8 ms·

I don't understand what people expect in this kind of situation. The company was bought for around the amount of money that they took in investment, or less.

I don't understand what people expect in this kind of situation. The company was bought for around the amount of money that they took in investment, or less. Why would the employees get anything? If preference didn't exist, and I could take $10M in investment at $100M in valuation, and then the next day liquidate the company, return $1M, and keep $9M, obviously that would just mean that nobody would invest in startups any more. Does it piss people off that the execs got retention bonuses? You've got to give the execs some incentive to stay around if you want to keep operating the company. Do people expect execs to work out of the goodness of their hearts? The company failed. That means the stock isn't valuable. What is hard about this?

Johnny555 8y ago
I had the same thought -- Amazon bought the assets of a failing company. The failure may not be the fault of the employees, but employees almost always lose when a company fails.
- seattle_spring 8y ago
  Why do the executives still succeed when a company fails?
  - Barrin92 8y ago
    possibly because the people who acquired the company saw some quality in the executives that they judged to be positive, even in the face of failure. Failure isn't really a great measure to judge individual performance or character. Companies can fail even with good executives and catch a lucky break with awful ones. In the technology space in particular were failure is very common, and to a degree encouraged.
  - shoo 8y ago
    the failure of the company may have been largely unrelated to the performance and capability of the executives, and the value they may provide to an acquirer in the future (individually or part of the system of the company). e.g. the outcome is influenced by a variety of factors, the outcome can still be terrible due to factors outside of control even if the decisions and execution by the people involved were flawless. on the other hand, you can say a similar thing about non-executive employees. it is perhaps just a question of how essential or replaceable they are perceived as being. also, the executives will likely have a lot more power than employees when negotiating a deal with a possible acquirer and major investors, so it isn't terribly surprising that they cut a deal that favours the powerful parties involved in the negotiation, at the cost of less powerful parties such as employees. this isn't to argue it is the right thing to do, it is to argue that it isn't surprising when it happens.
  - Johnny555 8y ago
    They don't always, at least not all of them.
wmf 8y ago
In some sense it would be more "honest" if the company was completely wound down and then the top 10 employees got hired by Amazon or something like that. But yeah, the result would be similar.
- aetherson 8y ago
  As far as I know, Eero is still a running business unit. You can still buy Eero stuff. I don't think that Amazon wanted to wind the company down and do a pure aqui-hire. If they had, they presumably would have paid less.
bb88 8y ago
There's this idea that everyone is in the same boat together, for better or worse. Especially in a startup. And to see some get huge bonuses while others see large losses -- especially in the same company -- doesn't seem entirely fair. > and I could take $10M in investment at $100M in valuation, and then the next day liquidate the company True, but that's the CEO and board that can do that. The employees can't just liquidate the company. The issue is that the investors and management get preferential treatment first. But the employees -- the ones that execute the corporate vision -- get shafted.
- deleted 8y ago
  [deleted]
- wutbrodo 8y ago
  Investors lost money on the deal overall, right? While employees got paid a salary for however many years they were there? By your framing, employees get "preferential treatment" with respect to salary. This isn't just theoretical: my current job is at a place who's known to be cash-heavy (ie equity-light) with their offers, relative to competitors. This suits me just fine, since I'm not sure enough about the company's ultimate success, or rather, not willing to deal with the risk and illiquidity to a much higher degree than I already do. As you can imagine, for a given level of compensation, equity and cash play against each other, and I'm getting much more in cash than my friend with equity-heavy comp packages do. Equity and salary as forms of compensation each have advantages and disadvantages, and it really doesn't make any more sense to look only at the advantages of equity-heavy packages (priority during liquidation) than it would to complain that employees getting a salary was unfair to investors.
  - tracker1 8y ago
    The salary is often in leiu of equity which is effectively worthless, while those responsible for that failure (management) make out like bandits. Frankly, I will never take a position at a startup with a base pay lower than market. It doesn't make any sense IMHO.
  - bb88 8y ago
shoo 8y ago
> Final sale price was $97 million. > Crunchbase reports that Eero took $90 million in venture capital (the Wall Street Journal put the number at $100 million). PitchBook, a highly accurate source of VC information, claimed a final $40 million Series D fundraising round from December 2017 brought that number up to $138 million. Eero declined to comment, instead pointing to a March 12 blog post confirming the sale. > An additional $10 million debt line Eero took out brings the total money put into the company at $148 million — 150 percent of the Amazon sale price. > after transaction costs and debt, the actual price will be closer to $54.6 million. > Amazon is covering around $40 million of the debt that Eero owes. Ex-employees believe the debt to be from hardware manufacturing costs > Eero’s Series D investors, led by Qualcomm, will recoup 84 percent of their investments. > seed round and Series A-C investors will all get back 31 cents on the dollar. Investors are taking a 16%-69% loss on invested capital. You're not going to make any money by exercising call options unless the strike price is absurdly low for some reason. The employees might have done okay if they were holding put options on the company, but alas, one's employer probably isn't going to offer one put options as some kind of incentive...
- mcguire 8y ago
  That's actually not a bad idea, as a backstop.
  - shoo 8y ago
