5 ms·

Roughly how much would the founders net

spacebanana7 3y ago
Hard to say from the outside. Most founding teams end up with around 20% of a company at IPO so you could use that as a reference point. However, this company was a few stages before IPO so there could have been less dilution from investors - allowing the founders to get a bigger cut. On the other hand, some investors have really aggressive terms that can screw founders in situations like this. For example, their contracts could stipulate that an investor gets the first $45m of any exit even if that investor only put $15m into the company.
- ericd 3y ago
  My impression is that those kinds of preference terms have been unusual over the past decade in SV.
debacle 3y ago
To calculate that you'd need to know what they raised at.
alexawarrior 3y ago
It's a private transaction, so it's unknown and unless it's leaked out we are unlikely to ever know. There was a startup I was co-founder of at one point, and seven years later (about the same age as Paperspace) we sold for a similar amount, and the net of my shares was a little over $100,000. The CEO got more, other early joiners less. And among my direct knowledge of individuals in the startup community, this is not an unusual case, but rather typical. Many times companies are sold but the money goes primarily to the venture capitalists. Even seed and early round investors can get minimal or no returns after later dilution after a sale. The "20%" case is typically the best case that happens only in the 1/10,000 chance of extreme fast growth into a new behemoth, OR where the founders are already high net worth individuals or come from high net worth families, and can provide their own money in conjunction with VCs instead of relying on them for most capital. Because this is all private and not discussed, we tend to only hear of the very exceptional cases, and ignore the vast majority of the non-lottery winners in the startup world.
- y7 3y ago
  If you want to share some more (approximate) numbers, I'm very curious. What equity percentage did you have at the start? And were your shares worth more at an earlier investment round than at the exit?
  - alexawarrior 3y ago
    Starting equity was a little less than 10%. Valuations went up as several rounds were raised up to $30+m and share value went up until at one point it was north of $20m paper dollars. After market re-valuation an additional $60+m was raised and value went down a little but was still substantial. Then the IPO market all but disappeared. Final sale price was around $150m and common shareholders including myself initially received zero. Essentially the VCs converted their preferred to common and then voted to sell to a related party (another company the same VC firm had invested in). According to a lawyer who setup our initial investments, this was actually illegal so common investors including myself sued, but was this bankrolled by one of the big early investors as it's incredibly expensive to try and do a shareholder lawsuit against a major VC firm and investment bank. It ended up being settled out of court and that's where my $100,000 came from. The CEO came out a little better, but people who sweated years (and I mean frequent all nighters, weekends, true dedication) ended up with even less than me. And the only reason we even received anything at all was because we had a HNWI common investor who also got screwed and backed the lawsuit, they ended up getting their money back and a small return on investment from what I remember of the settlement terms. Just a word of caution to founders and early employees of startups to know what they are getting in to and the typical case of what happens (a small or non existent exit is the typical case in a tech startup), even when you see those big number raises and a big sale and you just assume that everyone is making bank.
    - mymac 3y ago
      That VC deserves to be named.
      - sashank_1509 3y ago

Hard to say from the outside. Most founding teams end up with around 20% of a company at IPO so you could use that as a reference point. However, this company was a few stages before IPO so there could have been less dilution from investors - allowing the founders to get a bigger cut. On the other hand, some investors have really aggressive terms that can screw founders in situations like this. For example, their contracts could stipulate that an investor gets the first $45m of any exit even if that investor only put $15m into the company.

ericd 3y ago
My impression is that those kinds of preference terms have been unusual over the past decade in SV.

debacle 3y ago

To calculate that you'd need to know what they raised at.

alexawarrior 3y ago

It's a private transaction, so it's unknown and unless it's leaked out we are unlikely to ever know. There was a startup I was co-founder of at one point, and seven years later (about the same age as Paperspace) we sold for a similar amount, and the net of my shares was a little over $100,000. The CEO got more, other early joiners less. And among my direct knowledge of individuals in the startup community, this is not an unusual case, but rather typical. Many times companies are sold but the money goes primarily to the venture capitalists. Even seed and early round investors can get minimal or no returns after later dilution after a sale. The "20%" case is typically the best case that happens only in the 1/10,000 chance of extreme fast growth into a new behemoth, OR where the founders are already high net worth individuals or come from high net worth families, and can provide their own money in conjunction with VCs instead of relying on them for most capital. Because this is all private and not discussed, we tend to only hear of the very exceptional cases, and ignore the vast majority of the non-lottery winners in the startup world.

y7 3y ago
If you want to share some more (approximate) numbers, I'm very curious. What equity percentage did you have at the start? And were your shares worth more at an earlier investment round than at the exit?
- alexawarrior 3y ago
  Starting equity was a little less than 10%. Valuations went up as several rounds were raised up to $30+m and share value went up until at one point it was north of $20m paper dollars. After market re-valuation an additional $60+m was raised and value went down a little but was still substantial. Then the IPO market all but disappeared. Final sale price was around $150m and common shareholders including myself initially received zero. Essentially the VCs converted their preferred to common and then voted to sell to a related party (another company the same VC firm had invested in). According to a lawyer who setup our initial investments, this was actually illegal so common investors including myself sued, but was this bankrolled by one of the big early investors as it's incredibly expensive to try and do a shareholder lawsuit against a major VC firm and investment bank. It ended up being settled out of court and that's where my $100,000 came from. The CEO came out a little better, but people who sweated years (and I mean frequent all nighters, weekends, true dedication) ended up with even less than me. And the only reason we even received anything at all was because we had a HNWI common investor who also got screwed and backed the lawsuit, they ended up getting their money back and a small return on investment from what I remember of the settlement terms. Just a word of caution to founders and early employees of startups to know what they are getting in to and the typical case of what happens (a small or non existent exit is the typical case in a tech startup), even when you see those big number raises and a big sale and you just assume that everyone is making bank.
  - mymac 3y ago
    That VC deserves to be named.
    - sashank_1509 3y ago