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Sprinklr Acquires GetSatisfaction, Founders Get Nothing
- onewaystreet 11y agoThis isn't a "founders got screwed" story, it's the story of most failed startups. Usually the founders don't burn their bridges though.
- macspoofing 11y agoI'm sure the bridges were burned a long time ago. When people start losing money, it ain't pretty.
- r0naa 11y agoHow is that even possible?
- lukasm 11y agoliquidation preference?
- deleted 11y ago[deleted]
- late2part 11y agoLiquidation is usually the multiple of the investment money, that the investor gets back before anyone else gets their money. Like earlier explained, later investors generally get senior rights to earlier investors; so they get their money out first. https://en.wikipedia.org/wiki/Liquidation_preference https://en.wikipedia.org/wiki/Liquidation_preference
- sukilot 11y agoIs there a recursive model that explains why later investors have senior preferences?
- vidarh 11y agoIt's simply about (real or perceived) risks. A senior liquidation preference is a way of mitigating risk for later investors by increasing the chance they can get a return on their investment, or at least their money back in the event things doesn't do great, while giving up less upside potential for earlier investors if things does go great.
- mikedouglas 11y agoSounds like some investors took a wash too, so it's likely they had significant debt. Otherwise, it's because other investors held liquidation preferences (possibly at a multiple).
- ChuckMcM 11y agoEvery time you raise money you negotiate the terms for that private placement. Lets say your start up has 3 rounds, A, B, and C, and raises $1M, $2M, and $10M with a 1x liquidation preference. Now you're business is sagging and you're about to close up shop, but an investor comes in and says "We'll provide the money but we want 3x senior liquidation" which is to say they get paid back 3X their money before anyone else. Lets say they put in $1M, and the company sells for $3M. It all goes to the last investor because they were senior in liquidation rights. Nobody else gets any money. In terms of that last raise it is sometimes "nothing" (ie close the doors) or one more shot at making it. So from the founder's perspective the 'close the doors' option has them getting nothing, and keeping it alive long enough to sell it may or may not give them a return.
- hluska 11y agoI know a finance prof who is going to get this in his inbox. Seriously good explanation, great work!!
- lisper 11y agoIt's not at all uncommon. My third startup, Smart Charter, was acquired pre-launch by Richard Branson and launched as Virgin Charter. Virgin then ran it into the ground. I never saw a dime. :-(
- faramarz 11y ago"Quick clarification: Many, many of the investors & employees didn't see any money, not just the founders. That's what I meant by fire sale." https://twitter.com/monstro/status/585808886508040192 https://twitter.com/monstro/status/585808886508040192
- nacs 11y agoAnd the firesale tweet: To be fair, it was a total firesale. In the years since we all got politely pushed out, the business had completely tanked. https://twitter.com/monstro/status/585797874300035072 https://twitter.com/monstro/status/585797874300035072 Also: Usually they at least throw the founders some hush money, but we didn't even get that! So I promise you'll hear more about it soon. https://twitter.com/monstro/status/585798828822892545 https://twitter.com/monstro/status/585798828822892545
- x0x0 11y agoMaybe my memory is incorrect, but they were kind of sketchy; their page implied companies not paying them weren't interested in customer interaction and they wanted $1200/year to get rid of competitors' ads before 37 signals called them out: https://signalvnoise.com/posts/1650-get-satisfaction-or-else https://signalvnoise.com/posts/1650-get-satisfaction-or-else
- mattmanser 11y agoI seem to remember at the time there was about 1/2 year - year where Google loved them and you'd get a Get Satisfaction result for googling "[company name] support". GS were HN darlings for a little bit, then started getting annoying because you'd land on this pointless page, then 37signals (rightfully) publicly called them out, then google seemed to delist them in a panda or something and then everyone forgot about them.
- bananaboy 11y agoWhenever I ended up on a getsatisfaction page after searching for something I always felt like I had landed on some kind of dodgy crappy aggregator rather than anything official.
- braum 11y agomust be a reason... and "Nothing" could mean so many things depending on what you consider value. I assume it means no money (cash) or equity.
- gesman 11y agoIs that's the case where debt (in whatever shape or form) exceeded the payout?
- socceroos 11y agoJudging by the tweets mentioned and linked in this thread, there are going to be some interesting articles come out of this. I for one would love to see the intricacies of investor influence. This sounds like it was a total fluster cluck.
- StavrosK 11y ago> fluster cluck Does the extra "l" bother anyone else?
- socceroos 11y agoHeh....I knew it didn't sound quite right.
- MereInterest 11y agoIn the spirit of inquisition, which "l" do you consider to be the extra one?
