Another example of the growing trend of buying out key parts of a company to avoid any actual acquisition?
I wonder if equity holding employees get anything from the deal or indeed if all the investors will be seeing a return from this?
I wonder if equity holding employees get anything from the deal or indeed if all the investors will be seeing a return from this?
Getting screwed out of your payout by such a totally-not-an-acquisition is wage theft. It's like promising a sales-related bonus at the beginning of the year, and then in December changing the metric to "AI-related sales to the CEO's golf buddies".
This promise may have been more true before 2010s where public companies were not paying as much in liquid cash and private companies were not valued so aggressively. Fact is most employees take the startup offer because they don't actually have a liquid offer that's super competitive at that moment, or they are just kind of bored and taking a break of the corporate job that does not give them too many responsibilities, i.e. they are compensated via the title, not just the promise of making bank.
My point was more that the high end ones they do get are usually in the front piece of the airplane in the acquisition split. Also, the really hot startups are actually paying quite a bit of cash upfront so the original premise of employee sacrifice isn’t as true.
I understand that a lot of inexperienced people (like in this thread) think they're going to get rich though.
No, it is not "wage theft" to not get rich when the company exits (by whatever means).
> No, it is not "wage theft" to not get rich when the company exits
I don't think anyone in this thread thinks they're gonna get rich by working for a startup. There's a hope that they will, that's why they are working, but there's no expectation. Maybe there's an expectation of getting a nice tidy sum after an exit (in the 5 or 6 figures) but not in the 7 or 8 figures, at least not if they're just employees and not founders.
What's being discussed is a startup exiting for billions of dollars and the employees with equity seeing zero of it.
Working for a startup usually means lower wages and longer hours, for the chance at striking it rich if the company succeeds. If employees don't see anything when the company succeeds, there's literally no upside to working for a startup.
If the employer is explicitly making the employee options worthless, then they should be obligated to disclose this. Otherwise it’s trivial to engineer a corporate entity which pays the employees while “licensing” the technology from an IP holding firm. Later they can simply sell the IP holding firm without owing employees a dollar.
Groq is now changing the deal after the fact by making those stock options worthless 100% of the time. It's like you participate in a lottery, and then the organizer decides to just not do a draw and keep all the proceeds for themselves. Sorry, but that's theft.
Don't intend to pay out in the unlikely event that you hit it big? Then don't offer stock options to your employees and pay market-rate salaries - plus of course a decent premium for the fact that (unlike an established company) your startup can go bust at any time and doesn't offer stable employment. You can't have it both ways.
If you were an employee, you were not a founder. A founding-employee would be someone who explicitly "invested" time/money into a company without compensation. If you are also an employee earning a wage you better have a written agreement stating what amount was "investment" and what amount was compensated wage.
As an aside, most founders are paid during the entire project. It’s not hard to raise a preseed round to get yourself paid for 6-24 months to work on an idea. If a founder chose to bootstrap - that’s all fine, but let’s not pretend that the employees aren’t taking massive career risks vs “standard” employers.
I don’t know about you, but every company I’ve ever worked at is a shitty business partner if that’s the metric. The standard has always been I get what we agreed to if I was lucky, and otherwise I got full “I’ve altered the deal, pray I don’t alter further” and dared you to defend your rights.
I actually have called their bluff a few times and gotten some money out of it, but it was always a year long event or more to resolution and involved risking even more money on lawyers.
Your startup won't succeed when its founder starves to death. It's why the founder will usually get a bunch of cash during investment rounds [0]: they can't focus on the company if they are constantly worried about cash in their personal life. Unless the founder is already independently wealthy, it is a guarantee that they'll be employed by the company and being paid a living wage. Heck, in some countries this is even legally required!
According to your logic, no successful startup will ever have a founder, as any form of pay instantly degrades them to regular employee, and any kind risk taken and below-market salary is completely irrelevant. Never mind the fact that they are taking home a minimum-wage salary while working 100 hours a week - they are earning a wage so they can't possibly be a founder.
