
Sprinklr Acquires GetSatisfaction, Founders Get Nothing - mishmax
https://twitter.com/monstro/status/585797211679657984
======
SwellJoe
I 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).

~~~
MCRed
VCs aren't assholes, generally, but their standard terms are a bad deal for
founders, generally. I've thought about this a lot over the past 25 years. In
the past I've seen VCs do really bad things (like force decisions that set the
company back 18 months bad.) The problem is, when you get a "good" VC that
doesn't force bad decisions on you ,the cost of the money, mostly in deal
terms, is too damn high.

And when you push back on them about this the response is you get are
generally:

"This is a standard term" eg: everybody else is doing it. Well, tough. I'm
actually reading before signing.

"If we don't have this method of double dipping [one of the four different
ways they are doing so], then you could take the company and sell it for the
money we put into it and that would be a bad deal for us." You mean your share
of the company in such a situation isn't equal to the amount of money you put
in? First off, I don't believe you because this valuation is kind of a joke
and you've spent weeks telling us scary stories to try and keep it down, and
secondly, your inability to get the equity you want for your money is your
problem, not mine. That is like saying you think you're getting a bad deal so
you want to cheat me to get a better deal? So let me get this straight, I took
real risk and built up sweat equity, but you want my shares to be discounted
effectively because you don't trust me? Ok, how about we discount your shares
because I don't trust you? (I don't trust anyone who doesn't trust me. Usually
they're projecting their own intentions.) Also, all you're doing-- at best--
is putting money in. Money can be acquired from any number of places and
methods. The expertise we gained while building the company is irreplaceable
and the knowledge of our own product and the risk we took getting it to here
is far more valuable than your money. So, we have a split of the shares that
accounts for that. The shares you get account for all of that.

"trust us". Nope, if you don't trust me, don't do a deal with me.

Don't even get me started on founders vesting their shares. You build a
company, you have sweat equity, but the VC wants to reset the vesting? Why ?
You can't vote unvested shares. They will give you a song and dance about
"what if a founder leaves?" Well, we covered that in our articles of
incorporation because we're not idiots, but they will ignore that and insist
that "all founders must vest all their shares". (this is more common on early
VC deals.) That's straight up taking paid for (with equity) and earn shares
and turning them into a class of potential shares. Nope Nope Nope. Give
founders part of the option pool as an incentive, fine. But reseting is just
setting you up to be sucker punched when they want to replace a founder
(because they don't like how things are going and need a scapegoat, no matter
that it's the worst thing for the business at that point. But Tada! All your
shares you already earned are now vesting again! Look at that! Even thought
the other founders don't want you out, you don't have enough votes!

I think that the culture of "startups" over the past decade has become a bit
cargo cult where there's a specific plane you build to get the money to rain
from the sky.

This is: Go to accelerator, do VC deal, take the VC money and buy growth, use
that to do another VC deal, rinse and repeat until you either stumble onto a
working business (Uber, AirBnB) or you go bust (get Satisfaction)

The problem with this is that the cost of those VC deals are not in the
founders interests. Far too often they hit base hits and build viable fast
growing companies and then get taken out and don't get adequately compensated
(and all the non-founder employees really get screwed.)

The other problems with this is once you take money from a VC you're locked
into trying, and repeatedly betting the company, on being the next Uber. Being
37 Signals is not sufficient. Being Github (before the A18Z investment) is not
sufficient.... even though both of those are obviously great fast growing
companies that would make their founders and employees a lot of money at a
liquidation event. And such event is far less likely under VCs because they
want a $1B valuation (in fact their fund NEEDS a $1B valuation to cover all
the losers)... whereas a $50M, $100M, $250M or $500M valuation (with no
dilution from taking VC money) even though it's drastically smaller would
result in the founders and early employees getting rich, and even the later
employees getting a nice bonus.

Take angel money on good, clean, simple terms. If you need that to get going,
go for it.

I think the age of the VCs is past. They just haven't realized it yet.

Ok, whenever I say things that are critical of VCs I get a lot of responses
that are sorta knee jerk defenses of VCs. I've been working for startups and
founding startups for over 25 years. I've seen it back when it was much worse
and it cost a lot more to do a company. I've ridden this industry from BEFORE
the dotcom bubble started to inflate. I'm speaking form experience here. Even
when the VCs are "good" \- in the top %10 of the VCs I've had direct
experience with-- the deal isn't good for the founders in the end. They paid
too much for their money.

You want VC money. Ok, why? Because that's your dream? Your dream should be to
build a company.

Your plan should be to build a compelling product or service that really makes
people go crazy with desire to throw money at you for it. I'm talking about
CUSTOMERS.

All the time you spend dealign with VCs takes away from that and the deals
aren't good.

You need money? Ok, go on Angel.co, get backed by a syndicate. Find Angels in
your community. Charge for your product from day one. If github can do it, you
can do it. Plow your profits into growth and product development. Take as
little money as you can to get top product market fit. VC money is wasted
before that point anyway. Even angel money should just be used to keep the
lights on until you get to product market fit. Once you haver that, you have
revenue, maybe take some more angel money to jumpstart marketing, but plow
your operational profits int growing the business.

Don't delude yourself into thinking your pokemon website is a billion dollar
business. It isn't.

Don't even waste time chasing VCs. By definition that are bad at picking and
they will try to force you to bet it all only our pokemon wiki being a billion
dollar business.

GS may have made a bunch of mistakes, but I'm using decades of experience here
to reach my conclusions.

If you go thru YC or TechStars (but not any other accelerator) then _maybe_
you might have a real business that could be a billion dollar business, but
even then why not raise angel money instead of VC money? And I mean angel
money on terms like the YC deferred-valuation deal that replaces convertible
notes. (can't remember the name at the moment.)

Don't do any deal with liquidation preferences or any other kind of
shenanigans. (And don't wave your hands about why VCs need LP in front of me.
Your math doesn't add up, it can't add up.)

The model will never change until VCs realize they are dinosaurs. Or let VCs
fund late stage deals, I'm sure their terms are not so terrible (unless the
company is dying.)

But VCs for startups are obsolete.

 _drops mike_

~~~
danbmil99
Nicely done.

