
Amazon bought Eero for $97M and employees still got screwed - poopaway
https://mashable.com/article/amazon-eero-wifi-router-sale/
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aetherson
I don't understand what people expect in this kind of situation. The company
was bought for around the amount of money that they took in investment, or
less. Why would the employees get anything? If preference didn't exist, and I
could take $10M in investment at $100M in valuation, and then the next day
liquidate the company, return $1M, and keep $9M, obviously that would just
mean that nobody would invest in startups any more.

Does it piss people off that the execs got retention bonuses? You've got to
give the execs some incentive to stay around if you want to keep operating the
company. Do people expect execs to work out of the goodness of their hearts?

The company failed. That means the stock isn't valuable. What is hard about
this?

~~~
nytesky
Honestly confused: why do you want to pay bonuses to retain execs of a failed
company? Weren’t they responsible for that failure?

~~~
pageandrew
Not necessarily. Companies fail for any number of reasons, not just executive
incompetence. Eero is a hardware company, and hardware companies are require
significant capital to operate. Its a very difficult space to operate in,
especially pre-launch.

> Hardware startups require a lot of cash, and technological progress can
> render a product obsolete before it has a chance to take off. Nearly all (97
> percent) of the 400 hardware startups tracked in a 2017 report from CB
> Insights either died or became "zombies," companies that survive for awhile
> with VC money, but eventually fizzle out.

Amazon purchased this company for its technology and people. Having the entire
executive team leave immediately would make the transition exceedingly
difficult. They want to incentivize these people to stay to assist in the
transition, hence the payout.

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zamfi
For what it’s worth, this is what a fire sale / acqui-hire looks like for a
large-ish hardware company.

Were investors and early employees screwed? Sure. But these execs could likely
have gotten similar payouts over similar timeframes by simply jumping ship. As
for Eero the company? Sounds like it was dead.

I don’t want to sound like I’m justifying this kind of behavior. But the main
deceptive thing is calling this acquisition a “successful exit” — it was far
from that!

~~~
toomuchtodo
The issue is founders won regardless of which side the coin landed on and the
employees got screwed.

I hope stories like this continue to break, and potential startup employees
internalize the economic reality of working at a startup.

~~~
librish
I don't think that's the right way to think about it. Everyone got "screwed"
on equity, including the founders. Separately Amazon decided to set up
packages for employees they thought were to valuable to lose. If an early
employee was valuable enough they were probably included in the 10 who
received it.

~~~
toomuchtodo
I have been involved in M&A activity, and when we (owners) bought a failed
competitor for clients and assets, we wiped out the owners (who had misstated
some financial factors of importance) and made the employees whole (who had
all been stiffed on pay). We didn’t have to, _but it was the right thing to
do_.

Everyone has different morals and ethics I suppose.

~~~
arcturus17
But if you're the guy doing M&A at Amazon how do you sell that to your boss,
who has to sell it to Bezos, who at the end of the day has to sell it to
stakeholders.

~~~
toomuchtodo
Good PR is cheap and people talk.

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olliej
Again, if your offer includes a stock grant/option/whatever stake that doesn't
have the same priority as those owned by the executive team then you need to
treat it as having zero value.

If a company believe its stock is sufficiently valuable to be worth being used
as compensation then it shouldn't feel the need to give pre-IPO employees low-
priority "equity".

I recognize people argue that you're taking a lower salary because the
_potential_ return, but it fails to acknowledge that there is additional risk
and cost to the employee:

* the potential to suddenly have no employment or insurance

* vastly inferior insurance and benefits

* significantly reduced job mobility - often this "equity" is surrendered when you leave a company, but that equity is ostensibly to make up for a reduced _salary_. It's earned income that can be stolen from people who earned it.

The first also has a future cost as well, because subsequent salary
negotiations will happen with your prospective employer knowing that you
_need_ your job.

So rather than trying to pretend that "equity" justifies a lower salary,
employers need to recognize that equity is being granted to compensate for the
risk their employees are taking on. The more risky the stock, the more stock
needs to be granted - so if the equity is structured to put employees at the
end of the spectrum of exercisable equity needs to represent vastly more of
the post-investor-payouts equity.

