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Rebellion at DataRobot over insider stock sales

165 points by gadders 4y ago

bagels 4y ago
Happened at a startup I was at some time ago. Founders were able to include some of their own shares in a round. I found out and was able to put together my own sale later on. It was the best decision.
benjaminwootton 4y ago
If you are a founder of a business and own a significant percentage of shares, I think it’s pretty reasonable and morally acceptable to sell some percentage for liquidity before everyone else gets the same choice. The investors will be sure to keep you tied in, and that money can massively derisk the project for you. I encourage every founder I speak to do this. Non founding executives with short tenure doing the same is a little shadier, but everything is a negotiation and nobody was forced into the transaction. A rank and file employee can push for whatever they like - more money, stock or even liquidity if they have enough perceived importance. Look at it from the other side. Say an exec joins a series C business and plays a big role in growing the company to 3x revenue in 2 years. At the next raise they ask to cash out some equity to buy their beachfront house. Seems a fair enough ask, and with that track record it would probably be worth investors writing the cheque.
- LegitShady 4y ago
  If your executives start selling off shares before the employees who had been there waiting for their paper value to turn into real value get the same opportunity (as you said, with founders it depends on if its reasonable), then even if its legal its going to destroy any trust and the best people will stop believing in your company and move on to someone who hasn't demonstrated working against the employees interests. In your last case, if someone wants to cash out equity but employees can't, then you've destroyed trust and your company may fail in the future because the employees can't trust you to protect their equity.
  - slt2021 4y ago
    VCs who signed up for this deal are idiots. Now their DataRobot investment is practically worthless, because CEO cashed out and most important product people are going to leave the company. VCs who sign up for these deals should think more than one step ahead.
- hvs 4y ago
  "In fact, the executives had worked at DataRobot for a year and a half or less when the sales took place. And under their watch, expenses skyrocketed while revenue growth slowed, with the company missing one of Wright’s 2021 revenue targets by 75%."
  - deleted 4y ago
    [deleted]
- ahepp 4y ago
  Why does an executive deserve to de-risk more than other employees? If anything, that's backwards. Who the hell doesn't want to de-risk? Why is that option only given to certain people, as opposed to offering everyone at the company a chance to sell 10% of their shares? I'm sure it's legal, but it absolutely is fucking the employees over. Saying "the employees could have negotiated better" is kinda just playing the thunderdome card. Employees can't reasonably prevent company insiders from fucking them over with stock shenanigans. That's part of what makes the practice so insidious, and why public stock markets are so highly regulated.
  - Animats 4y ago
    > Why does an executive deserve to de-risk more than other employees? Yes. The SEC used to prevent insiders from selling stock until two years after the IPO. That ended some time around 2006, I think.
    - nopzor 4y ago
      lock up periods are still fairly common, did the sec really require 2 years at one point?
      - Animats 4y ago
        Yes. It took me six years to cash out of Autodesk, since the first stages went to getting enough cash to pay the taxes on the next stage.
  - slt2021 4y ago
    it is not an executive's fault to want to de-risk. THis is capitalism, and everyone looks out to himself only. it is venture capitalist's fault for signing up for this deal, that KILLED a company. Sure, they bribed executive to sign term sheet by allowing him to cash out, but now the entirety of DataRobot is going to be worth 0. VCs basically destroyed value of their LPs. next time, VCs should think about employees who put hard work and keep company operating, not only executives. Without people - any startup is just a worthless legal entity.
- chadash 4y ago
  There are necessary protections in place for minority shareholders in public companies. For example, I can't just buy up 51% of a company and then vote that the company is now going to give all of its profits to me. The same situation should apply here. Employees are typically minority shareholders and as such, should get some basic protections. Early liquidity has significant value. I'd bet that plenty of employees would give up a percentage of their equity in order to cash out at least some of their shares early. Giving this ability to larger shareholders and not to smaller ones is very similar to saying that only large shareholders get to share in profits.
- muskmusk 4y ago
  Selling before everyone else is putting yourself over others. It's a terrible move from a morale standpoint if it gets out. Doesn't matter whether it is "morally acceptable" or not. If you want peak performance from your employees then leaders eat last.
- ChrisMarshallNY 4y ago