- 11y ago
- meritt 11y agoFounders probably had a lower liquidation preference than early investors. The acquisition didn't meet the minimum return requirement of these early investors, so nobody else received anything. Read your term sheets carefully, this isn't uncommon nor something to be surprised about.
- tomglindmeier 11y agoSounds like they signed a relay bad contract. I'm sorry for them.
- prostoalex 11y agoAlmost any significant round outside of seed would come with liquidation preference. CrunchBase says a total of $20.9 was raised, so if the final sale price was less then $20,900,001.00, there's likely no money left for common stock.
- tomglindmeier 11y agoInteresting. I didn't know that. I understand that if expectations are not met there have to be consequences. But leaving the founders of a company with nothing while others earning money feels completely wrong.
- leereeves 11y agoDepending on the terms and the sale price, the investors may have lost money too. Without liquidation preferences, the founders could earn a profit even if the investors lost money. (Plus the founders and employees earn salaries, often paid from the invested funds.)
- prostoalex 11y agoYep, you're right, the lesson out of this is "stick to the common stock for as long as possible". I'm aware of at least one company (5 years running, raised a B round with numbers in mid-eight digits), that still had only common stock floating around. Unfortunately, the only way to afford that luxury is to not actually need the money, but be in high demand for investors to keep pinging you, and relent at some point with "alright, we don't need money, but if y'all agree to X valuation with common stock, we'll take your money".
- prostoalex 11y agoI forgot about the debt holders. So if there was any debt (including un-converted convertible notes), the pecking order is: 1) Debt holders 2) Most senior shareholders and their liquidation preference 3) Less senior shareholders and their liquidation preference ... 99) Common stock holders This is actually to align the founder incentives in shooting for a big exit. Insert any other order of preferences, and the founders have a stronger incentive to flip the company as quickly as possible in order to create a payday for themselves, screwing investors in the process (which also happens to be a very irrational proposal for investors, which is why you rarely see a round on those terms).
- staunch 11y agoThe company tanked after having elected to raise $20M over 5 rounds, for what should have been a very profitable lifestyle business. The lesson is not to raise VC money for a business where it does not make sense.
- reustle 11y agoHe also has a relevant tweet deeper in the thread > Taking VC is like getting the world’s worst boss: Shitload of opinions, undue level of influence, never actually shows up for work. https://twitter.com/monstro/status/587413328055635968 https://twitter.com/monstro/status/587413328055635968
- pkaye 11y agoLooks like he is really bitter from this whole deal. Meanwhile there are 100s of start-ups taking on VCs with Ycombinator.
- x0x0 11y agoYeah, but ycombinator's involvement seems like it would keep vcs on their best behavior. It's (I believe) common knowledge that all the founders and the yc principals share info on vcs, so screwing founders (for real, not just in the founders' opinion) has much higher costs.
- blumkvist 11y agoWhose fault is it that he was greedy and opted to go for "Zuckerberg status", and then picked the wrong people for the journey?
- myth_buster 11y agoIs there a site like RateMyProfessor for VCs?
- danreedx86 11y agothefunded maybe?
- wpietri 11y agoHere's their funding history: https://www.crunchbase.com/organization/satisfaction/funding-rounds https://www.crunchbase.com/organization/satisfaction/funding... And here's a handy explanation of "participating preferred" which is one way early sharholders can end up with nothing: http://www.feld.com/archives/2004/08/to-participate-or-not-participating-preferences.html http://www.feld.com/archives/2004/08/to-participate-or-not-p...
- joshu 11y agoThere is no need to assume PP, since it is still relatively rare. They just had to sell it for less than the sum of preference.
- dataker 11y agoAs a technical founder, I'd be very careful to start a company again. I used to ignore finance and bureaucracy, but the industry has changed a lot. The popular quote 'just passionately build something' is nothing but a trap. Although something like YC doesn't fit this profile, one will eventually find himself in a hostile situation.
- beering 11y agoMaybe don't take buckets of cash that you don't/shouldn't need? That $XXmm isn't free and is a good way to hand someone a leash tied around your neck. It looks like Get Satisfaction raised $20mm. Why that much? Did all that money contribute towards success? Or was a good chunk of that money not utilized well? Why did the company tank? Were they not acquiring enough customers? Was their business model unsound? What forced the fire sale? I don't think founders are supposed to get a big payout for a failure, but we need more info before agreeing with this sob story of founders who didn't get a dime.
