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Nothing about liquidation preference, which can make these options absolutely worthless even in the midst of a seemingly successful acquisition. http://venture
by varelse 13y ago
Nothing about liquidation preference, which can make these options absolutely worthless even in the midst of a seemingly successful acquisition.
http://venturebeat.com/2010/08/16/beware-the-trappings-of-liquidation-preference/ http://venturebeat.com/2010/08/16/beware-the-trappings-of-li...
I was once at a startup that was offered a $100M buyout. This would have netted me maybe $200K except that the liquidation preference obliterated all profit for the founders and employees. So instead, the CEO chose to ride the thing into the ground. He went on to make the big bucks at his next gig though.
- JonFish85 13y agoSounds like the founders took some pretty poor funding...
- barretts 13y agoThat's fair, but my understanding is that employees don't get liquidation preference - investors do. So yeah, if there's a lot of stock out there with liquidation preference, your employee options can be worth a lot less. But as far as I know, there's no way to determine that ahead of time.
- tptacek 13y agoI'm not following. Your prospective employer needs to tell you about liquidation preference obligations they have for you to value your options. The way you as an employee determine that ahead of time is to ask.
- beefxq 13y agoIf you don't give people their fair share...
- varelse 13y agoNot in this case, even the CEO would have walked away empty-handed. Too many funding rounds had transpired with ever-increasing multipliers on the liquidation preferences. Still, I think there's an argument that had he taken the buyout, he personally could have argued that he delivered for the investors and that would have gotten him to round 2.
- beefxq 13y agoLiquidation preferences should have been reset. This is a perfect case of VC being too greedy and lost it all because of greed.
- loumf 13y agoThis is surprising. I would expect the investors to renegotiate to get the deal done or the acquirer to pay the CEO and employees via signing/retention bonuses and salary. A $100 million dollar pie can be split in a way to make people happy if they are reasonable. The cap table and liquidation preference is a starting point to negotiation.