  One of the jobs of C-suite people is to run the optics. The way the company is perceived; both in and out; is really up to them. I remember the company I worked with (a highly reputable Japanese company) made a deal with an SV startup. It was a great startup. The people behind it were the "real deal." Some of the most brilliant people I've had the honor to work with. The tech was risky as hell. I think a number of mistakes were made by the beancounters and executives that inked the deal. The Japanese company basically became VC shareholders of the startup. They paid several million dollars, in a few tranches. We worked our asses off, in that deal. People in all parts of the relationships were burning themselves out. Like I said, risky tech. Things ended up not working out as planned. After one of the tranches, one of the founders went out and brought a top-of-the-line Model S. Pissed off the Japanese, something fierce. Things went south, fairly quickly, after that. I don't think it was the cause for the breakup, but it lost the startup some powerful friends, in Tokyo, when they really needed them.
  - Domenic_S 4y ago
    They got pissed about a multi-million dollar investment because a founder spent (financed?) $100k on a car?
    - ChrisMarshallNY 4y ago
      It was the optics. I suspect he ordered it long before the payment, and it would not surprise me if he could afford it (way more than $100K, with his trim package), without the money from the deal. Several of the principals were independently wealthy. However, Japanese executives make a fraction of what US execs make, and work in more difficult conditions. VPs that control billion-dollar budgets have desks that schoolteachers would sniff at. Like I said, optics. It’s not a good idea to piss off people that sign the checks, or will have your back, when you report failure.
      - daniel-cussen 4y ago
        Yeah he could buy that car at a different moment after a significant success, in that case no problem. It looked like squandering all the work the Japanese put into the deal.
- tfehring 4y ago
  The issue is the principal-agent conflict that cash-out opportunities create. The executives have a fiduciary duty to shareholders, including their employees. Cashing out not only reduces the alignment of incentives between executives and shareholders, it also frequently causes executives to accept funding deals that are suboptimal for other shareholders. E.g., they may accept funding at a lower valuation or with otherwise less favorable terms in exchange for a partial cash out. Of course, you're correct in saying that everything is a negotiation. Rank-and-file employees should have accounted for the risk that they'd get screwed over by the founders and required more cash or equity to compensate for that risk. But I worry about a future in which the best talent refuses to work at private startups because the risk of getting screwed renders employee equity next-to-worthless. Arguably we're already there.
  - lovich 4y ago
    Are we not already there? Any equity grant I’ve been given has always seemed like a lottery ticket to a lottery ticket to a lottery ticket. The company not only has to do well, it has to decide to actually IPO, and then there are lockout dates, and it’s always given as options instead of straight grants, and the vesting, and all the other constraints that I’ve forgotten. I’ve just valued them as zero when considering offers and only consider the salary portion which has the insidious(for employers) effect of making me unaligned with the companies best interests beyond the end of the week. Talking to my coworkers at every place I’ve worked it seems like a common feeling. Granted I’ve never worked at a unicorn company or faang so it might just be a function of working for less competent employers who are cargo culting compensation and don’t understand how it’s supposed to bind the employees to the company having a good future It seems like a lot of companies are so afraid of their employees gaining any sort of value out of the company that they’d rather risk failure than risk the situation being a win/win. The employers aren’t completely brain dead and they seem fine enough at negotiating and evaluating risk when it’s company to company negotiations. I can only assume it’s some cultural component of the wealthy class that leads to the continual self sabotage
    - tfehring 4y ago
      For private unicorns I think the answer is no, I've seen plenty of good people join companies that are perceived to be likely to IPO soon. There's plenty of shady stuff that can still happen in late-stage startups, but I think the perception (which is probably somewhat but not completely accurate) is that at that point the equity is enough of a known quantity to be somewhat de-risked. For earlier stage startups...yeah, I dunno. To be clear, I think the illiquidity and vesting period and all of that are basically fine, well-understood risks, and in principle startups can offer enough equity to compensate "true believers" for those risks. What gets me is the really shady unforeseeable stuff, like converting part of the acquisition price to retention bonuses avoid paying out ex-employees for their vested equity. Between that unquantifiable risk and the inherent risk and illiquidity of early startup equity, I'd personally discount the 409a valuation by something like a factor of 5 when evaluating a job offer from an early-stage startup. I don't see a ton of people leaving FAANG or similar companies for early-stage startups, but obviously there are lots of engineers outside of FAANG companies, and I'm sure it helps that valuations are rich enough (or were until recently) to compete with non-tech companies on cash comp.
- bagels 4y ago
  It is ethically repulsive to exclude any shareholding employee when doing this.
enahs-sf 4y ago
The secret guy gave the Ferrari back if I recall correctly.
- wkimeria 4y ago
  That's closing the barn door after the horsepower has escaped. I will see myself out.
henning 4y ago
> What they did was immoral. ... Employees that missed family events, worked family vacations with the promise that their paper millions would be converted to cash. Companies never promise this. The employees who chose this stupid fucking startup over their families are also immoral.
- SyzygistSix 4y ago