    I did a search for `startup "put option"` to see if there was anything written about this. There is one article arguing that major early investors should demand something vaguely similar [1] -- although it sounds like it is not designed to be triggered when a company fails and loses a lot of value, but instead perhaps when a company is partially succeeding, or succeeding but the investor wants to reduce exposure or otherwise get some cash back: > If the investor exercises the put, the investor is entitled to redeem all or a portion of his equity interests in exchange for the initial investment value plus a nominal return above the risk-free rate, yet still maintain a reduced equity position in the company–perhaps, somewhere between 50% to 75%. > To prevent the investor from exercising the put at a moment when the company’s financial stability or expansion plans could be jeopardized, the company can require that in addition to a prescribed time period restriction, certain revenue milestones must be achieved and set as “triggers” before the put may be exercised. > The put option must be structured in a way that enhances the investor’s optionality without putting the company at balance-sheet risk. It is possible to strike that balance. [1] https://www.thinkadvisor.com/2010/04/01/venture-populist-the-venture-investors-put-option/ https://www.thinkadvisor.com/2010/04/01/venture-populist-the... Another variation would be to strike a deal where put options were not written by the startup but by some other third party (an insurer or bank?), which was highly likely to remain liquid in the event that the startup went bust. This could avoid needing to constrain the use of the options with triggers & so on. On the other hand, it would be a pretty risky business for a third party to sell such things, so they probably wouldn't be cheap to buy...
nytesky 8y ago
Honestly confused: why do you want to pay bonuses to retain execs of a failed company? Weren’t they responsible for that failure?
- moonserver 8y ago
  Not entirely: markets, competition, nature, people, etc. Is it 100% fair market? Well that's what a good portion of the article is also about.
- excitom 8y ago
  It takes a huge amount of money to build a successful hardware company and they failed because they ran short of cash. However Amazon seems to believe that their product idea and the people who conceived it have value, and that's what they paid for.
- pageandrew 8y ago
  Not necessarily. Companies fail for any number of reasons, not just executive incompetence. Eero is a hardware company, and hardware companies are require significant capital to operate. Its a very difficult space to operate in, especially pre-launch. > Hardware startups require a lot of cash, and technological progress can render a product obsolete before it has a chance to take off. Nearly all (97 percent) of the 400 hardware startups tracked in a 2017 report from CB Insights either died or became "zombies," companies that survive for awhile with VC money, but eventually fizzle out. Amazon purchased this company for its technology and people. Having the entire executive team leave immediately would make the transition exceedingly difficult. They want to incentivize these people to stay to assist in the transition, hence the payout.
- gdulli 8y ago
  I'd imagine the founders and execs aren't needed or wanted outside of ensuring basic continuity of the business short term. But they negotiated benefits for themselves and not the other employees because they were the ones negotiating.
- hjk05 8y ago
  Sports teams buy pro athletes from teams that loose all the time. Why? Because the players themselves are world class even though their team is loosing. One player on their own is never enough to secure victory for the entire team. So you can’t inversly put the fault of a loose entirely on every individual player.
rhizome 8y ago
>Why would the employees get anything? This may be the most tone-deaf thing I've read in a long-ass time. BECAUSE THEY DID THE (...) WORK!
- yjftsjthsd-h 8y ago
  Yes, of course they did work. For which they got a salary. Of course, if they worked for equity rather than cash, that was their call and one would expect them to bear the outcome.
  - deleted 8y ago
    [deleted]
  - rhizome 8y ago
    Nevermind.
  - rhizome 8y ago
    I'll add to my previous: everybody at the company works for a salary. In the US it's essentially illegal to volunteer for an organization that is not some kind of 501(c), and in California it's illegal not to pay everybody at least minimum wage, so let's stop joking: nobody is working for free, and any employee taking minimum wage (or $1/yr) is wealthy already. I don't have patience for the, "oh they had a salary so they're whole." BS, everybody is working to make things better, and if the leadership of the company is not helping their employees get a chunk of the back-end then they are bad bosses. To me it's ethically related to not tipping in a restaurant.
    - zaphirplane 8y ago
      Unpaid Interns are one exception
      - rhizome 8y ago
        You know what I mean.
alexandercrohde 8y ago
I think what people expect in this situation is that they understand the equity agreement. Startups consistently ask engineers to work extra hours "because equity," and then ask those same employees to trust the complex contracts. Looks like a somewhat rigged/disingenuous system to me.
anbop 8y ago
YC’s own Sam Altman finagled a “single-digit millions” package when selling his startup, Loopt, for barely more money than it raised.
techslave 8y ago
> You've got to give the execs some incentive to stay around if you want to keep operating the company. Do people expect execs to work out of the goodness of their hearts? > The company failed. why would you pay 7 figure retention bonuses to execs of a failed company?
deleted 8y ago
[deleted]
deleted 8y ago
[deleted]
xkcd-sucks 8y ago
What are the chances that the execs were actually forthcoming with details of the company's investors, valuation, and acquisition? Most likely, the leadership knew the situation for quite a while and strung along employees with vague talk of a big acquisition, while deflecting specific questions. And of course naive new hires were told that the leadership's financial success was tied to the success of the company and that the leadership did not have a conflict of interest with regard to value of employee stock options. So the whole affair just seems very unethical.
projectileboy 8y ago
You’re not wrong. Then just don’t start a startup and expect me to buy your bullshit that I should take a job and work 80 hour weeks because one day there will be a big payout.

