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Is there any reason for founders to ever deal with these investors ever again? Unless the investors were trying to retire, this seems incredibly short sighted.

greglindahl 8y ago
Yes. Liquidation preferences are a thing, and getting mad about them isn't helpful. Also, from the details in the article about "drag along" and whatnot, the typical terms for a Silicon Valley investment appear to have even more drag along to them.
- opportune 8y ago
  It’s not about there liquidation preferences themselves IMO, it’s that they were exercised in this manner. In this case it was the investors pushing for a liquidation under the limit, not the founders
  - greglindahl 8y ago
    That's not what I saw described in the article. The circumstances and results in the article sound like they would be reasonable for a Silicon Valley situation under typical VC funding terms.
x0x0 8y ago
I'm not sure there's any lesson here. Taking investment from scum private equity like KKR didn't turn out well? Wow, who could have predicted. It's been well known for at least a decade what private equity does to businesses. Either the founders couldn't raise from anywhere else, or they got greedy.
hluska 8y ago
From the perspective of a founder, I would be quite nervous about accepting an investment and drawing any kind of salary if the deal didn't include liquidation preferences. They are so standard (at least in North American tech) that if they were missing, I'd worry about their competence. Structuring a deal without LPs would mean that founders could push for extremely early exits, cash out with modest (though life changing) returns and investors could lose most of their investments. Adding that kind of risk would make it even harder for first time founders to raise a round.
- opportune 8y ago
  I posted this in another reply, but it’s not the liquidation preferences themselves so much as the fact that it was the investors pushing for liquidation at a price point that precluded the founders from getting any money
  - hluska 8y ago
    Being a founder, I tend to always take the founders' side, but even with that bias, I'm not sure there's anything wrong here. It sounds like things went to hell, the founders left, and a new CEO came in who used to be an exec with one of the VC firms. Things were very messy. Complicating matters, it doesn't sound like FanDuel was in great financial shape - a Forbes article suggested they could face a cash crunch in 2018. With what I know, it's hard to attribute anything the VC firms did to malice.
  - sokoloff 8y ago
    Isn't that a bit like asking why they sold for $465M instead of demanding $930M? Presumably, they sold for the highest amount they could get. If the company falls off the hockey stick, there may be no better time than right now to sell it for what you can get.
    - opportune 8y ago
      $465M was right at the point where investors still got ROI while investors got nothing. It’s not like they took a loss. If I were a founder I would be beyond pissed that the investors sold right in the band where they made money but not the founders and employees. Granted, I don’t know the exact terms of their contract nor the full context
      - evgen 8y ago
        Alternative explanation is that the company was already sinking. It had dropped past the point where founders and employees were going to get anything out of the deal and was started to approach the point where investors would lose money. Investors stepped in at this point and dumped the company to prevent an even bigger loss. It is unlikely the investors were waiting around for the valuation to drop to this point for the sole purpose of screwing the other parties.

greglindahl 8y ago

Yes. Liquidation preferences are a thing, and getting mad about them isn't helpful. Also, from the details in the article about "drag along" and whatnot, the typical terms for a Silicon Valley investment appear to have even more drag along to them.

opportune 8y ago
It’s not about there liquidation preferences themselves IMO, it’s that they were exercised in this manner. In this case it was the investors pushing for a liquidation under the limit, not the founders
- greglindahl 8y ago
  That's not what I saw described in the article. The circumstances and results in the article sound like they would be reasonable for a Silicon Valley situation under typical VC funding terms.

x0x0 8y ago

I'm not sure there's any lesson here. Taking investment from scum private equity like KKR didn't turn out well? Wow, who could have predicted. It's been well known for at least a decade what private equity does to businesses. Either the founders couldn't raise from anywhere else, or they got greedy.

hluska 8y ago

From the perspective of a founder, I would be quite nervous about accepting an investment and drawing any kind of salary if the deal didn't include liquidation preferences. They are so standard (at least in North American tech) that if they were missing, I'd worry about their competence. Structuring a deal without LPs would mean that founders could push for extremely early exits, cash out with modest (though life changing) returns and investors could lose most of their investments. Adding that kind of risk would make it even harder for first time founders to raise a round.

opportune 8y ago
I posted this in another reply, but it’s not the liquidation preferences themselves so much as the fact that it was the investors pushing for liquidation at a price point that precluded the founders from getting any money
- hluska 8y ago
  Being a founder, I tend to always take the founders' side, but even with that bias, I'm not sure there's anything wrong here. It sounds like things went to hell, the founders left, and a new CEO came in who used to be an exec with one of the VC firms. Things were very messy. Complicating matters, it doesn't sound like FanDuel was in great financial shape - a Forbes article suggested they could face a cash crunch in 2018. With what I know, it's hard to attribute anything the VC firms did to malice.
- sokoloff 8y ago
  Isn't that a bit like asking why they sold for $465M instead of demanding $930M? Presumably, they sold for the highest amount they could get. If the company falls off the hockey stick, there may be no better time than right now to sell it for what you can get.
  - opportune 8y ago
    $465M was right at the point where investors still got ROI while investors got nothing. It’s not like they took a loss. If I were a founder I would be beyond pissed that the investors sold right in the band where they made money but not the founders and employees. Granted, I don’t know the exact terms of their contract nor the full context
    - evgen 8y ago
      Alternative explanation is that the company was already sinking. It had dropped past the point where founders and employees were going to get anything out of the deal and was started to approach the point where investors would lose money. Investors stepped in at this point and dumped the company to prevent an even bigger loss. It is unlikely the investors were waiting around for the valuation to drop to this point for the sole purpose of screwing the other parties.