  I wouldn't say they are immoral, they just sold themselves very cheap.
newaccount2021 4y ago
the real lesson here is: don't pour your soul into something you didn't found, control, or have executive power over...because those that are in this category will pull the levers available to them
slt2021 4y ago
easiest way to piss off the most loyal and experienced people, who could pull the company forward
PeterisP 4y ago
Minority shareholders including employees should get similar protections as investors often get in shareholder agreements - e.g. in this particular case it would have helped to have 'tag-along rights' which would have legally required them to be able to sell at the same conditions as those executives. Not particularly likely to happen, but perhaps we can push towards this somehow? Because otherwise that stock loses much of its worth as compensation.
- lukemercado 4y ago
  Would you happen to know of an example of "tag-along rights" that I could bring up at my next board meeting? I'm curious what the implications of such a thing would be and having sample text would be incredibly valuable.
  - PeterisP 4y ago
    Something like this ? https://www.lawinsider.com/clause/tag-along-rights https://www.lawinsider.com/clause/tag-along-rights
aresant 4y ago
DataRobot is unusual in that the "money off the table" was geared for non-founder executives. But the "secondary's for founders" is not that unusual - it's typically used as a tool by VCs who are in competition with other corporate development opportunities. AKA Clubhouse had several suitors for acquisition (including Twitter it's rumored) but Andreesen added a few million bucks of liquidity for the founders to bridge the gap between "guaranteed liquidity" vs "non guaranteed but potentially greater upside" (1) But then of course you have all sorts of eggregious examples over the past several years of Johnny Boufarhat @ Hoping taking $100m+ out or infamous Adam Neumann pulling out $700m+ from WeWork(2) (1) https://www.forbes.com/sites/alexkonrad/2020/05/15/andreessen-horowitz-wins-vc-sweepstakes-to-back-clubhouse-voice-app https://www.forbes.com/sites/alexkonrad/2020/05/15/andreesse... (2) https://sifted.eu/articles/secondaries-taboo/ https://sifted.eu/articles/secondaries-taboo/
- chuckcode 4y ago
  Definitely not unusual. I think it is pretty common for executive team in addition to founders. My feeling is that VCs and founders need to find a way to partially cash out rank and file employees along the way if they want start up model to succeed long term. Many senior engineers are reluctant to to join startups at this point as even if startup is successful it can be a long time before they have the money in their pocket. Employees at Reddit, Stripe, Instacart, Databricks, and many others have been waiting over a decade for company success to hit their wallet. Sometimes the executive team gets stock options rather than RSUs so they own the stock and can sell to secondary parties. VCs and founders would like them to sell to known parties rather than sell on private market (Facebook crossing 500 investors threshold was one important reason for IPO timing [1]). [1] https://web.archive.org/web/20120517045249/http://blogs.reuters.com/felix-salmon/2012/05/16/facebook-the-smart-money-exits/ https://web.archive.org/web/20120517045249/http://blogs.reut...
  - Hermitian909 4y ago
    > My feeling is that VCs and founders need to find a way to partially cash out rank and file employees along the way if they want start up model to succeed long term. They also need to adjust comp structure. I've had a few offers to be engineer #1 at this hot startup or that, some of which I thought had a good chance of success. Assuming the best case scenario I always found the following to be true: 1. Founders would outearn me 100:1 2. Given any reasonable assumptions around likelihood we fail, the E(V) of the offer was less than I make now. 3. Founders could, at any time before IPO, completely screw me out of my paper gains e.g. via an acquisition. I've always pointed out it's possible to make me an offer I'll take, the resources are there, but no one bites. This is absolutely killing a lot of otherwise potentially great startups. I've seen some fantastic business ideas fall down in execution because neither founders nor investors could bear to let key employees share more of the spoils and be equally protected from the downsides.
gumby 4y ago
This is a side point to the article, but but important for anyone running an enterprise business: > The article brought attention to other things not going right at the company. For example, DataRobot sent its top salespeople on a lavish trip to The Virgin Islands just days before laying off 7% of employees. This trip is not necessarily a bad thing to have done, and more likely than not a good thing. You need your sales team properly motivated. Sales people have their own culture, and if you don't understand it you'll have a hard time recruiting and retaining an effective sales team. Actually you'll have a hard time recruiting the VP of sales who will build and manage that team for success. The good ones are ultracompetitive. You didn't make top producer for the quarter? Well I'm still excited at the number that person made because it shows how great our company is, but fuck, I'm gonna blow that shit out of the water next quarter. I've been to the sales meeting junkets as CEO. They love to hear from the CEO...briefly. Rev them up and get them excited that this company is going somewhere BIG. Then get off the stage, give it back to the VP of sales, and leave. The VP is their boss, their protector, and makes sure the comp and commissions are paid. The CEO has to balance all sorts of things. The VP has to...bring in the revenue! Obviously people like that would hate to work in engineering, and you wouldn't want to work with someone like that on your engineering team. Different worlds. It's very common in tech companies for engineering to shit on sales (why won't they just go sell what we've got?) and marketing (our product is so great, what do this assholes do anyway?) sales to shit on engineering (those shits just say no all the time and never work on what the customer really wants). The effective companies are where they respect each other and realize that their cultures are different but that they need each other. I'm surprised how infrequently I see that.