Johnny555 8y ago

I had the same thought -- Amazon bought the assets of a failing company. The failure may not be the fault of the employees, but employees almost always lose when a company fails.

seattle_spring 8y ago
Why do the executives still succeed when a company fails?
- Barrin92 8y ago
  possibly because the people who acquired the company saw some quality in the executives that they judged to be positive, even in the face of failure. Failure isn't really a great measure to judge individual performance or character. Companies can fail even with good executives and catch a lucky break with awful ones. In the technology space in particular were failure is very common, and to a degree encouraged.
- shoo 8y ago
  the failure of the company may have been largely unrelated to the performance and capability of the executives, and the value they may provide to an acquirer in the future (individually or part of the system of the company). e.g. the outcome is influenced by a variety of factors, the outcome can still be terrible due to factors outside of control even if the decisions and execution by the people involved were flawless. on the other hand, you can say a similar thing about non-executive employees. it is perhaps just a question of how essential or replaceable they are perceived as being. also, the executives will likely have a lot more power than employees when negotiating a deal with a possible acquirer and major investors, so it isn't terribly surprising that they cut a deal that favours the powerful parties involved in the negotiation, at the cost of less powerful parties such as employees. this isn't to argue it is the right thing to do, it is to argue that it isn't surprising when it happens.
- Johnny555 8y ago
  They don't always, at least not all of them.

wmf 8y ago

In some sense it would be more "honest" if the company was completely wound down and then the top 10 employees got hired by Amazon or something like that. But yeah, the result would be similar.

aetherson 8y ago
As far as I know, Eero is still a running business unit. You can still buy Eero stuff. I don't think that Amazon wanted to wind the company down and do a pure aqui-hire. If they had, they presumably would have paid less.

