4 ms·

How is 2% of $40 million zero?

by japhyr 15y ago

troels 15y ago
If investors hold $40m in preference, it's 0. But I'd be interested in the other two ways?
- mgkimsal 15y ago
  Is this was a record company deal, they'd have advanced you some goodwill and charged you for it. You'd be lucky to get out with $0, instead of owing them money for having worked there :)
3pt14159 15y ago
Different classes of shares, liquidation preference, the IP being in a separate company that leases it to the company that you own the shares in, performance clauses (company needs to earn 2x revenue over the next 2 years).
patio11 15y ago
Three options: 1) Liquidation preferences. 2) "We wipe out common stock at acquisition and offer employees retention bonuses, leaving 2% owner who moved on totally shafted." 3) Pretend your corporate charter is a Ruby program and a malicious adversary gets write access to it. Seriously, the sky's the limit. Integers might be kitten pictures now, and multiplication returns shades of pink.
- throwaway96 15y ago
  1) Liquidation preferences: Right, and part of the problem is that as more investments are collected, more preferred shares get in line ahead of employees' common shares. "Down" rounds tend to devastate the value of common shares. But the good news is that upper management and regular employees are in principle affected the same way by these vicissitudes, and in practice I've seen that mostly happen. Some exceptions include founders/upper-management getting special opportunities to cash out or receiving significant anti-dilutive share bonuses. I'm not saying that the founders and employees have exactly the same incentives here, but they are at least somewhat helpfully aligned. 2) Agree that I've heard gossip about these kinds of scenarios, but (I've often wondered) wouldn't this be a violation of their fiduciary duty to certain stockholders? Can a lawyer weigh in on whether (in theory) this scenario allows for a legal remedy? 3) True, the corporate charter is not a contract with an employee, and it can be rewritten at will by the Board. But it seems to me there are limits: if they edit the charter in a way that deliberately wipes out the value of your shares and had a choice not to, this resembles case 2, where I suspect one can seek legal redress (right?).

How is 2% of $40 million zero?

by japhyr 15y ago

How is 2% of $40 million zero?

troels 15y ago

If investors hold $40m in preference, it's 0. But I'd be interested in the other two ways?

mgkimsal 15y ago
Is this was a record company deal, they'd have advanced you some goodwill and charged you for it. You'd be lucky to get out with $0, instead of owing them money for having worked there :)

3pt14159 15y ago

Different classes of shares, liquidation preference, the IP being in a separate company that leases it to the company that you own the shares in, performance clauses (company needs to earn 2x revenue over the next 2 years).

patio11 15y ago

Three options: 1) Liquidation preferences. 2) "We wipe out common stock at acquisition and offer employees retention bonuses, leaving 2% owner who moved on totally shafted." 3) Pretend your corporate charter is a Ruby program and a malicious adversary gets write access to it. Seriously, the sky's the limit. Integers might be kitten pictures now, and multiplication returns shades of pink.

throwaway96 15y ago
1) Liquidation preferences: Right, and part of the problem is that as more investments are collected, more preferred shares get in line ahead of employees' common shares. "Down" rounds tend to devastate the value of common shares. But the good news is that upper management and regular employees are in principle affected the same way by these vicissitudes, and in practice I've seen that mostly happen. Some exceptions include founders/upper-management getting special opportunities to cash out or receiving significant anti-dilutive share bonuses. I'm not saying that the founders and employees have exactly the same incentives here, but they are at least somewhat helpfully aligned. 2) Agree that I've heard gossip about these kinds of scenarios, but (I've often wondered) wouldn't this be a violation of their fiduciary duty to certain stockholders? Can a lawyer weigh in on whether (in theory) this scenario allows for a legal remedy? 3) True, the corporate charter is not a contract with an employee, and it can be rewritten at will by the Board. But it seems to me there are limits: if they edit the charter in a way that deliberately wipes out the value of your shares and had a choice not to, this resembles case 2, where I suspect one can seek legal redress (right?).