- slt2021 4y ago
  the article said DataRobot missed sales goals by 75%. nice reward for missing sales by that large margin. what you said is true and needs to be done in a healthy organization, but DataRobot seems to be not in a healthy state
  - jnwatson 4y ago
    The sales folks that went on the trip were most likely the ones that made their number. Except the sales executives of course.
hinkley 4y ago
This story just reminds me again how often the best scenario is to be let go in the first round of layoffs.
hinkley 4y ago
> DataRobot is an AI management and deployment platform, which was valued at $6.3B when it raised $300M in July of 2021. In May of this year, the company let go of 7% of its staff as part of cost-cutting. Shut the front door. We're valuing companies based on rounds that caused less than 5% of the shares to change hands? How long has that bullshit been going on? $300M is 1/21st of the valuation, or 4.76%. That's a vote of confidence sure but not a particularly large one.
- bombcar 4y ago
  Valuations are bs numbers like crypto “value” where you take the last one sold and pretend all are worth that. It might roughly have an association with soemthing real.
  - dan-robertson 4y ago
    A few ways they are bs are: - companies say they are worth price-per-share * number-of-shares but investors tend to get preferred shares which ought to be worth more - valuations may be driven by competition between investors, how desperate the company is, the state of global financial markets, etc.
  - dilyevsky 4y ago
    > where you take the last one sold and pretend all are worth that. That’s basically how public stock exchanges work except normally in much smaller quantities than typical round. What’s not bs then?
    - hinkley 4y ago
      Strictly speaking, analysis of stock does include the float. If the shares being traded are too thin, many people realize that the numbers are kind of fictitious. In particular if you’re a commercial trader, light trade levels mean you can’t sell a position without affecting the price yourself. And that’s without having Berkshire Hathaway problems, where you have to buy in secret over a long period or people will try to fast follow. And some people think the stock market is a bit bs, yes. It’s less pyramid than an MLM, but I think we’re about to find out some things when the boomers start running out of money.
billyhoffman 4y ago
To be clear there’s a lot wrong with these companies, but this passage below isn’t one of them: > The article brought attention to other things not going right at the company. For example, DataRobot sent its top salespeople on a lavish trip to The Virgin Islands just days before laying off 7% of employees. This is a misunderstanding of how sales compensation works. Individual sales people are paid a low base salary, and earn a commission on sales. Reps carry a quota of new revenue they are supposed to land. Their base pay + commission if they hit quota is a pretty good take home, like a mid to senior engineer. Above quota, sales gets accelerators. Instead of say 15 or 20% commission on a deal, they get 25%, 30% or more. Accelerators keep compounding. The best Sales people are the highest paid individuals in a company. Outside of public companies, top sales people make more than the executives. Part of that compensation is “presidents club”. Different companies call it different things. It’s a trip or perk for the top sales people. People who are hitting 150%-200% or more of their quota. The reps not hitting their targets are no going on these trips. So yeah, telling your top sales reps Melanie or Marco, who each personally generated millions of dollars for the company and exceeded their personal targets, that they don’t get to go on their trip because some other sales people sucked so much at there job the company missed a target is not an acceptable option. Definitely not if you want to keep those top reps, which you do, because they sold double their quota. TLDR: these trips are part of compensation for the people who are exceeding their targets. Don’t fuck with their $$$
- salesbs 4y ago
  > personally generated millions of dollars for the company Yeah. Like I believe that. They use their connections and moxie to justify that at the expense of everyone else creating legitimate value like all the employees that have to support the crap they sell yet never see a nickle of those commissions.
- Apes 4y ago
  I guess it logically makes sense to not begrudge the person who scratches off a winning lottery ticket while everyone else around them is getting laid off, but it definitely feels in poor taste to send someone on an expensive company sponsored fuck-fest while the rest of the company is getting fucked.
greatgib 4y ago
We also have former DataRobot employees who have taken out exotic stock loans to cover $100,000-$1.000,000 worth of stock purchases and have been begging our executives to let them sell. Seriously, how someone can be so clueless? Especially for an engineer or a data scientist?
aqme28 4y ago
This happened at Blue Apron while I worked there as well and caused a big morale hit. The company was preventing engineers from selling shares while simultaneously enabling founders to sell.
sethjr5rtfgh 4y ago

