
Skype mess: How far will this go? - zoowar
http://gigaom.com/2011/06/24/skypes-latest-stock-option-mess-how-low-can-skype-go/
======
jonkelly
I have to say that I've been surprised by the reaction to this story on HN. I
think the behavior of Skype's owners and executives was revolting and (echoing
PG's comment on the other thread), not at all common from what I've seen &
heard in my career.

I think there is also at least one clear lesson. First and foremost, choose
who you work with based on their character. I think if you're across the table
from Silver Lake, Tony Bates, Brian O’Shaughnessy or (as much as I hate to say
it) Andreessen Horowitz, you should build in a significant "character
multiple" based on how they acted here. You should also have MOFO or another
top legal team on your side. If you're an engineer at any company any of these
people are invested in, you should also be reading your contract extremely
carefully, perhaps also with legal help. Having options that vest with "no
value" is just absurd.

I'll note that I have no stake in this whatsoever, but it just makes me sick.
My partner and I sold our company (for a tiny fraction of this deal's value)
and spent a significant amount of the deal time negotiating on behalf of our
employees after eliminating buyers who we wouldn't want to work for or didn't
fully trust to take care of them. I don't want to portray us as saints (we're
not, but we both highly value our reputations), but it was the right thing to
do and most people I have worked with would do the same.

We're in an amazingly tight market for engineers right now. Please, choose
your employer very carefully based on their reputation.

~~~
dgabriel
I worked for start-ups from my first job on up to three years ago (that's 10
years, because I am old). I have worked 60, 80, 100 hour weeks sometimes. Each
of the start ups in which I was an engineer were successfully acquired. The
owners got millions in each case, I got a net payout over the course of four
start-ups of about 15 grand. Not 15 grand _each_ , 15 grand _total_. Sometimes
I think about what a fool I was, and how much more money I could have made
working for large companies at market rates, instead of killing myself for
substandard salaries, even though there was some "love of the game" involved.

Why is it that we need to _exploit_ people in this game? Especially young
engineers or execs with their first VP experiences. Some people get rich, most
people are pawns.

~~~
joezydeco
Funny thing...the startup where I'm working is about to face this exact
situation. If the acquisition being planned does happen, I'll probably gross a
few grand and that's it.

As the only software engineer in the startup I've apaprently been identified
as a key person in the move. I'd like to think this gives me some leverage, it
would take them 3-4 months to find a replacement and get them up to speed. It
was my work on early customers and technology demos that helped land the deal,
yet I feel like none of that is being recognized.

What would you do if you were me?

~~~
anamax
> It was my work on early customers and technology demos that helped land the
> deal, yet I feel like none of that is being recognized.

You've already gotten whatever compensation you're going to get for that work.
If they think that they'll need more of that going forward, your next deal
should reflect that.

> As the only software engineer in the startup I've apaprently been identified
> as a key person in the move.

Why do you think that you're a key person? Seriously - being the only software
engineer isn't enough.

> I'd like to think this gives me some leverage, it would take them 3-4 months
> to find a replacement and get them up to speed.

If you're really key, the acquirer should be negotiating with you, not them.
(I'm assuming that you don't have an employment contract that your current
company can sell.)

Think about things from the acquirer's point of view. Your current company
doesn't actually know what it will take to keep you around.

And from your point of view, is your current company really going to care what
kind of deal you get?

~~~
joezydeco
All really really good points. Thanks for the reality check.

I know I've been identified as a key senior person in the organization from
seeing some documentation that is being used in the negotiation. I was also
handed a second round of preferred stock right before the talks started. There
was no explanation given, but I'm guessing it was meant to temporarily keep me
happy.

I realize being the only software engineer isn't enough. It our company was a
web-based concern, especially so. (We're in manufacturing). Like I said
earlier, I know they can find a replacement but it would steal momentum which
is something the acquirer wants.