- shenoyroopesh 11y agoI don't think that's the issue. The issue is that the founders were pushed out. Lane indicates that business tanked ever since they left, which is what presumably led to a fire sale. It's one thing if the business tanks when founders are in-charge. You can blame them for failure and say it's fair that they din't get a dime. But why did the VCs take over the reigns? It's criminal to take over from founders and then run the business into the ground, like it seems to have happened here. Of course, that Series B happened looooooong back. There was no Series C in the following year or two years after that, which might be why investors got jittery. The timing matters - did the founders get pushed out after a decent amount of time after the Series B? Or was it right after the investment? That would tell whether the VC had some reasonable cause to get desperate or they were just trying to "screw" the founders.
- erichmond 11y agoI think as more and more tech co-founders go through the meat grinder and deal with the realities of the business side of VC backed startups, we'll start to see technologists start very interesting companies with very different ideologies and goals then people seem to have today. Diversity in how we approach business is a great thing.
- togepi45 11y agoWow, the arrogance of expecting 'hush money' and complaining if you don't get it? Liquidations preferences are pretty much the norm in Silicon Valley, if they didn't understand how they worked when they chose to get outside investment, then they never should have agreed to the liquidation preferences to begin with (which may easily mean they never should have gotten outside investment to begin with). They made a gamble and they lost.
- leereeves 11y agoThis feels like karmic justice for founders whose own business practices were debatable. https://signalvnoise.com/posts/1650-get-satisfaction-or-else https://signalvnoise.com/posts/1650-get-satisfaction-or-else
- yuhong 11y agoPersonally I thought the 'hush money' practice is horrible in the first place.
- serve_yay 11y agoDon't worry, what's important is that you crushed it with your passion to move fast and break things.
- therealwill 11y agoAccording to their website they have 1000s of customers paying 1200+/m. At the low end they're getting 1.2 million in revenue a month and only have 9 employees. Why did they sell? Something is not adding up.
- lobster_johnson 11y ago$1200/year, not per month, and according to this tweek the business had "tanked" in recent years: https://twitter.com/monstro/status/585797874300035072 https://twitter.com/monstro/status/585797874300035072. Edit: Actually $1200/month according to the pricing page, nevermind. That's insane, and way above competitors like ZenDesk.
- tptacek 11y agoAre we thinking of the same Zendesk? The Zendesk I know is a public company with 9-figure topline revenue.
- lobster_johnson 11y agoAccording to the pricing page, Get Satisfaction's only public pricing is the $1,200/mo subscription. ZenDesk starts at $25m/agent for the community solution. Granted, they are slightly different products; I was just grabbing the nearest competitor I could think of. (They're in the same space, though, and competing directly for the community/knowledge base part of their products.)
- tptacek 11y agoI think we can safely assume GetSatisfaction didn't have 9-figure revenue.
- lobster_johnson 11y agoTo be sure, but that wasn't really my point. $1,200/mo for such a simple product seems excessive.
- SwellJoe 11y agoI have very limited knowledge of this situation, but, I'm gonna pile on anyway: With that kind of money raised, the founders didn't get "nothing". They got a salary, probably a decent one, for however long they were running the thing. Which is more than many startup founders get out of businesses that fail. If they don't have personal debt, or didn't lose relationships or friendships, they came out ahead of many startup founders who started a business that failed. They raised more money than the business was worth. I don't blame them for doing so; many people have done it, and no amount of seeing other people make that mistake will necessarily prepare a founder to turn down several million dollars of extra runway to try for the big exit. But, it sounds like there is simply less money on the table than there are people wanting that money (and that have contractual rights to it). Given the interests of GetSatisfaction were always misaligned with the interests of their customers (i.e. the business model was effectively a shakedown, in the same vein as Yelp), it shouldn't be surprising that eventually their dreams didn't align with the reality of how many people wanted to pay for it. No matter how good the product is, if you have to extort people to buy it, you're not building a sustainable business. I'm all for ranting about VCs being assholes, because sometimes they are. But, as far as I can tell, that's not the case here. Founders made some bad calls, probably some other people did, too. The business failed. It happens. If I were them, I'd take this as a valuable lesson...and probably wouldn't burn bridges with the people who invested in me in the past, because history indicates they'll be the same people to invest in me in the future (a failed business is not a death sentence in the valley, and many investors have invested in the same team for multiple businesses).
- gojomo 11y agoWe'll see! The founders of GetSatisfaction weren't spring chickens, unaware of the costs-of-capital raised. But sometimes later management and investors do engage in shenanigans. Some will remember Naval Ravikant et al's suit against a cofounder and VCs back in 2005: http://www.nytimes.com/2005/01/26/technology/26iht-dotcom.html http://www.nytimes.com/2005/01/26/technology/26iht-dotcom.ht... http://venturebeat.com/2005/12/09/epinions-settlement-a-black-eye-to-vcs/ http://venturebeat.com/2005/12/09/epinions-settlement-a-blac... Though I'm not sure it's the case here, I'm of the epinion that occasionally, you need to sue to getsatisfaction.
