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Amazon bought Eero for $97M and employees still got screwed (mashable.com)
125 points by poopaway on April 5, 2019 | hide | past | favorite | 84 comments

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?

There's this idea that everyone is in the same boat together, for better or worse. Especially in a startup. And to see some get huge bonuses while others see large losses -- especially in the same company -- doesn't seem entirely fair.

> 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.

Investors lost money on the deal overall, right? While employees got paid a salary for however many years they were there? By your framing, employees get "preferential treatment" with respect to salary.

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.

The salary is often in leiu of equity which is effectively worthless, while those responsible for that failure (management) make out like bandits.

Frankly, I will never take a position at a startup with a base pay lower than market. It doesn't make any sense IMHO.

> By your framing, employees get "preferential treatment" with respect to salary.

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.

What? How does what you're saying contradict my point at all, or make me "not right" in the case of not-all-rich employees? You're just explaining the reason that investors choose equity and employees choose salary, which has nothing to do with my point.

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

> Final sale price was $97 million.

> 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...

That's actually not a bad idea, as a backstop.

I did a search for `startup "put option"` to see if there was anything written about this. There is one article arguing that major early investors should demand something vaguely similar [1] -- although it sounds like it is not designed to be triggered when a company fails and loses a lot of value, but instead perhaps when a company is partially succeeding, or succeeding but the investor wants to reduce exposure or otherwise get some cash back:

> 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.

[1] https://www.thinkadvisor.com/2010/04/01/venture-populist-the...

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...

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

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.

It takes a huge amount of money to build a successful hardware company and they failed because they ran short of cash. However Amazon seems to believe that their product idea and the people who conceived it have value, and that's what they paid for.

Sports teams buy pro athletes from teams that loose all the time.

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.

Not entirely: markets, competition, nature, people, etc. Is it 100% fair market? Well that's what a good portion of the article is also about.

I'd imagine the founders and execs aren't needed or wanted outside of ensuring basic continuity of the business short term. But they negotiated benefits for themselves and not the other employees because they were the ones negotiating.

I think what people expect in this situation is that they understand the equity agreement.

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.

What are the chances that the execs were actually forthcoming with details of the company's investors, valuation, and acquisition? Most likely, the leadership knew the situation for quite a while and strung along employees with vague talk of a big acquisition, while deflecting specific questions. And of course naive new hires were told that the leadership's financial success was tied to the success of the company and that the leadership did not have a conflict of interest with regard to value of employee stock options. So the whole affair just seems very unethical.

I had the same thought -- Amazon bought the assets of a failing company. The failure may not be the fault of the employees, but employees almost always lose when a company fails.

Why do the executives still succeed when a company fails?

the failure of the company may have been largely unrelated to the performance and capability of the executives, and the value they may provide to an acquirer in the future (individually or part of the system of the company). e.g. the outcome is influenced by a variety of factors, the outcome can still be terrible due to factors outside of control even if the decisions and execution by the people involved were flawless.

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.

possibly because the people who acquired the company saw some quality in the executives that they judged to be positive, even in the face of failure.

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.

They don't always, at least not all of them.

In some sense it would be more "honest" if the company was completely wound down and then the top 10 employees got hired by Amazon or something like that. But yeah, the result would be similar.

As far as I know, Eero is still a running business unit. You can still buy Eero stuff. I don't think that Amazon wanted to wind the company down and do a pure aqui-hire. If they had, they presumably would have paid less.

> 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.

why would you pay 7 figure retention bonuses to execs of a failed company?

You’re not wrong. Then just don’t start a startup and expect me to buy your bullshit that I should take a job and work 80 hour weeks because one day there will be a big payout.

YC’s own Sam Altman finagled a “single-digit millions” package when selling his startup, Loopt, for barely more money than it raised.

>Why would the employees get anything?

This may be the most tone-deaf thing I've read in a long-ass time.


Yes, of course they did work. For which they got a salary.

Of course, if they worked for equity rather than cash, that was their call and one would expect them to bear the outcome.

I'll add to my previous: everybody at the company works for a salary. In the US it's essentially illegal to volunteer for an organization that is not some kind of 501(c), and in California it's illegal not to pay everybody at least minimum wage, so let's stop joking: nobody is working for free, and any employee taking minimum wage (or $1/yr) is wealthy already.

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.

Unpaid Interns are one exception

You know what I mean.


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!

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.

You make it sound like the founders winning while employees get screwed is specific to acquisitions on crappy terms — it’s not.

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).

>potential startup employees internalize the economic reality of working at a startup.

Treat your salary as your total income and equity as a lottery ticket?

Nailed it. Also, loyalty only to yourself. You are a mercenary, seeking the highest total comp you can, ready to move jobs on a whim.

If only the IRS felt the same way. Any income should be treated the same when it is realized as currency, none of this bogus taxation on unrealized gains when your equity doesn't have liquidity.

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.

I see that as a bleak worldview. Yes, it's important to acknowledge that the company you work for does not have your best interests in heart. I don't think seeking the highest comp possible, at the expense of other factors, is generally a good strategy though.

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.

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.

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.

Totally different situation. You can't think of this "getting screwed" as employees qua employees getting screwed. These are common stock holders getting screwed while creditors are made whole and preferred shareholders recoup some of their investment.

Employees who had been stiffed on pay are effectively the first priority creditors. Common stock is last.

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.

Good PR is cheap and people talk.

I am so confused, were the owners just idiots about judging the value of the sale?

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.

Man, I sure wish someone would screw me over with a high-six-figure cash bonus like they did those founders.

Being poor is having no idea what that reality might seem like.

No, the company was failing and the board decided that this was the best way for the investors to recuperate some of their lost capital. If they waiting longer they would've had to sell for less or go bankrupt which would have lost everyone even more money. (Obviously employees were already at $0 so they couldn't lose more).

As someone else already noted in this thread: employees were the only ones who actually made money on this company, in form of their salary received over the years. It's only the equity part of their compensation that went to $0.

> the main deceptive thing is calling this acquisition a “successful exit” — it was far from that!

Corporate speak. Put a positive spin on everything!!!

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.

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.

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.

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.

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.

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.

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.

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

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

Her retention was necessary because she was the one who processed out all of the other employees.

> 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?

It's implied that this is in the context of the consumer market. Mashable has probably never heard of Meraki.

(Although another explanation is that the tech press generally doesn't remember anything that happened more than a year ago.)

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

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

This assumes we can even agree on the precise meaning of “mesh” given it isn’t a widespread technical standard. I typically can’t “mesh” Wifi products from different manufacturers that supposedly support “mesh”, for example.

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.

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

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.

How early?

First 20

How long were you there before the exit/payday?

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

What field?

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.

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.

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.

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.

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?

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.

for startups without meteoric growth (most of them), it becomes harder to raise money later. especially in an area with no real moat (commodity wifi). if the revenue growth is not a hockey stick it’s harder and harder to sell your story. this translates into stiffer preference

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

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.

We need more transparency as well as good willed founders willing to pledge and honor more equitable systems for themselves, investors and employees.

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.

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?

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