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?
> and I could take $10M in investment at $100M in valuation, and then the next day liquidate the company
True, but that's the CEO and board that can do that. The employees can't just liquidate the company.
The issue is that the investors and management get preferential treatment first. But the employees -- the ones that execute the corporate vision -- get shafted.
This isn't just theoretical: my current job is at a place who's known to be cash-heavy (ie equity-light) with their offers, relative to competitors. This suits me just fine, since I'm not sure enough about the company's ultimate success, or rather, not willing to deal with the risk and illiquidity to a much higher degree than I already do. As you can imagine, for a given level of compensation, equity and cash play against each other, and I'm getting much more in cash than my friend with equity-heavy comp packages do.
Equity and salary as forms of compensation each have advantages and disadvantages, and it really doesn't make any more sense to look only at the advantages of equity-heavy packages (priority during liquidation) than it would to complain that employees getting a salary was unfair to investors.
Frankly, I will never take a position at a startup with a base pay lower than market. It doesn't make any sense IMHO.
Right because most people can't live on a 4 or 5 year option wait alone. And the likelihood of a company getting only rich employees to work for them seems small.
If that were true, then you'd be right.
Employees get cash flow heavy comp over equity, which is better during the company's existence and worse during its liquidation. Investors get equity heavy comp packages, which is worse during the company's existence (no cash flow) and better during its existence.
My complaint about the GP comment was that looking at one half of a tradeoff is obviously going to make it look better, just like saying that I'm ripping off Amazon at the time of delivery because I don't pay anything at that moment, while ignoring the fact that I paid them earlier. Your comment is a complete non sequitur
> Crunchbase reports that Eero took $90 million in venture capital (the Wall Street Journal put the number at $100 million). PitchBook, a highly accurate source of VC information, claimed a final $40 million Series D fundraising round from December 2017 brought that number up to $138 million. Eero declined to comment, instead pointing to a March 12 blog post confirming the sale.
> An additional $10 million debt line Eero took out brings the total money put into the company at $148 million — 150 percent of the Amazon sale price.
> after transaction costs and debt, the actual price will be closer to $54.6 million.
> Amazon is covering around $40 million of the debt that Eero owes. Ex-employees believe the debt to be from hardware manufacturing costs
> Eero’s Series D investors, led by Qualcomm, will recoup 84 percent of their investments.
> seed round and Series A-C investors will all get back 31 cents on the dollar.
Investors are taking a 16%-69% loss on invested capital. You're not going to make any money by exercising call options unless the strike price is absurdly low for some reason.
The employees might have done okay if they were holding put options on the company, but alas, one's employer probably isn't going to offer one put options as some kind of incentive...
> If the investor exercises the put, the investor is entitled to redeem all or a portion of his equity interests in exchange for the initial investment value plus a nominal return above the risk-free rate, yet still maintain a reduced equity position in the company–perhaps, somewhere between 50% to 75%.
> To prevent the investor from exercising the put at a moment when the company’s financial stability or expansion plans could be jeopardized, the company can require that in addition to a prescribed time period restriction, certain revenue milestones must be achieved and set as “triggers” before the put may be exercised.
> The put option must be structured in a way that enhances the investor’s optionality without putting the company at balance-sheet risk. It is possible to strike that balance.
Another variation would be to strike a deal where put options were not written by the startup but by some other third party (an insurer or bank?), which was highly likely to remain liquid in the event that the startup went bust. This could avoid needing to constrain the use of the options with triggers & so on. On the other hand, it would be a pretty risky business for a third party to sell such things, so they probably wouldn't be cheap to buy...
> 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.
Why? Because the players themselves are world class even though their team is loosing. One player on their own is never enough to secure victory for the entire team. So you can’t inversly put the fault of a loose entirely on every individual player.
Startups consistently ask engineers to work extra hours "because equity," and then ask those same employees to trust the complex contracts.
Looks like a somewhat rigged/disingenuous system to me.
on the other hand, you can say a similar thing about non-executive employees. it is perhaps just a question of how essential or replaceable they are perceived as being.
also, the executives will likely have a lot more power than employees when negotiating a deal with a possible acquirer and major investors, so it isn't terribly surprising that they cut a deal that favours the powerful parties involved in the negotiation, at the cost of less powerful parties such as employees. this isn't to argue it is the right thing to do, it is to argue that it isn't surprising when it happens.
Failure isn't really a great measure to judge individual performance or character. Companies can fail even with good executives and catch a lucky break with awful ones. In the technology space in particular were failure is very common, and to a degree encouraged.
> The company failed.
why would you pay 7 figure retention bonuses to execs of a failed company?
This may be the most tone-deaf thing I've read in a long-ass time.
BECAUSE THEY DID THE (...) WORK!
Of course, if they worked for equity rather than cash, that was their call and one would expect them to bear the outcome.
I don't have patience for the, "oh they had a salary so they're whole." BS, everybody is working to make things better, and if the leadership of the company is not helping their employees get a chunk of the back-end then they are bad bosses. To me it's ethically related to not tipping in a restaurant.
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!
I hope stories like this continue to break, and potential startup employees internalize the economic reality of working at a startup.
For most startups that raise a series A or beyond, founders win no matter what, even if not financially: they build connections with funders and founders, develop experience with management, extend their networks, and get a broader view of their sector. This is true even for companies that just straight go bankrupt.
Emoloyees usually get none of these things (but often get even less of those things at a big company).
Treat your salary as your total income and equity as a lottery ticket?
That way we could exercise our options as they vest, instead of holding out until an event to get some liquidity. It keeps people trapped.
There is more to the quality of a job and your life than having the highest total comp possible.
Having a lasting and enjoyable connection with your teammates is valuable too; you spend hours a day interacting with them, and teams of people you can really get along with are few and far between.
If jumping ship every 6 months maximizes your comp, but you never get the chance to create professional relationships as you jump from ship to ship, I'd say that's going to usually be a bad tradeoff.
There are other axis as well, such as a team with a reasonable manager who lets you spend time with your family, or a company that works in an area that aligns particularly well with your interests.
Everyone has different morals and ethics I suppose.
Employees who had been stiffed on pay are effectively the first priority creditors. Common stock is last.
There is no reason that all the stockholders should have voted to approve this sale unless they were going to walk away with something to pad their pockets so... did some majority shareholder sell out to amazon and get some separate remuneration? I feel like that should definitely be illegal.
Edit: Oh, so the founders assumed they'd be acqui-hired and got screwed over after screwing over all the regular employees. Okay I'm totally fine with that.
Being poor is having no idea what that reality might seem like.
Corporate speak. Put a positive spin on everything!!!
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.
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.
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.
Finally, $2M (which is for 10 employees in your example, not 1) would be considered a small round today.
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.
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.
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?
(Although another explanation is that the tech press generally doesn't remember anything that happened more than a year ago.)
There are several wireless networking products that offered “mesh-like” features before Eero, often under names other than “mesh”, and many of them failed to package and market the benefit of the feature as well as Eero did. Eero deserve credit for popularising the concept with ordinary consumers, and now “mesh” is a marketing buzzword as well as a feature everyone wants in on.
I’d argue mesh is still today really a “markitecture” concept more than anything else, with massive differences in implementation.
Also, I’m happy to give the author the benefit of the doubt, given the context of the article is clearly consumer level networking gear.
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?
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.
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?