- sharkweek 11y agoThis is pretty common. When startups don't sell for above their valuations, the investors are going to get their money back first (and in varying cases more, depending on liquidation preferences). Pulled GetSatisfaction's tables from PitchBook, take a look at their B round: http://i.imgur.com/zUzDrFp.png http://i.imgur.com/zUzDrFp.png Post valuation at over $50M - no data yet on the amount of the acquisition, but if it was equal to that or less (or if the liquidation preferences for the A/B rounds were greater than 1X) it's pretty clear the founders wouldn't have gotten anything from the acquisition. But as someone else pointed out, it IS likely they got a salary from those early rounds of investors, which, is better than most startup founders see.
- TheOsiris 11y agodoes PitchBook show whether the founders cashed out some stock or not? I doubt they raised series B without cashing out some money
- bri3d 11y agoFounder liquidity in a B round for a company that wasn't extremely competitive for capital seems pretty uncommon, IMO, especially back when Get Satisfaction would have been raising (I remember "Series FF" and other founder-preference vehicles being novel in the ~2006 era). Why do you think they'd have cashed out at a series B?
- PhantomGremlin 11y agoThanks for posting those tables. The thing I was surprised by is that the preferred stock had a 6% dividend. Is that common nowadays? Back around 30 years ago when I was at startups, the preferred didn't get any dividends. It existed to allow the VCs to stay ahead of founders/employees in case of IPO, liquidation, etc. Not to collect a dividend along the way.
- neil_s 11y agoThe acquirer, Sprinklr, is funding multiple acquisitions out of their recently raised $46M, so it's fairly certain that the amount of this acquisition was less than $50M
- burger_moon 11y agoWatching Silicon Valley S2 and the beginning lines read just like this tweet.
- irascible 11y agoVcs deal in these companies like poor people deal in Beanie babies. No factory worker in China ever got a bonus when a beanie baby got sold for 10k. Cry me a rive.
- Animats 11y agoThat's happened to other companies. Havok, the physics engine people, went through that. The founders and early investors way overexpanded the business (they had locations in three countries), blew through the initial funding, and tanked. Another group bought the business cheaply, replaced the management, and eventually sold out to Intel.
- gyardley 11y agoThis sort of thing happens to founders from time to time. I'm more interested in Lane's claim that OATV and First Round didn't see any money: https://twitter.com/monstro/status/585808886508040192 https://twitter.com/monstro/status/585808886508040192 This is interesting, because according to the screenshot from PitchBook elsewhere in the thread, OATV and First Round both participated in the Series B, which was the last equity round. If that's accurate, in order for OATV and First Round to get nothing, whoever did that debt financing in 2014 would have had to have gotten 100% of the proceeds, with none left to trickle down to the Series B. We don't have the details, of course, but taking on debt and then selling for less than the amount needed to cover the debt a year later certainly sounds like a party foul. If your company's in such a precarious position, normally you can't even get debt financing. Based on the equity rounds, the founder has nothing to kvetch about - they raised and the company didn't get to where it needed to be. But if I were investigating this, I'd dig into the terms of and decision to take that final debt round. Could be nothing, but there's a lot that could've happened there that'd make a founder tetchy.
- ghshephard 11y agoThat's extraordinarily strange - in general, the founders will always get a bonus when a company is acquired. The only scenario in which I've not seen that happen, is when they've left the company - in which they are treated like any common shareholder - they are wiped out if the preferred liquidation preference isn't covered - but, of course, that's precisely why the common is valued at 1/10th of the preferred early on - because it really is worth much less. The one scenario I've seen where founders who have left the company still get a "consulting" fee during a liquidation, is where they held enough common shares to cause issues during a lawsuit over minority shareholder rights - but typically the employees/founders still with the company being acquired have enough shares to not make it an issue - and, as I noted earlier, it's almost always the case that founders still with a company being acquired get some type of bonus, even if it's a retention fee.
- deleted 11y ago[deleted]
- gchokov 11y agoVCs: Take all you can, give nothing back :) Now seriously. That's what happen when you don't know what you do with VCs
- mgav 11y ago"...if you prefer to provide great support on your own site with your own forums and your own help section and your own feedback mechanisms and your own FAQs, well, Get Satisfaction doesn’t play fair." ~Jason Fried, 37 Signals https://signalvnoise.com/posts/1650-get-satisfaction-or-else https://signalvnoise.com/posts/1650-get-satisfaction-or-else