~~~
librish
I don't understand why you think such black-and-white thinking is needed. The
correct thing should be to appropriately discount the options to account for
these things instead of saying it's zero.

Sure, walking in with the naive approach will lead most people to vastly
overvalue options, but I feel like the counter movement you're championing
here acts as if no early employee has ever earned money on options no matter
the outcome.

~~~
olliej
As the amount of risk in the equity increases, the expected value of the
equity reduces to zero.

So anything that reduces the priority of employee equity vs that of the
original employees and investors implicitly increases the risk in addition to
the explicit reduction in face value.

The real problem to me has been the absurd notion that someone explicitly
investing cash is somehow investing more on a dollar for dollar basis than
regular employees.

* VC or whatever invests a dollar amount: they write a cheque.

* Employee invests a dollar amount: Employees at startups are expected to work 80 hours a week, so if we're assuming a regular job is 40 hours a week, then their salary should be twice their regular market rate salary. So in that case, an employee is making an annually recurring investment of (2 * market rate salary - actual salary).

In spite of this a VC or whatever gets priority on getting that money back,
gets a say in the running of the company, ownership/dollar lower than "equity"
grants to employees. The employee gets no voting rights, has a reduced payout
priority, and on top of all of that even if the equity grants were equal, the
employee is _still_ taking more risk than the cash investors because the
company is also their source of employment: if the company fails every one
loses their investment, but employees have also lost their jobs.

So if anyone should get higher priority for divestment opportunities it should
be employees - think of it this way: if you have 10 developers working for
100k, vs. a market rate of 150k, and they're working 80 hours a week, you are
looking at a per-employee annual investment of 200k. If you have 10 employees,
they are collectively investing $2million a year. That's getting super close
to the "big" funding rounds (and for many cases more than) from various
startups.

In response to the claim that they're not providing cash flow: if you were
paying market rates, you would need to find a separate investor to raise cash
for twice as many employees, all being paid more. That sounds like they're
providing cashflow.

~~~
librish
That all startup employees work 80 hour weeks for 50% below market salary is
not something I think is true at all. I would like to see a source on that
start-up employees (not founders) work significantly longer hours than other
tech workers in the area. While I understand your mental math I also think
it's a weird way to think about things, because it is very clear going in that
working extra hours is not going to give you any extra stake in the company,
so any employee who chooses to do so are obviously doing it for other reasons.

Finally, $2M (which is for 10 employees in your example, not 1) would be
considered a small round today.

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djakjxnanjak
Sounds like the company failed and Amazon paid the people they wanted to keep.
The headline is pretty misleading, as the story details that Eero received >
$100M in investment before the sale, so investors lost money too.

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moonserver
In these type of situations, all employees receive cash bonuses and "parachute
payment" (total comp). I'm willing to bet the executives' compensation
packages from Amazon are roughly 1 order of magnitude more than the _average_
employee received. Foundational employees are likely sitting near 11-20 on the
list getting remarkably fair packages that don't look too different form 1-10.
If you stacked up all the employees total comp, it would most likely follow a
normal distribution and probably aligns pretty closely to employee tenure and
level.

I believe the article presents a false dichotomy: execs did well while early
employees got shit. In reality, employees who were with the company at the
time of the sale all fared similarly and comp looks essentially like it would
if you dropped them all into similar roles at <big tech shop> independently.

The people that lost out were _investors_.

The dichotomy is actually: people who invested money vs people who didn't. If
you bought into eero, in this case, you lost money across the board. The only
factor affecting investors was the liquidation preference between preferred
and common stock, and the first-in-last-out payout priority for preferred
stock (both of which are absolutely standard). Buying stock options has always
been a lottery ticket. I don't _think_ anything insidious happened here... not
all companies are unicorns.

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the_fonz
Regardless of acquisition price point, this is almost always what happens when
employees take these third-rate shares.

The solution is employees need to insist on the exact same class of shares as
founders. Furthermore, more startup workplaces need to closer to co-ops than
these pseudo-meritocratic corporations out to exploit labor with impunity.
Maybe it wouldn't have helped in this instance, but that's not the point...
the point is being treated fairly regardless of exit outcome.

