. I know I'm no longer willing to take RSU lotto tickets and a pay cut to work at a startup.
https://www.amazon.com.au/Venture-Deals-Smarter-Lawyer-Capit...
It's worth listening to if you want to understand this stuff better.
Having just listened to this book, I would guess that this sale has not been a great outcome for the founder and employees.