If things are dire enough to close up shop now, they probably were dire enough to close up shop 2 months ago, and you can use the cash to give your employees some runway for finding new employment.
>If things are dire enough to close up shop now, they probably were dire enough to close up shop 2 months ago, and you can use the cash to give your employees some runway for finding new employment.
This might be true, but personally I'd rather the company try to remain a going concern.
Not just alerting, but offering severance. No one at Convoy was offered severance - now or in the past month. I edited my earlier comment to reflect my meaning.
Separate questions. You said the company knew it was "doomed in a month or 2 and [did] not [alert] employees." I've seen them messaging pain since their multiple rounds of layoffs last year and this [1], as well as in August [2]. Moreover, I haven't seen claims of employees being blindsided (as Yellow drivers were).
In the limit this means go insolvent/bankrupt and not pay out to creditors such as lease, caterers, cloud services. Finish with unpaid taxes and wages.
I'd always rather see employees get payouts on shutdown compared to companies, especially things like billion/trillion-dollar cloud companies and commercial real estate.
That being said if you're burning $30M+ every month in the current financial market I really hope you cancelled all your catering contracts a long time ago.
Depends: food can dupe people into working extra hours for free.
They think they are having a lunch break as they talk shop while chewing on their ciabatta.
Of course they will. What is the magic that separates success from failure that apparently only magically appears within the last 4 weeks with operating capital in the bank? Move your time tables up by 4-8 weeks, including funding raises and closing operations, and none of this is an issue.
According to what’s been said, they were chasing opportunities that they thought would finalize within that timeframe. 4-6 weeks ago they had good leads for closing a deal in 4-6 weeks. None of those happened to pan out this time, but every startup has been at a point like this where runway is coming up short. This is normal and expected operating conditions.
No, when you are in the fog of war/fundraising, it can be very difficult to decide between 100% let everyone go, verse some other percent where everyone keeps their jobs. Very much depends on the circumstances.
If no one was picking up their calls and it was obvious, then sure.
Not much is really that clear though.
In my tiny case a while back, I wiped my liquid savings to get me employees some time. Can't do that with over a thousand employees though!
> What is the magic that separates success from failure that apparently only magically appears within the last 4 weeks with operating capital in the bank?
I've heard it said that every boss of a failed company will tell you that they almost got a last minute investment, or almost made a big sale, or almost got acquired, if they'd only had an extra week or two it'd have all been different.
Of course that could be wishful thinking - or a sign that in the final days they were offering fire sale prices.
If you can still operate the business for another 8 weeks, there's a chance that things will still work out, and it's pretty pessimistic to preemptively shut it down because you assume you're going to fail. Pessimists don't generally find themselves in the role of founder/CEO of a startup in the first place.
Actually good founders and CEOs do tend to be realists. They know when to hold and when to fold, and they place a high value the well being of the people especially when things go poorly.
Manic founders who insist that a rescue will come right up until the last second often leave people feeling burned and don't get as many second chances when things don't go well.
> there's a chance that things will still work out,
There is a big difference between a less than 1% chance and an 80% chance here. Part of the job is knowing that difference, and how to handle/communicate it.
What about 2 months before that? 2 months earlier still? Another 6? They raised $260M a year ago and it sounds like an extraordinarily capital-intensive business.
It's pretty easy to say "oh you should have done this differently" with almost zero actual knowledge of the situation or experience.
Tesla wouldn't exist if Elon had shut down at the 2 month dire point. At least, I recall him saying they were at one point about 2 days away from bankruptcy.
Not surprising though, that Elon would be in the same camp as this Convoy CEO, not likely to shed too many tears over worker concerns.
> At least, I recall him saying they were at one point about 2 days away from bankruptcy.
Elon has said several variations of this have happened on several occasions.
And yet this fragility never really made it into IR reports or SEC filings or annual reports.
So either he exaggerates (shocking concept from a man whose company has on multiple occasions had to follow him around and say "his claims of Tesla doing X, or doing it by Y date, are visionary, and not statements of fact"), or there's some hinky accounting going on.
I know of two companies with >$1B exits that were running on fumes when they turned it around. One had 3 days of runway remaining; one had 16 hours to get a wire in to make payroll. Today these companies employ thousands.
FedEx famously (allegedly) came down to a hand of blackjack in Vegas to make payroll & avoid bankruptcy.
I don't dispute that they were close to running out of money, but what does "2 days" even mean in that context? It probably means that soon they would have needed to decide when to start the bankrucpty procedues or something.
He said that before he said he had "funding secured" to sell the company at $420/share and after he laid out the planned 35 minute Hyperloop from LA to San Francisco, right?
(I'm just trying to nail down the timeline of full truths/no cap from Elon.)
No a company cannot begin winding up without reaching an agreement with its creditors - the winding up process is a de-facto admission of insolvency and the company needs to declare bankruptcy and the creditors get first dibs on the assets.