165 points by gadders 4y ago

Happened at a startup I was at some time ago. Founders were able to include some of their own shares in a round. I found out and was able to put together my own sale later on. It was the best decision.

benjaminwootton 4y ago

If you are a founder of a business and own a significant percentage of shares, I think it’s pretty reasonable and morally acceptable to sell some percentage for liquidity before everyone else gets the same choice. The investors will be sure to keep you tied in, and that money can massively derisk the project for you. I encourage every founder I speak to do this. Non founding executives with short tenure doing the same is a little shadier, but everything is a negotiation and nobody was forced into the transaction. A rank and file employee can push for whatever they like - more money, stock or even liquidity if they have enough perceived importance. Look at it from the other side. Say an exec joins a series C business and plays a big role in growing the company to 3x revenue in 2 years. At the next raise they ask to cash out some equity to buy their beachfront house. Seems a fair enough ask, and with that track record it would probably be worth investors writing the cheque.

LegitShady 4y ago
If your executives start selling off shares before the employees who had been there waiting for their paper value to turn into real value get the same opportunity (as you said, with founders it depends on if its reasonable), then even if its legal its going to destroy any trust and the best people will stop believing in your company and move on to someone who hasn't demonstrated working against the employees interests. In your last case, if someone wants to cash out equity but employees can't, then you've destroyed trust and your company may fail in the future because the employees can't trust you to protect their equity.
- slt2021 4y ago
  VCs who signed up for this deal are idiots. Now their DataRobot investment is practically worthless, because CEO cashed out and most important product people are going to leave the company. VCs who sign up for these deals should think more than one step ahead.
hvs 4y ago
"In fact, the executives had worked at DataRobot for a year and a half or less when the sales took place. And under their watch, expenses skyrocketed while revenue growth slowed, with the company missing one of Wright’s 2021 revenue targets by 75%."
- deleted 4y ago
  [deleted]
ahepp 4y ago
Why does an executive deserve to de-risk more than other employees? If anything, that's backwards. Who the hell doesn't want to de-risk? Why is that option only given to certain people, as opposed to offering everyone at the company a chance to sell 10% of their shares? I'm sure it's legal, but it absolutely is fucking the employees over. Saying "the employees could have negotiated better" is kinda just playing the thunderdome card. Employees can't reasonably prevent company insiders from fucking them over with stock shenanigans. That's part of what makes the practice so insidious, and why public stock markets are so highly regulated.
- Animats 4y ago
  > Why does an executive deserve to de-risk more than other employees? Yes. The SEC used to prevent insiders from selling stock until two years after the IPO. That ended some time around 2006, I think.
  - nopzor 4y ago
    lock up periods are still fairly common, did the sec really require 2 years at one point?
    - Animats 4y ago
      Yes. It took me six years to cash out of Autodesk, since the first stages went to getting enough cash to pay the taxes on the next stage.
- slt2021 4y ago
  it is not an executive's fault to want to de-risk. THis is capitalism, and everyone looks out to himself only. it is venture capitalist's fault for signing up for this deal, that KILLED a company. Sure, they bribed executive to sign term sheet by allowing him to cash out, but now the entirety of DataRobot is going to be worth 0. VCs basically destroyed value of their LPs. next time, VCs should think about employees who put hard work and keep company operating, not only executives. Without people - any startup is just a worthless legal entity.
chadash 4y ago
There are necessary protections in place for minority shareholders in public companies. For example, I can't just buy up 51% of a company and then vote that the company is now going to give all of its profits to me. The same situation should apply here. Employees are typically minority shareholders and as such, should get some basic protections. Early liquidity has significant value. I'd bet that plenty of employees would give up a percentage of their equity in order to cash out at least some of their shares early. Giving this ability to larger shareholders and not to smaller ones is very similar to saying that only large shareholders get to share in profits.
muskmusk 4y ago
Selling before everyone else is putting yourself over others. It's a terrible move from a morale standpoint if it gets out. Doesn't matter whether it is "morally acceptable" or not. If you want peak performance from your employees then leaders eat last.
ChrisMarshallNY 4y ago
One of the jobs of C-suite people is to run the optics. The way the company is perceived; both in and out; is really up to them. I remember the company I worked with (a highly reputable Japanese company) made a deal with an SV startup. It was a great startup. The people behind it were the "real deal." Some of the most brilliant people I've had the honor to work with. The tech was risky as hell. I think a number of mistakes were made by the beancounters and executives that inked the deal. The Japanese company basically became VC shareholders of the startup. They paid several million dollars, in a few tranches. We worked our asses off, in that deal. People in all parts of the relationships were burning themselves out. Like I said, risky tech. Things ended up not working out as planned. After one of the tranches, one of the founders went out and brought a top-of-the-line Model S. Pissed off the Japanese, something fierce. Things went south, fairly quickly, after that. I don't think it was the cause for the breakup, but it lost the startup some powerful friends, in Tokyo, when they really needed them.