bb88 8y ago

There's this idea that everyone is in the same boat together, for better or worse. Especially in a startup. And to see some get huge bonuses while others see large losses -- especially in the same company -- doesn't seem entirely fair. > and I could take $10M in investment at $100M in valuation, and then the next day liquidate the company True, but that's the CEO and board that can do that. The employees can't just liquidate the company. The issue is that the investors and management get preferential treatment first. But the employees -- the ones that execute the corporate vision -- get shafted.

deleted 8y ago
[deleted]
wutbrodo 8y ago
Investors lost money on the deal overall, right? While employees got paid a salary for however many years they were there? By your framing, employees get "preferential treatment" with respect to salary. This isn't just theoretical: my current job is at a place who's known to be cash-heavy (ie equity-light) with their offers, relative to competitors. This suits me just fine, since I'm not sure enough about the company's ultimate success, or rather, not willing to deal with the risk and illiquidity to a much higher degree than I already do. As you can imagine, for a given level of compensation, equity and cash play against each other, and I'm getting much more in cash than my friend with equity-heavy comp packages do. Equity and salary as forms of compensation each have advantages and disadvantages, and it really doesn't make any more sense to look only at the advantages of equity-heavy packages (priority during liquidation) than it would to complain that employees getting a salary was unfair to investors.
- tracker1 8y ago
  The salary is often in leiu of equity which is effectively worthless, while those responsible for that failure (management) make out like bandits. Frankly, I will never take a position at a startup with a base pay lower than market. It doesn't make any sense IMHO.
- bb88 8y ago

shoo 8y ago

> Final sale price was $97 million. > Crunchbase reports that Eero took $90 million in venture capital (the Wall Street Journal put the number at $100 million). PitchBook, a highly accurate source of VC information, claimed a final $40 million Series D fundraising round from December 2017 brought that number up to $138 million. Eero declined to comment, instead pointing to a March 12 blog post confirming the sale. > An additional $10 million debt line Eero took out brings the total money put into the company at $148 million — 150 percent of the Amazon sale price. > after transaction costs and debt, the actual price will be closer to $54.6 million. > Amazon is covering around $40 million of the debt that Eero owes. Ex-employees believe the debt to be from hardware manufacturing costs > Eero’s Series D investors, led by Qualcomm, will recoup 84 percent of their investments. > seed round and Series A-C investors will all get back 31 cents on the dollar. Investors are taking a 16%-69% loss on invested capital. You're not going to make any money by exercising call options unless the strike price is absurdly low for some reason. The employees might have done okay if they were holding put options on the company, but alas, one's employer probably isn't going to offer one put options as some kind of incentive...

mcguire 8y ago
That's actually not a bad idea, as a backstop.
- shoo 8y ago
  I did a search for `startup "put option"` to see if there was anything written about this. There is one article arguing that major early investors should demand something vaguely similar [1] -- although it sounds like it is not designed to be triggered when a company fails and loses a lot of value, but instead perhaps when a company is partially succeeding, or succeeding but the investor wants to reduce exposure or otherwise get some cash back: > If the investor exercises the put, the investor is entitled to redeem all or a portion of his equity interests in exchange for the initial investment value plus a nominal return above the risk-free rate, yet still maintain a reduced equity position in the company–perhaps, somewhere between 50% to 75%. > To prevent the investor from exercising the put at a moment when the company’s financial stability or expansion plans could be jeopardized, the company can require that in addition to a prescribed time period restriction, certain revenue milestones must be achieved and set as “triggers” before the put may be exercised. > The put option must be structured in a way that enhances the investor’s optionality without putting the company at balance-sheet risk. It is possible to strike that balance. [1] https://www.thinkadvisor.com/2010/04/01/venture-populist-the-venture-investors-put-option/ https://www.thinkadvisor.com/2010/04/01/venture-populist-the... Another variation would be to strike a deal where put options were not written by the startup but by some other third party (an insurer or bank?), which was highly likely to remain liquid in the event that the startup went bust. This could avoid needing to constrain the use of the options with triggers & so on. On the other hand, it would be a pretty risky business for a third party to sell such things, so they probably wouldn't be cheap to buy...