It’s nothing like a layoff. For example, imagine that you are a supplier to company A and now your contract is both unpaid and cancelled and you’re going to have to lay off some of your own staff. Do you recover the contract money from company A, to give your staff severance? Or can company A stiff you and use it to give their own staff severance? (No, they can’t.)
It is interesting to see that employees of Convoy aren't saying bad things about the CEO. But people on the outside who don't know the CEO are saying bad things.
>It is interesting to see that employees of Convoy aren't saying bad things about the CEO
A whole two people who claim to be ex-convoy employees have chimed in from what I have seen. Hardly representative of what the average ex-employee thinks. Certainly not enough to form a conclusion either way.
Is it your serious contention that because insufficient numbers of (now ex-) employees of this company haven't posted on Hacker News within three hours of learning about their unemployment, that it's a non-issue?
To be clear, it actually isn't a recognized psychological phenomenon as you can see at your own link. It was invented by a police psychiatrist who did a bad job being a hostage negotiator and came up with it to explain why the hostages were mad at him.
I've been part of several failed startups ... they ALL provided severance during shutdown. Where is the "obviously" coming from here? You only can't pay severance if you are shutting down because you "ran out the clock" on a clearly failing venture and deliberately screwed your employees.
I've only worked at one company that shut down, and we were notified a month in advance, giving us all time to find a new job while still getting a paycheck and healthcare.
If the CEO wanted to continue operations for another month to allow folks to find new work, they could have.
To be clear, in Australia, this would not be trading whilst insolvent. If the director was not negligent, and they had a legitimate reason to believe they would be able to pay their debt when it fell due, whether via new revenue, new debt or restructure of existing debt, then it wasn't trading whilst insolvent.
The directors had reduced expenses, had been seeking further investment, to increase revenue, and finally to sell the assets of the business, before voluntarily ceasing to trade. They executed their power and duties in good faith, with the care and diligence a reasonable person in their situation would have. It's not a crime to have a business fail.
> if a company is shutting down, it obviously can't provide severance
Not really true. The company is owned by its shareholders, and they may choose to use funds belonging to the company (after paying outstanding obligations) to pay severance, or they may divide the funds among themselves. If there are no funds, they can choose to invest more to pay severance. Obviously they're unlikely to want to do that, but it's not a case of "can't" but rather "won't".
> they may choose to use funds belonging to the company (after paying outstanding obligations) to pay severance
If they can do this, they can pay salaries another month. Making a go/no go call at the edge is difficult. It sounds like Convoy thought it was getting a loan that didn’t come through.
Put another way: if the CEO shut down the company while loan negotiations were in place, it would have zeroed out the common stock while giving preferred investors a pay-out (in addition to everyone some severance).
> If they can do this, they can pay salaries another month
If leadership decides to use the remaining funds on salaries rather than severance - then they should be judged on that! What good is buying one extra month for a doomed company? That month is more valuable to individual employees who can use it to look for new jobs
> What good is buying one extra month for a doomed company?
You don't know it's doomed. Plenty of companies have turned around while running on fumes. This is fundamental to start-ups.
> month is more valuable to individual employees who can use it to look for new jobs
Everyone who lost their jobs at Convoy is eligible for unemployment. The same unemployment most workers get when they're fired. Perhaps the discussion should be around improving this benefit for everyone?
It's swell when people gamble with employees well-being on the miniscule odds of a miracle. And even better idea is to offer severance, and those employees with the same appetite for risk can get additional options from the folks who leave. That'd be a win/win, except for the leadership who would rather gamble using other peoples chips but keep most of the winnings.
> Everyone who lost their jobs at Convoy is eligible for unemployment
Unemployment benefits don't come anywhere close to tech salaries! They take time to process.
> Perhaps the discussion should be around improving this benefit for everyone?
We can multitask. What is in my power to control is to avoid working with anyone associated with this decision and encourage everyone else to do the same - board-members and the entire C-Suite. We have a - let's call it poor culture fit
> It's swell when people gamble with employees well-being on the miniscule odds of a miracle
You don't know the odds ex ante! Again, they would have been roundly criticized if they'd prioritized severance (which means more for the highly paid) and preferred stockholders over their rank-and-file common holders.
> Unemployment benefits don't come anywhere close to tech salaries! They take time to process
You're arguing for special treatment of well-paid tech workers over e.g. truck drivers [1].
> What is in my power to control is to avoid working with anyone associated with this decision and encourage everyone else to do the same
The solution is to not work for a start-up. That, or gain empathy for the tens of millions of Americans who work for a restaurant or with variable hours or on contracts that provide them with zero heads up when business conditions change or their employer goes under.
Don’t join a fucking startup if you can’t handle it shutting down at any given moment.
If you want employment stability join a profitable company or the federal government.
> That'd be a win/win, except for the leadership who would rather gamble using other peoples chips but keep most of the winnings.
It’s a startup! You’re there to try to make the options work out as an employee as well. I would 100% rather ride to the end with any chance that it will take off.