- Domenic_S 4y ago
  They got pissed about a multi-million dollar investment because a founder spent (financed?) $100k on a car?
  - ChrisMarshallNY 4y ago
    It was the optics. I suspect he ordered it long before the payment, and it would not surprise me if he could afford it (way more than $100K, with his trim package), without the money from the deal. Several of the principals were independently wealthy. However, Japanese executives make a fraction of what US execs make, and work in more difficult conditions. VPs that control billion-dollar budgets have desks that schoolteachers would sniff at. Like I said, optics. It’s not a good idea to piss off people that sign the checks, or will have your back, when you report failure.
    - daniel-cussen 4y ago
      Yeah he could buy that car at a different moment after a significant success, in that case no problem. It looked like squandering all the work the Japanese put into the deal.
tfehring 4y ago
The issue is the principal-agent conflict that cash-out opportunities create. The executives have a fiduciary duty to shareholders, including their employees. Cashing out not only reduces the alignment of incentives between executives and shareholders, it also frequently causes executives to accept funding deals that are suboptimal for other shareholders. E.g., they may accept funding at a lower valuation or with otherwise less favorable terms in exchange for a partial cash out. Of course, you're correct in saying that everything is a negotiation. Rank-and-file employees should have accounted for the risk that they'd get screwed over by the founders and required more cash or equity to compensate for that risk. But I worry about a future in which the best talent refuses to work at private startups because the risk of getting screwed renders employee equity next-to-worthless. Arguably we're already there.
- lovich 4y ago
  Are we not already there? Any equity grant I’ve been given has always seemed like a lottery ticket to a lottery ticket to a lottery ticket. The company not only has to do well, it has to decide to actually IPO, and then there are lockout dates, and it’s always given as options instead of straight grants, and the vesting, and all the other constraints that I’ve forgotten. I’ve just valued them as zero when considering offers and only consider the salary portion which has the insidious(for employers) effect of making me unaligned with the companies best interests beyond the end of the week. Talking to my coworkers at every place I’ve worked it seems like a common feeling. Granted I’ve never worked at a unicorn company or faang so it might just be a function of working for less competent employers who are cargo culting compensation and don’t understand how it’s supposed to bind the employees to the company having a good future It seems like a lot of companies are so afraid of their employees gaining any sort of value out of the company that they’d rather risk failure than risk the situation being a win/win. The employers aren’t completely brain dead and they seem fine enough at negotiating and evaluating risk when it’s company to company negotiations. I can only assume it’s some cultural component of the wealthy class that leads to the continual self sabotage
  - tfehring 4y ago
    For private unicorns I think the answer is no, I've seen plenty of good people join companies that are perceived to be likely to IPO soon. There's plenty of shady stuff that can still happen in late-stage startups, but I think the perception (which is probably somewhat but not completely accurate) is that at that point the equity is enough of a known quantity to be somewhat de-risked. For earlier stage startups...yeah, I dunno. To be clear, I think the illiquidity and vesting period and all of that are basically fine, well-understood risks, and in principle startups can offer enough equity to compensate "true believers" for those risks. What gets me is the really shady unforeseeable stuff, like converting part of the acquisition price to retention bonuses avoid paying out ex-employees for their vested equity. Between that unquantifiable risk and the inherent risk and illiquidity of early startup equity, I'd personally discount the 409a valuation by something like a factor of 5 when evaluating a job offer from an early-stage startup. I don't see a ton of people leaving FAANG or similar companies for early-stage startups, but obviously there are lots of engineers outside of FAANG companies, and I'm sure it helps that valuations are rich enough (or were until recently) to compete with non-tech companies on cash comp.
bagels 4y ago
It is ethically repulsive to exclude any shareholding employee when doing this.

enahs-sf 4y ago

The secret guy gave the Ferrari back if I recall correctly.

wkimeria 4y ago
That's closing the barn door after the horsepower has escaped. I will see myself out.

henning 4y ago

> What they did was immoral. ... Employees that missed family events, worked family vacations with the promise that their paper millions would be converted to cash. Companies never promise this. The employees who chose this stupid fucking startup over their families are also immoral.

