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Has anyone ever heard of or seen a way that option holders don't get 100% screwed if a company is acquired for less than the sum of the investors' liquidation p

Has anyone ever heard of or seen a way that option holders don't get 100% screwed if a company is acquired for less than the sum of the investors' liquidation preferences?

patmcguire 10y ago
New company pays signing bonuses. That's the only way.
harlanlewis 10y ago
Carveouts are one approach. Some quick googling found this very readable explanation with pros/cons from a reputable source: https://www.dlapiper.com/en/us/insights/publications/2014/04/muddy-employee-incentive-issues/ https://www.dlapiper.com/en/us/insights/publications/2014/04... This article primarily describes carveouts for management retention in a public company, but they can be used in private companies and are not restricted to management. This is the only mechanism I have any familiarity with, I'm also very interested in hearing about others.
harryh 10y ago
Not earning money on options when the business isn't successful isn't getting screwed. That's just life.
- hesdeadjim 10y ago
  I have to disagree. Investors risk money, employees with options risk their lost income potential and much of their time.
  - harryh 10y ago
    And the terms of those risks are determined based on the leverage of the various parties at the time they join the venture. You can start a company and raise money by selling common stock instead of preferred, but in return investors are going to want a much greater share of the company than they otherwise would. That's generally a bad deal for employees. You can say that it's unfair that deals generally work out they way they do, but that's not really any different from saying that it's unfair that your salary is 100k (or whatever) instead of 200k. Welcome to a market economy. Prices are negotiated based on supply and demand.
    - st3v3r 10y ago
      No. None of this is an excuse for getting fucked.
      - harryh 10y ago
        No? What do you mean no? To which part? You don't think what I said is an accurate description of how the world works? When you fail that doesn't mean you got fucked. It just means you've failed. As I said, that's life.
- st3v3r 10y ago
  But the business got bought. That's not being not successful.
  - harryh 10y ago
    If a business gets bought for less than the capital invested, it's not a success.
    - st3v3r 10y ago
      It's not a failure. And I'd say those who poured their effort into the company should be entitled to some part of the purchase price, more so than people who's only contribution was money.
      - harryh 10y ago
        You'd consider turning a $1000 investment into a company worth $500 a success? OK, sure. You can have whatever opinion you want, but you're gonna have a hard time finding other people who see the world the same way you do.
  - icedchai 10y ago
    Generally, if that happens, it got "bought" for less than was invested. That's a rather mediocre outcome.
hkmurakami 10y ago
Retention packages by the acquirer. Look at the structure and retention deals of acquihires.

Has anyone ever heard of or seen a way that option holders don't get 100% screwed if a company is acquired for less than the sum of the investors' liquidation preferences?

patmcguire 10y ago

New company pays signing bonuses. That's the only way.

harlanlewis 10y ago

Carveouts are one approach. Some quick googling found this very readable explanation with pros/cons from a reputable source: https://www.dlapiper.com/en/us/insights/publications/2014/04/muddy-employee-incentive-issues/ https://www.dlapiper.com/en/us/insights/publications/2014/04... This article primarily describes carveouts for management retention in a public company, but they can be used in private companies and are not restricted to management. This is the only mechanism I have any familiarity with, I'm also very interested in hearing about others.

harryh 10y ago

Not earning money on options when the business isn't successful isn't getting screwed. That's just life.

hesdeadjim 10y ago
I have to disagree. Investors risk money, employees with options risk their lost income potential and much of their time.
- harryh 10y ago
  And the terms of those risks are determined based on the leverage of the various parties at the time they join the venture. You can start a company and raise money by selling common stock instead of preferred, but in return investors are going to want a much greater share of the company than they otherwise would. That's generally a bad deal for employees. You can say that it's unfair that deals generally work out they way they do, but that's not really any different from saying that it's unfair that your salary is 100k (or whatever) instead of 200k. Welcome to a market economy. Prices are negotiated based on supply and demand.
  - st3v3r 10y ago
    No. None of this is an excuse for getting fucked.
    - harryh 10y ago
      No? What do you mean no? To which part? You don't think what I said is an accurate description of how the world works? When you fail that doesn't mean you got fucked. It just means you've failed. As I said, that's life.
st3v3r 10y ago
But the business got bought. That's not being not successful.
- harryh 10y ago
  If a business gets bought for less than the capital invested, it's not a success.
  - st3v3r 10y ago
    It's not a failure. And I'd say those who poured their effort into the company should be entitled to some part of the purchase price, more so than people who's only contribution was money.
    - harryh 10y ago
      You'd consider turning a $1000 investment into a company worth $500 a success? OK, sure. You can have whatever opinion you want, but you're gonna have a hard time finding other people who see the world the same way you do.
- icedchai 10y ago
  Generally, if that happens, it got "bought" for less than was invested. That's a rather mediocre outcome.

hkmurakami 10y ago

Retention packages by the acquirer. Look at the structure and retention deals of acquihires.