What I'm most uncertain about is how the transition will take place. I know
one day we'll just be told to show up at a new office and ohOneMoreThing
here's your new comp package which has been decided for you kthxbye.

I'm pretty certain the acquirer won't be approaching me. To them we look like
a turnkey operation. My current company knows what it will take to keep me
around because I told them so. Whether or not it's communicated upward is my
concern.

~~~
anamax
> I'm pretty certain the acquirer won't be approaching me. To them we look
> like a turnkey operation.

Huh? "turnkey operation" does not imply "won't fall apart if the wrong people
leave".

> Whether or not it's communicated upward is my concern.

Then you're hosed, going to feel used, ....

You're the only one who cares whether you get what you deserve. If you don't
care either, then no one cares.

Note that the sellers want to argue that you aren't essential, because if you
are, the acquirer needs to take care of you. Taking care of you increases the
cost of the acquisition. (That can put the deal at risk and can reduce their
payout.)

No, an earnout clause doesn't change their motivation wrt you much.

------
brudgers
> _"The key thing here is that Microsoft is going to be the company that is
> left holding the bag."_

It's not as if Microsoft is getting a company gutted of people with technical
expertise or domain expertise - and the key assets of brand, infrastructure,
and technology are not being affected.

Looking at the people who have been reported to be affected by this, it is
hard to see any key personnel involved. Yee Lee appears to be just another
employee and the executives alluded to were at least in large part, fairly
recent hires; and none of them were founders or early employees - any of those
who were eligible would almost certainly have cashed out in 2005 when eBay
bought the company (and potentially cashed out again when Silverlake purchased
from eBay).

[<http://news.ycombinator.com/item?id=2693496>]

[<http://news.ycombinator.com/item?id=2672786>]

I would suspect that most employees who stick it out through the acquisition
are looking forward to the differences of workplace environment which will
come with the transition from a private equity culture to Microsoft's
corporate culture.

This story seems to have traction on two fronts, both as a Microsoft bashing
peace and as a cautionary startup tale neither of which is accurate: it is
unreasonable to imply that they could (let alone should) have made Skype's
existing employee stock purchase agreements a point of negotiation. Likewise,
Skype is not a startup. It's the Jeep of the digital age - Skype has been
little more than an asset within a portfolio since 2005's purchase by eBay.

~~~
hollerith
>it is unreasonable to imply that they could (let alone should) have made
Skype's existing employee stock purchase agreements a point of negotiation

If Microsoft knew that Skype's agreements exposed them to significant legal
liability, which now seems the case, they would have made it a point of
negotiation.

~~~
brudgers
<IANAL>I don't see any meaningful legal liability for Microsoft there.
</IANAL>

Microsoft might have some financial exposure which presumably they have
covered - and of course it is not in Silverlake's interest to create poison
pills because the relatively small profits are unlikely to balance the
financial exposure from a potential Microsoft lawsuit. Not to mention that it
is almost certainly in Silverlake's interest to get the deal closed, deliver
profits to the LP's, and move on to look for new investments.

------
rdl
I would expect nothing better from a PE firm in a restructuring, but I'd like
to see Andreessen Horowitz (and ideally also Microsoft) respond to this.
a16z's reputation among top-tier hires at portfolio companies (and thus their
reputation with entrepreneurs) is worth more to them than their gains from the
Skype deal.

~~~
dstein

      a16z's reputation among top-tier hires is worth
      more to them than their gains from
    

I really doubt anyone's reputation is worth more than 6 billion dollars.

~~~
rdl
They didn't own 100% of the company; probably more like 5-10%. So it's really
less than 1x on one of their funds at stake here.

Plus, it's not like it was "do this deal like this, or walk away entirely".
What is at risk is either the $100-200mm to fix the options concerns for
everyone, or at most, the breakup fee for this deal with Microsoft. Skype
_probably_ could find another buyer, even without the Microsoft deal.

Maybe Microsoft overpaid by 2x their nearest competitor. So, a16z only made
$200-400mm on this vs. the best alternative (and really, I think it's less
than 2x).

The reputation of a top multi-stage fund is worth more than $400mm for sure.

------
w1ntermute
This is a great chance for Google to take over the market with an open source
VOIP alternative. Microsoft has already started driving Skype into the ground,
and if Google can integrate their new service well with Android, they would
have a good shot at establishing themselves.

