[exogeny]

This is normal, and happens a bunch when founders over-raise. A somewhat canonical example is FanDuel selling for >$1B and the founders getting zero.

As far as the motive/"is it right": I'm going to take a somewhat contrarian viewpoint than those presented so far, having seen this happen on both sides of table in my life.

In my experience, and in most cases, the founders aren't necessarily doing anything shitty or sociopathic. They likely raised more than they needed at a higher valuation than was deserved -- for perfectly normal reasons, such as a frothy market or the simple fact that in startupland raising money is considered a win itself -- and it caused a set of benchmarks that ultimately became impossible to overcome and thus the common stock became worthless.

Transaction happens, founders are considered key to the successful merger and the acquiring company worries that the merger won't be fruitful if they bail so they receive some compensation as a sign-on bonus and/or an earnout.

If you want to argue that early-employee non-founders get disproportionately screwed in regards to their sweat equity vs. actual equity, you're absolutely right but that's a different argument altogether.

[throwaway23334]

As a founder, let's say you can take home 15 million and your employees get nothing, or you can take home 14 million and your employees get 1 million. Is taking the 15 million because you can and it's totally legal not shitty and sociopathic?

[lmeyerov]

Most likely, when negotiations went through, priorities was something like:

- pay off investors enough so they agree to the deal

- pay off founders enough so they proceed and stick around: potentially via a 2-4yr earnout

- pay off key employees enough to retain them through M&A too: good chance via a 2-4yr earn out as well

- employees who contributed 5-10 years ago: only if a big enough sale that it's straight cash etc. (ex: 3X+ of amount invested)

The acquiring co will generally push hard for earnouts vs. direct compensation, and will pay more that way (or even back out w/out.) Likewise, investors may nix the deal if they don't get paid in $. A "$100M acquisition" might actually be "$70M to investors who had 2X participation on $35M raised" (accounting for 100% of equity-based payment) + "$20M as earnouts to founders/employees who go to the new co" + "$10M for bank account balance" + "$0 to employees from 10 years ago".

So no surprise if most employees don't get direct $. However, it's pretty doable for employees to get a nice earnout, and telling if the founders got a nice earnout while not getting one for their employees. Likewise, not surprising for ex-employees to washout, and it'd need to be a big success to change that - as in, investors get 1-2X+ of their money back first.

[exogeny]

In that specific example, I'd say it's shitty, yeah. I haven't seen too many cases of a founder getting that 15mm up front though. That's comically high for a sign-on and even in an earn-out scenario that's on the high side.

You said seven figures though; if Founder A was getting like, two or three, then nah, probably not.