[gchadwick]

Another example of the growing trend of buying out key parts of a company to avoid any actual acquisition?

I wonder if equity holding employees get anything from the deal or indeed if all the investors will be seeing a return from this?

[lumost]

I wonder if such deals will create employee lawsuits. I'd certainly be looking at legal options if I was one of the founding employees.

[SilverElfin]

It should. Look at what happened at Windsurf when Google did something like this

https://news.ycombinator.com/item?id=44673296

[sandworm101]

>> one of the founding employees

If you were an employee, you were not a founder. A founding-employee would be someone who explicitly "invested" time/money into a company without compensation. If you are also an employee earning a wage you better have a written agreement stating what amount was "investment" and what amount was compensated wage.

[lumost]

Startups typically offer employees, particularly early employees, substantial equity compensation. If the employer is offering this compensation in bad faith, or otherwise preferring one equity holder over another without an explicit contract - then they are at the very least a crappy business partner. A founding engineer with a 2% stake could be missing out on 5-10 million of this transaction.

As an aside, most founders are paid during the entire project. It’s not hard to raise a preseed round to get yourself paid for 6-24 months to work on an idea. If a founder chose to bootstrap - that’s all fine, but let’s not pretend that the employees aren’t taking massive career risks vs “standard” employers.

[lovich]

> If the employer is offering this compensation in bad faith, or otherwise preferring one equity holder over another without an explicit contract - then they are at the very least a crappy business partner.

I don’t know about you, but every company I’ve ever worked at is a shitty business partner if that’s the metric. The standard has always been I get what we agreed to if I was lucky, and otherwise I got full “I’ve altered the deal, pray I don’t alter further” and dared you to defend your rights.

I actually have called their bluff a few times and gotten some money out of it, but it was always a year long event or more to resolution and involved risking even more money on lawyers.

[crote]

Just one slight problem: people need to eat, and food costs money.

Your startup won't succeed when its founder starves to death. It's why the founder will usually get a bunch of cash during investment rounds [0]: they can't focus on the company if they are constantly worried about cash in their personal life. Unless the founder is already independently wealthy, it is a guarantee that they'll be employed by the company and being paid a living wage. Heck, in some countries this is even legally required!

According to your logic, no successful startup will ever have a founder, as any form of pay instantly degrades them to regular employee, and any kind risk taken and below-market salary is completely irrelevant. Never mind the fact that they are taking home a minimum-wage salary while working 100 hours a week - they are earning a wage so they can't possibly be a founder.

So if this logic already breaks down for the founder, why couldn't it also break down for early employees whose compensation is mostly in stock options? How is their situation any different from the founder's?

[0]: https://www.stefantheard.com/silicon-valleys-best-kept-secre...

[wmf]

The employees are getting paid twice.

[idiotsecant]

The employees are getting paid zero times.

[petcat]

do they make a salary

[crote]

Startups often pay a shitty salary in exchange for a decent chunk of stock options, with the implicit promise that you'll make bank if you work hard and make the company successful.

Getting screwed out of your payout by such a totally-not-an-acquisition is wage theft. It's like promising a sales-related bonus at the beginning of the year, and then in December changing the metric to "AI-related sales to the CEO's golf buddies".

[petcat]

Startup options are worthless. The only value most people will ever extract from a startup is the experience they had working there, and the salary that was put in their bank account.

I understand that a lot of inexperienced people (like in this thread) think they're going to get rich though.

No, it is not "wage theft" to not get rich when the company exits (by whatever means).

[tgma]

The implicit promise is only partially true. Very rarely you can find a proven talent that will actually forego significant salary. Often time when that happens the person is close to founders and will have a significant role in shaping the startup and will get quasi-acquired too.

This promise may have been more true before 2010s where public companies were not paying as much in liquid cash and private companies were not valued so aggressively. Fact is most employees take the startup offer because they don't actually have a liquid offer that's super competitive at that moment, or they are just kind of bored and taking a break of the corporate job that does not give them too many responsibilities, i.e. they are compensated via the title, not just the promise of making bank.

[simonh]

If part of their remuneration is in shares, they have a legitimate interest in the value of those shares.

[sleepingreset]

wdym?

[wmf]

They get a share of the $20B plus now they get to work for Nvidia.

[sandworm101]

>> one of the founding employees

If you were an employee, you were not a founder. A founding-employee would be someone who explicitly "invested" uncompensated time/money into a company without compensation and also worked as an employee. If you are also an employee earning a wage you better have a written agreement stating what amount was "investment" and what amount was compensated wage.

[exac]

In my career I've seen startups "shut down" and lay off the NA team.

