3 ms·

I don't believe a private sale entitles one to ignore a stock options legal rights. What are the relevant details here I'm missing?

surfingdino 2y ago
It was 10+ years ago. I don't have the details, but the riches they were underpaid for never came true. The founder made out like a bandit.
throwawaythekey 2y ago
1) The common stock that employees get via options is the last in line for the pot of gold. 2) There's plenty of bullshit that can be used to cheat an employee out of their options. One example here [1]. [1] https://techcrunch.com/2011/06/26/skypes-worthless-employee-stock-option-plan-heres-why-they-did-it/ https://techcrunch.com/2011/06/26/skypes-worthless-employee-...
hmottestad 2y ago
Maybe if the founder has a majority they can sell their shares to someone and the company keeps on running. If the new owners don't intend to ever do an IPO I guess the existing employees end up with options to buy stock in a company that they will never be able to sell. Only upside would be if new owners take out a dividend, since that would assumably be a fixed amount per stock regardless of who owns the stock, unless of course the new owners are able to circumvent that by doing an unequal dividend payout that only goes to certain owners.
hylaride 2y ago
For IPO sales, all options can eventually be converted into common shares then sold (often after various lockup periods giving other investors chances to cash out first). For private sales, which can be structured in a variety of ways, there's a bucket order that can vary depending on the share structure (remember options aren't shares until converted). Most VCs have terms that they get paid out first to recoup their investment (and often then some) before common or option holders get paid out. So for a simple example (I'm making these numbers and percentages up): Say if VCs invested $10m for 30% of a startup with a guarantee of first rights to get that back and 50%, then a founder class of shares owns a percentage, say 50%, and then there's a class of common shares/options that are in theory 20% of the company. So in thoery, the investors own 30%, employees on 20%, and founder(s) 50%. Let's say then that the company then sells for $20m. The investors get their $10m back, plus $5m for their 50% return guarantee. The founder class of shares has rights to 50% of the company, but all that's remaining is the $5m left over which is 25%; they get it all. Everybody else gets shit unless the buyers want to retain any employees and give them anything extra (this can happen). Things like this happen a lot. I knew people that worked at 500px (the photo site) and eventually the investors forced a sale after the business stagnated that even the founders got nothing in the end.

surfingdino 2y ago

It was 10+ years ago. I don't have the details, but the riches they were underpaid for never came true. The founder made out like a bandit.

throwawaythekey 2y ago

1) The common stock that employees get via options is the last in line for the pot of gold. 2) There's plenty of bullshit that can be used to cheat an employee out of their options. One example here [1]. [1] https://techcrunch.com/2011/06/26/skypes-worthless-employee-stock-option-plan-heres-why-they-did-it/ https://techcrunch.com/2011/06/26/skypes-worthless-employee-...

hmottestad 2y ago

Maybe if the founder has a majority they can sell their shares to someone and the company keeps on running. If the new owners don't intend to ever do an IPO I guess the existing employees end up with options to buy stock in a company that they will never be able to sell. Only upside would be if new owners take out a dividend, since that would assumably be a fixed amount per stock regardless of who owns the stock, unless of course the new owners are able to circumvent that by doing an unequal dividend payout that only goes to certain owners.

hylaride 2y ago

For IPO sales, all options can eventually be converted into common shares then sold (often after various lockup periods giving other investors chances to cash out first). For private sales, which can be structured in a variety of ways, there's a bucket order that can vary depending on the share structure (remember options aren't shares until converted). Most VCs have terms that they get paid out first to recoup their investment (and often then some) before common or option holders get paid out. So for a simple example (I'm making these numbers and percentages up): Say if VCs invested $10m for 30% of a startup with a guarantee of first rights to get that back and 50%, then a founder class of shares owns a percentage, say 50%, and then there's a class of common shares/options that are in theory 20% of the company. So in thoery, the investors own 30%, employees on 20%, and founder(s) 50%. Let's say then that the company then sells for $20m. The investors get their $10m back, plus $5m for their 50% return guarantee. The founder class of shares has rights to 50% of the company, but all that's remaining is the $5m left over which is 25%; they get it all. Everybody else gets shit unless the buyers want to retain any employees and give them anything extra (this can happen). Things like this happen a lot. I knew people that worked at 500px (the photo site) and eventually the investors forced a sale after the business stagnated that even the founders got nothing in the end.