Unless AngelList is teeming in cash, which they probably aren't, the deal is likely either all stock or mostly stock. So imagine AngelList internally values themselves at $500M (a number I just made up), to get to the 20M figure they would be offering ~4% of their stock in exchange for PH. Most likely common stock. Adjust that figure up or down depending on what you think AL thinks they are worth.
Likely they pay out enough in cash to make the VCs whole. So assuming 1x participating preferred and 30% of the company owned by VCs, that's $8M + 0.3 * 12M ~= $12M cash returned to VCs, and then the remaining $8M is in Angellist stock distributed to the founders and employees. Assuming 20% employee ownership, it'd be just under $2M to employees collectively and $6+M to Ryan (I think he's a solo founder, right?). If I assume an internal Angellist valuation of $200M (also made up, but you're more generous than I am), PH employees collectively get 1% of AngelList stock, and Ryan gets 3%.
Also seems to fit everyone's incentives nicely. a16z & seed investors get their money back, so they at least don't have to take a loss. Ryan Hoover gets F-U money, assuming AngelList doesn't tank. Employees get enough for the down payment on a house, also assuming AngelList doesn't tank before they can liquidate. AngelList acquires a pre-made team with a proven track record for not much more equity than they would spend on the open market. Pretty typical SV acquihire.
Where is AngelList getting this 12M? According to Crunchbase they've raised 24M total. Also why the heck would the board approve spending such a massive chunk of cash on an acquisition which seems rather speculative (IE it isn't an obvious merger like GrubHub-Seamless or DraftKings-FanDuel)?
Additionally, why would the VCs prefer cash to shares in AngelList? VCs are in the business of putting money into rising companies, I'd assume they'd much rather have shares in AL than having to return a pittance of cash to their LPs.
I'd also make a large wager that none of the founders of PH have "FU" money as a result of this deal. AL putting their scarce cash into the pockets of founders is a very very stupid way for them to invest their money. You'd much rather structure the deal to give the founders AL stock so they have an incentive to work hard for you instead of just waiting out the deal and pocketing your cash. Remember that AL has all the leverage here, they can structure the deal however they want.
Crunchbase shows AngelList's funds raised at $400M - there were 3 follow-on rounds with undisclosed amounts after their $24M Series B. (I have to revise my estimate of AngelList's valuation up and my estimate of the percent ownership of PH founders/employees down after this - with $400M raised, they're almost certainly worth at least a billion, and Hoover's equity share would be worth < 1%, also in line for a talent acquisition.)
I certainly can't speak for a16z in this particular case, but in other talent acquisitions the VCs usually prefer cash to shares in the acquirer. If they wanted shares in the acquirer, they would've invested directly in their funding rounds. Among other problems with taking shares, it opens them up to potential conflicts of interest (particularly relevant for a16z + AngelList), and it leads to having large positions in companies of which they don't have board seats or any significant visibility.
Ryan Hoover gets "FU" paper money in the form of AngelList shares; he has to wait for AngelList to have its own liquidity event before he gets to realize any of those gains. Still, if his own startup is foundering, that's probably a better bet than going down with the ship.
I think the $400M refers to this [1], which based on the reporting seems to be money AngelList has set aside by some other VC to invest in startups on their platform, but I don't think that money is invested in AngelList itself. I couldn't find any other articles talking about investments in AngelList themselves, but who knows maybe they are worth a ton.
That is a fair point about conflicts, that makes sense. Still though if the cash isn't there, it isn't there. I cannot grasp a startup giving up $12M in cash in this environment unless they are absolutely rolling in dough. Doing an equity deal instead of cash is the equivalent of raising $12M at your current valuation (or whatever made up valuation you give yourself in the acquisition negotiations), which seems like a great deal.
Yes, I have no doubt in this deal the founders have "FU" paper money, but I know for a fact most shops and landlords don't accept that as payment :)
Yeah, birken is right, that $400 million is to a fund they are helping to manage. The fund money is not theirs and is not a direct factor in AL's valuation.
Since that $400M funding is a misunderstanding and not what they raised. What they raised is mostly $24M, then there's no way they are giving $12M cash out to buy PH, no?