So if this logic already breaks down for the founder, why couldn't it also break down for early employees whose compensation is mostly in stock options? How is their situation any different from the founder's?
[0]: https://www.stefantheard.com/silicon-valleys-best-kept-secre...
If you were an employee, you were not a founder. A founding-employee would be someone who explicitly "invested" uncompensated time/money into a company without compensation and also worked as an employee. If you are also an employee earning a wage you better have a written agreement stating what amount was "investment" and what amount was compensated wage.
I've seen venture capital acquire startups for essentially nothing laying off the entire product team aside from one DevOps engineer to keep everything running. I've seen startups go public and have their shares plummet to zero before the rank-and-file employees could sell any shares (but of course the executives were able to cash out immediately). I've seen startups acquired for essentially nothing from the lead investor.
In none of these scenarios did any of the Engineers receive anything for their shares.
Yet every day people negotiate comp where shares are valued as anything more than funny money.
She didn't see a dime out of it, and was let off (together with a big chunk of people) within 6 months.
Let's face it and accept that the golden days of people working in tech startup (and soon large companies) are over.
RIP 1980 - 2023.
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?location...
/s
I guess you'll have to face the music at some point.
I’m more curious how angel investors are being treated in these exits. If _they_ dry up the whole pipeline goes away
So the only ones getting shafted are the employees.
Yes, correct
Non-essential employees and small investors without the incentive or pockets to fund a legal fight get offered as little as possible. This structure also provides lots of flexibility to the 'not acquirer' when it comes to paying off existing debts, leases, contracts, etc. Basically, this is the end of being an early employee or small angel investor potentially resulting in a lucrative payoff. You have to remain central and 'key' all the way through the 'not acquisition'. I expect smaller early stage investors will start demanding special terms to guarantee a certain level of payout in a 'not acquisition'. I also expect this to create some very unfortunate situations because an asset sale (as they used to be done), could be a useful and appropriate mechanism to preserve the products and some jobs of a failing (but not yet fully failed) company - which was better for customers and some employees than a complete smoking crater.
During boom times it made more financial sense to go straight to a FAANG if you could.
Boy, it would be so nice if a major correction were to drain these massive companies' warchests so that it doesn't become more common.
If you exercise your options you have real stock in the company, so I don't see how you can get shafted here.
Did investors do some sort of dividend cash out before employees were able to exercise their options? (Obviously shady, but more about investors/leadership being unethical than the deal structure).
Would love to know more about how this played out.
But these new “acquisitions” aren’t even that. They are not acquisitions at all. They just hire the talent directly with perhaps an ip rights agreement thrown in as a fig leaf.
The fact that these are not really acquisitions doesn't change the fact that Groq the entity now has $20b.
In the deal mentioned above: my guess is that preferred class shareholders and common shares got paid out but the common shareholders had such a low payout that it rounded down to zero for most employees.
This can happen even in a regular acquisition because of the equity capital stack of who gets paid first. Investors typically require a 1x liquidation preference (they get their investment back first no matter what).
The deals are all weird so it's hard to really know what's happening, but if Groq gets $20b, I don't see how common stock holders don't get paid.
I've seen some discussion that paying out normal employees might look more like an acquisition on paper which they may want to avoid for ftc reasons. I've also seen some discussion that this is a quid pro quo to the trump family to get Nvidia back into China (jr. bought in at the September financing round..).
Lots of speculation in general, including why nvda chose to spend 20bil on this.
Dividends to only one class seems crazy. I would be kind of shocked if that was legal.
The employees of that bought company were given an incentive by the buying company to stay for a while and help tearing down and integrating their product into the buying company.
One could say shady, I'd say that it was just a bad deal.
It's definitely true that common stock gets $0 if the acquisition price is <= (sum raised + debt).
That sort of sounds like the startup wasn't doing well, and the acquisition wasn't for a lot of money (relative to amount raised), which seems very different from these Groq/Windsurf situations.