SyzygistSix 4y ago
I wouldn't say they are immoral, they just sold themselves very cheap.

newaccount2021 4y ago

the real lesson here is: don't pour your soul into something you didn't found, control, or have executive power over...because those that are in this category will pull the levers available to them

slt2021 4y ago

easiest way to piss off the most loyal and experienced people, who could pull the company forward

PeterisP 4y ago

Minority shareholders including employees should get similar protections as investors often get in shareholder agreements - e.g. in this particular case it would have helped to have 'tag-along rights' which would have legally required them to be able to sell at the same conditions as those executives. Not particularly likely to happen, but perhaps we can push towards this somehow? Because otherwise that stock loses much of its worth as compensation.

lukemercado 4y ago
Would you happen to know of an example of "tag-along rights" that I could bring up at my next board meeting? I'm curious what the implications of such a thing would be and having sample text would be incredibly valuable.
- PeterisP 4y ago
  Something like this ? https://www.lawinsider.com/clause/tag-along-rights https://www.lawinsider.com/clause/tag-along-rights

aresant 4y ago

DataRobot is unusual in that the "money off the table" was geared for non-founder executives. But the "secondary's for founders" is not that unusual - it's typically used as a tool by VCs who are in competition with other corporate development opportunities. AKA Clubhouse had several suitors for acquisition (including Twitter it's rumored) but Andreesen added a few million bucks of liquidity for the founders to bridge the gap between "guaranteed liquidity" vs "non guaranteed but potentially greater upside" (1) But then of course you have all sorts of eggregious examples over the past several years of Johnny Boufarhat @ Hoping taking $100m+ out or infamous Adam Neumann pulling out $700m+ from WeWork(2) (1) https://www.forbes.com/sites/alexkonrad/2020/05/15/andreessen-horowitz-wins-vc-sweepstakes-to-back-clubhouse-voice-app https://www.forbes.com/sites/alexkonrad/2020/05/15/andreesse... (2) https://sifted.eu/articles/secondaries-taboo/ https://sifted.eu/articles/secondaries-taboo/

chuckcode 4y ago
Definitely not unusual. I think it is pretty common for executive team in addition to founders. My feeling is that VCs and founders need to find a way to partially cash out rank and file employees along the way if they want start up model to succeed long term. Many senior engineers are reluctant to to join startups at this point as even if startup is successful it can be a long time before they have the money in their pocket. Employees at Reddit, Stripe, Instacart, Databricks, and many others have been waiting over a decade for company success to hit their wallet. Sometimes the executive team gets stock options rather than RSUs so they own the stock and can sell to secondary parties. VCs and founders would like them to sell to known parties rather than sell on private market (Facebook crossing 500 investors threshold was one important reason for IPO timing [1]). [1] https://web.archive.org/web/20120517045249/http://blogs.reuters.com/felix-salmon/2012/05/16/facebook-the-smart-money-exits/ https://web.archive.org/web/20120517045249/http://blogs.reut...
- Hermitian909 4y ago
  > My feeling is that VCs and founders need to find a way to partially cash out rank and file employees along the way if they want start up model to succeed long term. They also need to adjust comp structure. I've had a few offers to be engineer #1 at this hot startup or that, some of which I thought had a good chance of success. Assuming the best case scenario I always found the following to be true: 1. Founders would outearn me 100:1 2. Given any reasonable assumptions around likelihood we fail, the E(V) of the offer was less than I make now. 3. Founders could, at any time before IPO, completely screw me out of my paper gains e.g. via an acquisition. I've always pointed out it's possible to make me an offer I'll take, the resources are there, but no one bites. This is absolutely killing a lot of otherwise potentially great startups. I've seen some fantastic business ideas fall down in execution because neither founders nor investors could bear to let key employees share more of the spoils and be equally protected from the downsides.

gumby 4y ago

This is a side point to the article, but but important for anyone running an enterprise business: > The article brought attention to other things not going right at the company. For example, DataRobot sent its top salespeople on a lavish trip to The Virgin Islands just days before laying off 7% of employees. This trip is not necessarily a bad thing to have done, and more likely than not a good thing. You need your sales team properly motivated. Sales people have their own culture, and if you don't understand it you'll have a hard time recruiting and retaining an effective sales team. Actually you'll have a hard time recruiting the VP of sales who will build and manage that team for success. The good ones are ultracompetitive. You didn't make top producer for the quarter? Well I'm still excited at the number that person made because it shows how great our company is, but fuck, I'm gonna blow that shit out of the water next quarter. I've been to the sales meeting junkets as CEO. They love to hear from the CEO...briefly. Rev them up and get them excited that this company is going somewhere BIG. Then get off the stage, give it back to the VP of sales, and leave. The VP is their boss, their protector, and makes sure the comp and commissions are paid. The CEO has to balance all sorts of things. The VP has to...bring in the revenue! Obviously people like that would hate to work in engineering, and you wouldn't want to work with someone like that on your engineering team. Different worlds. It's very common in tech companies for engineering to shit on sales (why won't they just go sell what we've got?) and marketing (our product is so great, what do this assholes do anyway?) sales to shit on engineering (those shits just say no all the time and never work on what the customer really wants). The effective companies are where they respect each other and realize that their cultures are different but that they need each other. I'm surprised how infrequently I see that.

