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>I've been through a few startups as a founder. I have cut similar 1x nonparticipating deals. Unfortunately, my most recent one, no employees got anything becau

>I've been through a few startups as a founder. I have cut similar 1x nonparticipating deals. Unfortunately, my most recent one, no employees got anything because of liquidity preferences So you had experience with these exact problems, yet still structured your latest startup so that your employees would end up with nothing?

sokoloff 7y ago
More likely they structured the deal in the only way under which they could get any money at all. 1x non-participating is not a bad deal for the company or employees. It only becomes a bad deal when the company fails to create economic value, at which point are the employees really due anything more than salary for time worked? Literally GP post says that investors got pennies on the dollar back and you’re grousing that employees got nothing for their (worthless) equity? Without disrespect to the effort of founder(s) and employees, the company created negative economic value. That’s the root issue, not that the investors had fair contractual terms that caused them to lose “only the vast majority of their investment” rather than “all of it”.
- navigatesol 7y ago
  >Or they structured the deal in the only way under which they could get any money at all. Maybe starting a business for which the only way to get funding is by screwing over your employees is exactly the problem here?
  - mlyle 7y ago
    I structured the deals all the same-- with the best price I could get each round, and 1x non-participating liquidity preference. edit: Actually, the last round of my first company was 1.5x non-participating, so a little worse-- it was the best we could do. Didn't matter because it didn't get triggered. My first couple companies won. My last company lost. Good luck ever getting capital without that liquidity preference-- it doesn't get done. My employees got nothing for equity; I lost money overall even when you count my salary. Investors got paid back a portion of what they invested, but lost money too. Everyone lost. Investors and founders were negative, employees were 0 on equity but received their salary/bonus comp. I would have been a hell of a lot better off personally without the liquidity preference, but is that fair? If the company ends up producing less money than was invested in it, it seems to make sense that the investors should get the money.
  - sokoloff 7y ago
    If a set of people collectively take $1MM of investment and turn it into $200K, how much extra bonus on top of their salary should they be paid for that outcome in order to avoid being screwed over in your opinion?
  - mlyle 7y ago
    I guess you wanted to just chuck some insults and move on.
- mlyle 7y ago
  > Without disrespect to the effort of founder(s) and employees, the company created negative economic value. Haha that sounds rather brutal when you say it that way :(
  - sokoloff 7y ago
    I genuinely mean no disrespect. Not all business endeavors turn out to be profitable, especially in startups.
    - mlyle 7y ago
      Yah, I know what you meant :D And I've had success and net economic contribution. But it's still a jarring way to think of the primary activity of five years of my life.

sokoloff 7y ago

More likely they structured the deal in the only way under which they could get any money at all. 1x non-participating is not a bad deal for the company or employees. It only becomes a bad deal when the company fails to create economic value, at which point are the employees really due anything more than salary for time worked? Literally GP post says that investors got pennies on the dollar back and you’re grousing that employees got nothing for their (worthless) equity? Without disrespect to the effort of founder(s) and employees, the company created negative economic value. That’s the root issue, not that the investors had fair contractual terms that caused them to lose “only the vast majority of their investment” rather than “all of it”.

navigatesol 7y ago
>Or they structured the deal in the only way under which they could get any money at all. Maybe starting a business for which the only way to get funding is by screwing over your employees is exactly the problem here?
- mlyle 7y ago
  I structured the deals all the same-- with the best price I could get each round, and 1x non-participating liquidity preference. edit: Actually, the last round of my first company was 1.5x non-participating, so a little worse-- it was the best we could do. Didn't matter because it didn't get triggered. My first couple companies won. My last company lost. Good luck ever getting capital without that liquidity preference-- it doesn't get done. My employees got nothing for equity; I lost money overall even when you count my salary. Investors got paid back a portion of what they invested, but lost money too. Everyone lost. Investors and founders were negative, employees were 0 on equity but received their salary/bonus comp. I would have been a hell of a lot better off personally without the liquidity preference, but is that fair? If the company ends up producing less money than was invested in it, it seems to make sense that the investors should get the money.
- sokoloff 7y ago
  If a set of people collectively take $1MM of investment and turn it into $200K, how much extra bonus on top of their salary should they be paid for that outcome in order to avoid being screwed over in your opinion?
- mlyle 7y ago
  I guess you wanted to just chuck some insults and move on.
mlyle 7y ago
> Without disrespect to the effort of founder(s) and employees, the company created negative economic value. Haha that sounds rather brutal when you say it that way :(
- sokoloff 7y ago
  I genuinely mean no disrespect. Not all business endeavors turn out to be profitable, especially in startups.
  - mlyle 7y ago
    Yah, I know what you meant :D And I've had success and net economic contribution. But it's still a jarring way to think of the primary activity of five years of my life.