~~~
muuh-gnu
I have been using Google's Voice&Video chat exclusively since the day
Microsoft announced the Skype purchase. Compared to skype, the experience is
horrible. The audio and video quality is sensibly worse, the number of random
disconnections and video freezes is pretty high. After a few minutes there is
a noticeable lag in the voice connection, which gets higher with time. The
general audio quality is worse then I remember having with "Speak Freely" back
in the 90s, while I used a dial up modem. The Firefox plugin randomly refuses
to work, and returns also random numeric error codes. Skype had, in my
experience, none of these issues. Everything "just worked". Google is far, far
away from that. All in all, it is so bad that it should be embarassing for
Google to have it associated with its name.

The only thing going for Google is that it is, after Skype, the only cross-
platform voice&video offering existing on the market.

~~~
davidw
Huh. I switched to Google Video for speaking with my parents on the other side
of the world, because Skype video just plain stopped working for some weird
reason. It's slightly better both in terms of sound and video, and so far I've
experienced less stuttering and freezes.

~~~
Locke1689
Skype is a P2P based application so performance can vary considerably based on
your location and network topology.

------
riffic
This poison company will simply be another footnote in history. Mainly because
of this: <http://news.ycombinator.com/item?id=2689512>

Microsoft should have stayed far, far away.

~~~
drivebyacct2
WebRTC is a better reason to be ringing the Skype-is-now-a-commodity bell.

~~~
zeddez
Technology is only one part of a solution. And in this case arguably a small
one. The reason people use Skype is because all other people are on there.
It's also synonymous with voice and video calling. Owning a "position" is an
other important value.

Facebook seems like the only company that can bring a real network of users to
something like this. Google has GMail, but they haven't been able to translate
it into any type of social experience at scale.

~~~
riffic
Interestingly, Facebook is another player that also uses XMPP for messaging.
If they really wanted to get into the VOIP game it would be relatively trivial
for Facebook to roll a client, implement federation and allow the network
effect to run wild.

~~~
zeddez
Agree Facebook is the player that could be a serious competitor to Skype.

But their strategy would indicate that they wouldn't implement federation.
They would create their own closed system. Facebook is all about growing the
value of their social graph, but with very limited interconnection or
federation.

------
dstein
I take back my earlier thoughts about the deal -- Skype sounds like a perfect
match for Microsoft.

------
truthiness
Boycott Skype. If this is how they treat their employees, how do you think
they will treat customers?

------
rbanffy
I am a little bit surprised Microsoft seems OK with this. I believe they still
can take a stand and tell Skype management they are not going to get away with
this.

------
MaysonL
I wonder how much more bad publiciy it will take to torpedo the deal, or for
MS to hit the pe guys up for a bit bigger holdback.

------
stock_toaster
I wonder when/if FaceTime will support video conference calling.

~~~
glassx
Also, "Upon the launch of the iPhone 4, Jobs promised that Apple would work in
due course with standards bodies to make the FaceTime protocol an open
standard." (<http://en.wikipedia.org/wiki/Facetime>)

I wonder when (or if) it will happen.

------
alex_martin
I wonder if this is a side-effect of (relatively) high engineering salaries.
Financiers say 'ok, fine we can take paying $100k a year because we can write
out your options at will.'. It may be a wider symptom of VC starting to
attract more cut-throat PE firms.

~~~
zoowar
The valuation is $8bn. Worrying about $100K is pointless. Stealing equity
should be criminal.