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ilamont
Even the "Head of People Operations" gets $827,000. Rank and file? $0.03 cents
per share.

~~~
wmf
I wonder if that's the person who "disabled group emailing and prohibited
employees from sending out goodbye emails to say they were leaving."

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jonathanyc
> Eero may have been first to mesh WiFi, but competition came fast. Multiple
> companies including Luma and NetGear launched similar products in the next
> year.

Huh? Meraki had a mesh WiFi product out at least five years before this. How
am I supposed to trust the rest of the article if the author can’t do basic
fact checking?

~~~
maimeowmeow
meraki is subscription service, not a product that people own. Once your
subscription is over, its a paperweight.

~~~
jonathanyc
No, I owned four Meraki mesh APs. This was before they got bought by Cisco.

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maxxxxx
It just shows that the real risk takers in a startup are not the founders but
the early employees.

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lanrh1836
I mean I joined a unicorn as a very employee and barely netted $1.3m. I’m not
complaining, but there are far more certain ways to make that amount of money.

~~~
dmarlow
How early?

~~~
lanrh1836
First 20

~~~
syedkarim
How long were you there before the exit/payday?

~~~
lanrh1836
Few years. Left now. I sold a portion through a tender offer but the company
has not IPO’d.

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orasis
How did the employees get screwed? Hardware is expensive and the company was
sold for basically pennies. If anything is screwed here is people's
expectations of how employment works.

~~~
seattle_spring
If you create a company that fails, and then take 100% of an 8 figure bonus
while your employees get nothing, then yes your employees got screwed.

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hjk05
Calling it “still got screwed” is a bit dishonest. The story goes “a company
got sold at a huge loss” and sure execs and founders still made some money
even though it was at a loss, but apparently Amazon feels that these people
are a large part of the remaining value in the company, so without those
bonuses to retain key employees, the company wouldn’t even have gotten the
97Mil.

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w0mbat
I’m curious what deals were given to Eero engineers who survived the
transition to Amazon, if any did. Did they get a better Amazon package than a
random new-hire with their experience? I know of cases elsewhere where aqui-
hires have gotten more options/units, shorter vesting, etc.

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baoha
I still don't understand why the last investor is the first one to be able to
cash out. Is this common in startup?

I was thinking the first investor is the one that took the big risk investing
in the company, shouldn't they have the rights to cash out first when there is
a liquidation event?

~~~
wmf
LIFO is designed to prevent Ponzification (for lack of a better term). Imagine
if earlier investors could just vote to issue dividends after a later round,
effectively taking money from later investors that was supposed to fund
company operations and putting in their own pockets.

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mjevans
This really makes me feel for the employees and extremely distrustful of
stock-option focused payouts.

~~~
caprese
I think Delaware can further help here. They've been very willing to expand
their securities laws in favor of disclosures for employees compensated in
securities of private companies. And VC backed companies still incorporate
there (even though none of these companies ever really need the court of
chancery), but it is nice that the legislature is expanding their own
regulations.

Right now employees are offered stock options at arbitrary fractions of a
percent, and forced to put a smile on their face because of the "generous
offer" "bigger than others" that you got. And not everyone gets options, and
not every industry gives routinely gives you ANY exposure to the success of
the company. SO SMILE AND DON'T COMPLAIN. But the employee has no transparency
into:

The liquidation preferences of existing shareholders

The valuation of the company per round, if the company decided not to brag
about it

How that relates to the strike price of the option

What the option pool even looks like, dilution necessary to support it if at
all

and of course, has to consider coming up with the actual money to purchase
their exposure to the company, even without any of this transparency

If you issue the right or interest in a security to employees, they should
have transparency. Delaware can do that.

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youeseh
This begs the question: did the employees negotiate a market-rate salary upon
employment? If so, then they did not get screwed... they just didn't get a
large bonus, which is the gamble of joining a startup - most of the time you
don't get the big bonus.

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levashovbiz
Interesting case.

Exec team got a bit of $$$.

I think however, knowing that story how many people would like have any of
that 10 people as their bosses?

Say they decide to build another start-up, who of sound sense will join them?