One problem that arises with the bootstrap-off-revenue model (assuming of
course you are lucky enough to find product/market fit quickly, before you run
through your seed money) is that you become vulnerable to company B that was
willing to take crappy VC $$$ and is now able to kick your ass on price, right
down to the freemium, eyeballs-are-value goose-egg giveaway.

Free markets are always prone to a race to the bottom. Just because you insist
on reading the fine print and haggling over the downside scenarios, doesn't
mean the 23 yr old recent grad no expenses (family fallback) guy won't take
that deal. He damn well will.

serious 1st world problems, eh?

~~~
tlogan
But there will be company C raising even more money and beating company B. And
then comes Google and beats company C.

In short, if you are building a company you need to built it based on some
"secret sauce". That could be your team. That could be your patent. That could
be just customer base. That could be your unique understand of the market. But
money is never "secret sauce".

And please do not take me wrong here: raising investment is very important to
make your company big. But first thing first.

------
staunch
The 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
He 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
Looks like he is really bitter from this whole deal. Meanwhile there are 100s
of start-ups taking on VCs with Ycombinator.

~~~
x0x0
Yeah, 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.

------
faramarz

      "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
And 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
Maybe 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
I 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.

~~~
moe
_then google seemed to delist them in a panda_

And rightfully so. They were a pest, just like the spam-site by that Calamaris
guy from Netscape around the same time.

Lesson learned: If you depend on search traffic then don't be obnoxious.
Otherwise nobody will speak up for you when Google snaps your neck.

Hey Google, why is Quora (expert-sexchange 2.0) still polluting my search
results anyway?

~~~
codinghorror
Could be worse, could be a Yahoo Answers result.

~~~
bduerst
At least you don't have to log in with a social network to see the answers.

~~~
cheepin
Here you go. Not super efficient, but a little bookmarklet to get rid of the
most annoying things about Quora

javascript:(function(){function a(c){var
e=document.getElementsByTagName('*'),i;for(i in e){if((' '+e[i].className+'
').indexOf(' '+c+'
')>-1){e[i].style.display="none";}}}a("modal_signup_background");a("modal_signup_dialog");a("modal_signup_facepile");})();

~~~
justincormack
Easier just to ignore it completely, why should I waste my time on overriding
their stupidity? Actually Google seem to be dropping them down the ranks, as I
rarely see a Quora link now.

------
togepi45
Wow, 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
This 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)

------
sharkweek
This 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.

~~~
neil_s
The 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

~~~
myth_buster
What about stocks?

------
gyardley
This 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.

------
dataker
As 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
Maybe 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
I 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.

------
wpietri
Here's their funding history:

[https://www.crunchbase.com/organization/satisfaction/funding...](https://www.crunchbase.com/organization/satisfaction/funding-
rounds)

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-p...](http://www.feld.com/archives/2004/08/to-participate-or-not-
participating-preferences.html)

~~~
joshu
There 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.

------
meritt
Founders 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.

------
onewaystreet
This 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
I'm sure the bridges were burned a long time ago. When people start losing
money, it ain't pretty.

------
burger_moon
Watching Silicon Valley S2 and the beginning lines read just like this tweet.

------
therealwill
According 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
$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
Are we thinking of the same Zendesk? The Zendesk I know is a public company
with 9-figure topline revenue.

~~~
lobster_johnson
According 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
I think we can safely assume GetSatisfaction didn't have 9-figure revenue.

~~~
lobster_johnson
To be sure, but that wasn't really my point. $1,200/mo for such a simple
product seems excessive.

------
socceroos
Judging 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
> fluster cluck

Does the extra "l" bother anyone else?

~~~
MereInterest
In the spirit of inquisition, which "l" do you consider to be the extra one?

~~~
StavrosK
They're both about the same, but considering that "cl" is a sound by itself,
I'd go with fuster cluck.

~~~
troels
Also, removing the "l" from cluck would leave you with a word that still
sounds obscene, making the whole process pointless.

------
Animats
That'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.

------
ghshephard
That'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.

------
r0naa
How is that even possible?

~~~
lukasm
liquidation preference?

~~~
late2part
Liquidation 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
Is there a recursive model that explains why later investors have senior
preferences?

~~~
vidarh
It'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.

------
gesman
Is that's the case where debt (in whatever shape or form) exceeded the payout?

------
mgav
"...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)

------
gchokov
VCs: Take all you can, give nothing back :) Now seriously. That's what happen
when you don't know what you do with VCs

------
tomglindmeier
Sounds like they signed a relay bad contract. I'm sorry for them.

~~~
prostoalex
Almost 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
Interesting. 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.

~~~
prostoalex
I 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).

~~~
KayEss
Number one preference is the tax man isn't it? At least in the UK, he always
gets paid first.

~~~
RobAley
That's not been true for a long time. The only "preferential creditor" in the
UK now are employees, HMRC take their chances with all other debtors.

~~~
KayEss
My knowledge of this comes from the dot com crash 15 years ago. I'm pleased
that the employees now come ahead of the tax man.

------
braum
must 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.

------
serve_yay
Don't worry, what's important is that you crushed it with your passion to move
fast and break things.

------
irascible
Vcs 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.

