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Cancelling shares which had positive value is problematic. It's highly unclear to me why these stock holders would not be given a payout unless there were liquidation preferences. Given the employees may have purchased the shares rather than having been granted these shares - a lack of knowledge on the behavior and existence of said liquidation preferences could give them legal standing.

We really need to see arrangements where the ultimately small pool of employee equity is above the liquidation preference of any investors. The transparency around such preferences is quite suspect.

There is nothing I can see which suggests the shares have positive value. The FAQ I linked directly says the opposite. Nothing is suspect here, other than journalists and internet commentators making assumptions based on misunderstandings.

This happens hundreds if not thousands of times a year at startups that sell for less than the aggregate liquidation preferences.

The oddity here would be that the employees purchased these shares. If money changed hands, the employee would have a reasonable right to know of the liquidation preferences and their cutoff - correct?

> oddity here would be that the employees purchased these shares

You’re purchasing shares when you exercise options.

The oddity is both that these shares were sold to these employees, versus sort of occurring as a matter of course of employment, and that the company seemed to go out of its way to cancel them versus just declaring them worthless while the entity is wrapped up.

At least with the public companies, there will be lawyer to take up a class action lawsuit on behalf of the share holders.

> Doesn't that just mean the Common was underwater and worthless? It’s another way of saying they are due $0.

That press release [1] is damning:

“A total of 10 former employees who chose to invest in Philz Coffee by buying common stock years ago at much higher prices than the current price of the shares will unfortunately lose the value of that stock.”

They’ve conceded there was a “current price of the shares.” That one sentence should be the beginning and end of the claim. (They should have said the shares are worthless. They didn’t.)

[1] https://philzcoffee.com/stakeholderfaqs

This happened at a previous employer of mine: the Nintex acquisition of K2. Not long before the acquisition, employees were offered the "opportunity" to purchase their vested options. I didn't invest, but my friend did (so I'm not sure what the details are). They had the power to band together and cause major problems for the deal (I want to say they could outright block it, but I might be hallucinating that). Once they began to organize they were quickly bought out - no details on how much, though.

I'm sorry, the company sold for $145 million with 1,500 employees? It wasn't bankruptcy. Simple math shows it was worth $100k per employee hired. There's clearly positive value there.

They're solely relying upon the fact the employees with common stocks won't sue. To recoup your $100k claim against the equity might take $1M in legal fees.

> Simple math shows it was worth $100k per employee hired. There's clearly positive value there

Not…how capital structures work.

First any debt would be paid. Then preferred-stock liquidation preferences. Then the rest gets divided up among all stockholders, including those with common. (Though not conventionally among those with unexercised options.)

What’s telling, here, is that the shares had to be cancelled. That implies they were due a payout.

It probably means that the series c investors got whole 145 mil payout through a stacked liquidation preference or something.