slt2021 4y ago
the article said DataRobot missed sales goals by 75%. nice reward for missing sales by that large margin. what you said is true and needs to be done in a healthy organization, but DataRobot seems to be not in a healthy state
- jnwatson 4y ago
  The sales folks that went on the trip were most likely the ones that made their number. Except the sales executives of course.

hinkley 4y ago

This story just reminds me again how often the best scenario is to be let go in the first round of layoffs.

hinkley 4y ago

> DataRobot is an AI management and deployment platform, which was valued at $6.3B when it raised $300M in July of 2021. In May of this year, the company let go of 7% of its staff as part of cost-cutting. Shut the front door. We're valuing companies based on rounds that caused less than 5% of the shares to change hands? How long has that bullshit been going on? $300M is 1/21st of the valuation, or 4.76%. That's a vote of confidence sure but not a particularly large one.

bombcar 4y ago
Valuations are bs numbers like crypto “value” where you take the last one sold and pretend all are worth that. It might roughly have an association with soemthing real.
- dan-robertson 4y ago
  A few ways they are bs are: - companies say they are worth price-per-share * number-of-shares but investors tend to get preferred shares which ought to be worth more - valuations may be driven by competition between investors, how desperate the company is, the state of global financial markets, etc.
- dilyevsky 4y ago
  > where you take the last one sold and pretend all are worth that. That’s basically how public stock exchanges work except normally in much smaller quantities than typical round. What’s not bs then?
  - hinkley 4y ago
    Strictly speaking, analysis of stock does include the float. If the shares being traded are too thin, many people realize that the numbers are kind of fictitious. In particular if you’re a commercial trader, light trade levels mean you can’t sell a position without affecting the price yourself. And that’s without having Berkshire Hathaway problems, where you have to buy in secret over a long period or people will try to fast follow. And some people think the stock market is a bit bs, yes. It’s less pyramid than an MLM, but I think we’re about to find out some things when the boomers start running out of money.

billyhoffman 4y ago

To be clear there’s a lot wrong with these companies, but this passage below isn’t one of them: > The article brought attention to other things not going right at the company. For example, DataRobot sent its top salespeople on a lavish trip to The Virgin Islands just days before laying off 7% of employees. This is a misunderstanding of how sales compensation works. Individual sales people are paid a low base salary, and earn a commission on sales. Reps carry a quota of new revenue they are supposed to land. Their base pay + commission if they hit quota is a pretty good take home, like a mid to senior engineer. Above quota, sales gets accelerators. Instead of say 15 or 20% commission on a deal, they get 25%, 30% or more. Accelerators keep compounding. The best Sales people are the highest paid individuals in a company. Outside of public companies, top sales people make more than the executives. Part of that compensation is “presidents club”. Different companies call it different things. It’s a trip or perk for the top sales people. People who are hitting 150%-200% or more of their quota. The reps not hitting their targets are no going on these trips. So yeah, telling your top sales reps Melanie or Marco, who each personally generated millions of dollars for the company and exceeded their personal targets, that they don’t get to go on their trip because some other sales people sucked so much at there job the company missed a target is not an acceptable option. Definitely not if you want to keep those top reps, which you do, because they sold double their quota. TLDR: these trips are part of compensation for the people who are exceeding their targets. Don’t fuck with their $$$

salesbs 4y ago
> personally generated millions of dollars for the company Yeah. Like I believe that. They use their connections and moxie to justify that at the expense of everyone else creating legitimate value like all the employees that have to support the crap they sell yet never see a nickle of those commissions.
Apes 4y ago
I guess it logically makes sense to not begrudge the person who scratches off a winning lottery ticket while everyone else around them is getting laid off, but it definitely feels in poor taste to send someone on an expensive company sponsored fuck-fest while the rest of the company is getting fucked.

greatgib 4y ago

We also have former DataRobot employees who have taken out exotic stock loans to cover $100,000-$1.000,000 worth of stock purchases and have been begging our executives to let them sell. Seriously, how someone can be so clueless? Especially for an engineer or a data scientist?

aqme28 4y ago

This happened at Blue Apron while I worked there as well and caused a big morale hit. The company was preventing engineers from selling shares while simultaneously enabling founders to sell.

sethjr5rtfgh 4y ago