nytesky 8y ago

Honestly confused: why do you want to pay bonuses to retain execs of a failed company? Weren’t they responsible for that failure?

moonserver 8y ago
Not entirely: markets, competition, nature, people, etc. Is it 100% fair market? Well that's what a good portion of the article is also about.
excitom 8y ago
It takes a huge amount of money to build a successful hardware company and they failed because they ran short of cash. However Amazon seems to believe that their product idea and the people who conceived it have value, and that's what they paid for.
pageandrew 8y ago
Not necessarily. Companies fail for any number of reasons, not just executive incompetence. Eero is a hardware company, and hardware companies are require significant capital to operate. Its a very difficult space to operate in, especially pre-launch. > Hardware startups require a lot of cash, and technological progress can render a product obsolete before it has a chance to take off. Nearly all (97 percent) of the 400 hardware startups tracked in a 2017 report from CB Insights either died or became "zombies," companies that survive for awhile with VC money, but eventually fizzle out. Amazon purchased this company for its technology and people. Having the entire executive team leave immediately would make the transition exceedingly difficult. They want to incentivize these people to stay to assist in the transition, hence the payout.
gdulli 8y ago
I'd imagine the founders and execs aren't needed or wanted outside of ensuring basic continuity of the business short term. But they negotiated benefits for themselves and not the other employees because they were the ones negotiating.
hjk05 8y ago
Sports teams buy pro athletes from teams that loose all the time. Why? Because the players themselves are world class even though their team is loosing. One player on their own is never enough to secure victory for the entire team. So you can’t inversly put the fault of a loose entirely on every individual player.

rhizome 8y ago

>Why would the employees get anything? This may be the most tone-deaf thing I've read in a long-ass time. BECAUSE THEY DID THE (...) WORK!

yjftsjthsd-h 8y ago
Yes, of course they did work. For which they got a salary. Of course, if they worked for equity rather than cash, that was their call and one would expect them to bear the outcome.
- deleted 8y ago
  [deleted]
- rhizome 8y ago
  Nevermind.
- rhizome 8y ago
  I'll add to my previous: everybody at the company works for a salary. In the US it's essentially illegal to volunteer for an organization that is not some kind of 501(c), and in California it's illegal not to pay everybody at least minimum wage, so let's stop joking: nobody is working for free, and any employee taking minimum wage (or $1/yr) is wealthy already. I don't have patience for the, "oh they had a salary so they're whole." BS, everybody is working to make things better, and if the leadership of the company is not helping their employees get a chunk of the back-end then they are bad bosses. To me it's ethically related to not tipping in a restaurant.
  - zaphirplane 8y ago
    Unpaid Interns are one exception
    - rhizome 8y ago
      You know what I mean.

alexandercrohde 8y ago

I think what people expect in this situation is that they understand the equity agreement. Startups consistently ask engineers to work extra hours "because equity," and then ask those same employees to trust the complex contracts. Looks like a somewhat rigged/disingenuous system to me.

anbop 8y ago

YC’s own Sam Altman finagled a “single-digit millions” package when selling his startup, Loopt, for barely more money than it raised.

techslave 8y ago

> You've got to give the execs some incentive to stay around if you want to keep operating the company. Do people expect execs to work out of the goodness of their hearts? > The company failed. why would you pay 7 figure retention bonuses to execs of a failed company?

deleted 8y ago

[deleted]

deleted 8y ago

[deleted]

xkcd-sucks 8y ago

What are the chances that the execs were actually forthcoming with details of the company's investors, valuation, and acquisition? Most likely, the leadership knew the situation for quite a while and strung along employees with vague talk of a big acquisition, while deflecting specific questions. And of course naive new hires were told that the leadership's financial success was tied to the success of the company and that the leadership did not have a conflict of interest with regard to value of employee stock options. So the whole affair just seems very unethical.

projectileboy 8y ago

You’re not wrong. Then just don’t start a startup and expect me to buy your bullshit that I should take a job and work 80 hour weeks because one day there will be a big payout.