4 ms·

As a founder, let's say you can take home 15 million and your employees get nothing, or you can take home 14 million and your employees get 1 million. Is taking

As a founder, let's say you can take home 15 million and your employees get nothing, or you can take home 14 million and your employees get 1 million. Is taking the 15 million because you can and it's totally legal not shitty and sociopathic?

exogeny 6y ago
In that specific example, I'd say it's shitty, yeah. I haven't seen too many cases of a founder getting that 15mm up front though. That's comically high for a sign-on and even in an earn-out scenario that's on the high side. You said seven figures though; if Founder A was getting like, two or three, then nah, probably not.
lmeyerov 6y ago
Most likely, when negotiations went through, priorities was something like: - pay off investors enough so they agree to the deal - pay off founders enough so they proceed and stick around: potentially via a 2-4yr earnout - pay off key employees enough to retain them through M&A too: good chance via a 2-4yr earn out as well - employees who contributed 5-10 years ago: only if a big enough sale that it's straight cash etc. (ex: 3X+ of amount invested) The acquiring co will generally push hard for earnouts vs. direct compensation, and will pay more that way (or even back out w/out.) Likewise, investors may nix the deal if they don't get paid in $. A "$100M acquisition" might actually be "$70M to investors who had 2X participation on $35M raised" (accounting for 100% of equity-based payment) + "$20M as earnouts to founders/employees who go to the new co" + "$10M for bank account balance" + "$0 to employees from 10 years ago". So no surprise if most employees don't get direct $. However, it's pretty doable for employees to get a nice earnout, and telling if the founders got a nice earnout while not getting one for their employees. Likewise, not surprising for ex-employees to washout, and it'd need to be a big success to change that - as in, investors get 1-2X+ of their money back first.

exogeny 6y ago

In that specific example, I'd say it's shitty, yeah. I haven't seen too many cases of a founder getting that 15mm up front though. That's comically high for a sign-on and even in an earn-out scenario that's on the high side. You said seven figures though; if Founder A was getting like, two or three, then nah, probably not.

lmeyerov 6y ago

Most likely, when negotiations went through, priorities was something like: - pay off investors enough so they agree to the deal - pay off founders enough so they proceed and stick around: potentially via a 2-4yr earnout - pay off key employees enough to retain them through M&A too: good chance via a 2-4yr earn out as well - employees who contributed 5-10 years ago: only if a big enough sale that it's straight cash etc. (ex: 3X+ of amount invested) The acquiring co will generally push hard for earnouts vs. direct compensation, and will pay more that way (or even back out w/out.) Likewise, investors may nix the deal if they don't get paid in $. A "$100M acquisition" might actually be "$70M to investors who had 2X participation on $35M raised" (accounting for 100% of equity-based payment) + "$20M as earnouts to founders/employees who go to the new co" + "$10M for bank account balance" + "$0 to employees from 10 years ago". So no surprise if most employees don't get direct $. However, it's pretty doable for employees to get a nice earnout, and telling if the founders got a nice earnout while not getting one for their employees. Likewise, not surprising for ex-employees to washout, and it'd need to be a big success to change that - as in, investors get 1-2X+ of their money back first.