They failed to get a loan in time, it’s not like they knew it was a fantasy that could never work out. They had a viable business and got caught in counter-party risk.
> Everyone who lost their jobs at Convoy is eligible for unemployment. The same unemployment most workers get when they're fired. Perhaps the discussion should be around improving this benefit for everyone?
I think you can take out private unemployment insurance, if you are worried about that? (Or just have savings.)
You’re calling this poor leadership, can you share a time you were in a similar situation and did something different or are you armchair quarterbacking?
We don't have enough information to know if it was reckless leadership. If the CEO had an email from a reputable lender saying we'll have funds in your bank account in two weeks, it would have been irresponsible for him to shut down the company to pay off creditors, preferred shareholders and severances.
I'm not advocating for the CEO. Just against condemning him while in the maelstrom. More fundamentally, there is a thread through this discussion which essentially holds that tech workers--we're highly paid!--should have post-termination benefits others don't.
The problem is you don't always know it's doomed. A company I co-founded got to within 5 days of insolvency before we secured the next $5m round. The company never got a big exit, but it did sell a few years later, and the product still exists 22 years after.
I think the big question is how well communicated the risks are. In our case I believe everyone knew, and there'd have been no hard feelings if people had chosen to look for new jobs once funds got tight.
FedEx famously got to within days of running out of money early on, and there is a story Fred Smith made payroll by taking the remaining cash to Las Vegas and gambling.
We have laws. There’s a trade off between more vibrant economies (easier to start, fail, start again) and more stagnant ones (harder to start but more safety nets).
There’s no perfect set point and the trade offs will always have downsides.
Given the risks of working for a company in the stage Convoy was in I’m not exactly sure this is a bad outcome.
Deploying capital into something that literally has no return just doesn't make sense. You're also ignoring the reality that most capital comes in at the start. It doesn't come in at the end. That's an irrational investment. Would you buy a house that's burning down in the interest of the current homeowners?
Could a company receive funds at the end? Legally, sure, maybe (maybe not given fiduciary duties to LPs).
Investors would have to say to their limited partners: we're going to take your money, and hand it over to employees, and those employees will do no work for us and the company is shutting down anyway. That's a very ineffective use of capital and those types of decisions are worse in the end for the economy, I would argue, which does impact everyone.
Startups are risky for investors. They're risky for employees too. I think a better solution might be to bolster unemployment insurance. After all, investors often have downside protection (usually in the form of preferred shares or preferences). Employees need downside protection too. But let's not perverse how capital should work.
> That's a very ineffective use of capital and those types of decisions are worse in the end for the economy
Disagree - it frees those employees to begin working for more productive companies sooner rather than drag them through "you are fired with no provisions for healthcare. Good luck and don't get sick during the donut period."
- yes, it's an special qualifying trigger for the exchanges but you are asking someone navigate this in short order(likely end of the month or less than two weeks)
Disagree to disagree - employees are free to begin working for more productive companies when they're fired with no provisions for healthcare.
In spirit though, I agree. Social healthcare not tied to employer would allow for more labor mobility. These transitions should not abrupt or catastrophic ideally.
Employee claims supersede equity and debt holders. The question is whether the company shuts down with money in the bank or keeps running until it's out.
People should remember the board and CEO for screwing over employees.
My understanding is that in the US, earned wages (while employees were employed) are indeed employee claims. Not paying these is what YC guidance above says will lead to "very bad things."
After people are let go, severance and continuation of healthcare beyond some term mandated by law (maybe state, maybe federal, maybe varies by state, don't know) are not considered employee claims in this sense.
CEO and the board didn't follow the YC guidance mentioned above, and it's on them.
>People should remember the board and CEO for screwing over employees.
This is important if you're staying in more or less the same field - many specialties are smaller worlds than you may think.
I am somewhat bad with names, so I've learned to take notes. I have a list of people I'd love to work with again, and another of people whose presence will stop me from accepting an offer.
No; the fiduciary duty of the CEO/board is to the shareholders. If there is a chance to salvage continuity of operations and preserve the value of equity, that is what they will do, even if it means operating until cash runs out. It is a matter of basic incentives. As much as we'd love to do the "right thing" and pay weeks/months of severance for no work (I am a founder myself and would love to, in a perfect world), startup employees should know the risks of working at a high-risk venture and plan accordingly. The middle road here is to do a significant layoff with severance, but this isn't possible in every case. Additionally, a company-saving customer contract or funding round can fall apart at any moment. This is, unfortunately, just the nature of the business.
Ehh, talk to a lawyer, but at certain point, often before technical bankruptcy/insolvency, mgmt/board actually have an obligation to the creditors, not shareholders (as they are no longer the beneficiaries)
At some point, during a monthly accounting reconciliation, someone should have piped up and said "Unless $<x> revenue comes in the next <y> months, we will be unable to fund personnel/payroll in <y> months." .