I've seen venture capital acquire startups for essentially nothing laying off the entire product team aside from one DevOps engineer to keep everything running. I've seen startups go public and have their shares plummet to zero before the rank-and-file employees could sell any shares (but of course the executives were able to cash out immediately). I've seen startups acquired for essentially nothing from the lead investor.

In none of these scenarios did any of the Engineers receive anything for their shares.

Yet every day people negotiate comp where shares are valued as anything more than funny money.

[jbkkd]

I have a friend who worked in a company that got "not acquired" in a similar deal.

She didn't see a dime out of it, and was let off (together with a big chunk of people) within 6 months.

[sigmoid10]

As this gets more common, I think it will eventually lead to startups having a hard time attracting talent with lucrative equity compensation. It will be interesting to see how long it takes until this catches on among employees, but I already wouldn't take any positions in startups with a significant payment in equity anymore. The chances are slim that this pays out anyways, but now even when you are successful, noone will stop some megacorp from just buying the product and key employees and leaving everyone else with their stake in the dust.

[kasey_junk]

At my last job search I didn’t consider any equity based startups seriously because of this trend. It was already such a tenuous path as it stood, but now with the norm established it seems like it’s become impossible for a rank and file employee to get paid out.

I’m more curious how angel investors are being treated in these exits. If _they_ dry up the whole pipeline goes away

[mrandish]

Investors with enough into the deal to fight it in court get enough to not fight it. Key employees needed by the 'not acquirer' get compensation sufficient to retain them, although increasingly much of this is under a deferred vesting arrangement to ensure they stay with the 'not acquirer'.

Non-essential employees and small investors without the incentive or pockets to fund a legal fight get offered as little as possible. This structure also provides lots of flexibility to the 'not acquirer' when it comes to paying off existing debts, leases, contracts, etc. Basically, this is the end of being an early employee or small angel investor potentially resulting in a lucrative payoff. You have to remain central and 'key' all the way through the 'not acquisition'. I expect smaller early stage investors will start demanding special terms to guarantee a certain level of payout in a 'not acquisition'. I also expect this to create some very unfortunate situations because an asset sale (as they used to be done), could be a useful and appropriate mechanism to preserve the products and some jobs of a failing (but not yet fully failed) company - which was better for customers and some employees than a complete smoking crater.

[keeganpoppen]

that is a great point. it’s one thing to occasionally rugpull employees, who are still at least paid for their services and robbed only of their EV on their options (i say “only”, though i find this increasingly common practice to be absolutely deplorable, to be clear). but how could investors possibly be happy with this becoming the new normal? will it get to the point where these sorts of faux acquisitions also involve paying out investors and only shafting employees? at that point you are only really even getting like a 20% discount over acquiring the company outright, which hardly seems worth it. which is to say that your point is very astute: the investors are definitely the linchpin here.

[baruch]

The company still got $20B of cash(?) in its books, it can pay dividends to its shareholders (investors) and they get their payment. The company can go down the drain afterwards. If it can still make money with its remaining assets that's only a nice small bonus.

So the only ones getting shafted are the employees.

[lumost]

I suppose the firm could simply roll the 20 billion into a long term asset. It’s not a big deal to anyone except employees if the asset never pays out. Departed employees would not be privy to how the money is eventually exited from the now shell company 20 years hence.

[danielheath]

20% of 20b isn’t exactly loose change, even for a megacorp.

[keeganpoppen]

true, but given that recruiters take upward of 30% of first-year comp it starts to really flirt with being a wash. if the acquiree’s employees are truly that odious, the founders aren’t worth the price of admission. just look at the scale.ai guy: he is in wayyy over his head now, and if those billions mattered at all to zuck he would probably regret it, ex post.

[SecretDreams]

> will it get to the point where these sorts of faux acquisitions also involve paying out investors and only shafting employees?

Yes, correct

[stuaxo]

The chance of rank and file employees getting anything has always been small now its smaller.

[zipy124]

It's already happening. You need a good lawyer to read equity terms to make sure you aren't going to get rug pulled by a founder later on. Even so I still consider equity to generally be worth zero unless the founder is someone I trust fully, since there are so many ways for them to legally not give you anything.

[cmrdporcupine]

The equity in almost all startups has already been a bait and switch for more than a decade. Most will refuse to answer you about % of equity share anyways, but if they did it's tiny tiny amounts, and in the end half the time it's up to the acquiring entity just how seriously they end up taking it. If you landed at an entity like Google (as I did from the place I was working 15+ years ago) you could be treated well. Elsewhere, not great.

During boom times it made more financial sense to go straight to a FAANG if you could.

[citizenpaul]

If you ask me there has been a major shift into trying to make "startups" into just another form of corporation. It started years ago when I started seeing things like "Founder Engineer - 0.5% equity" in jobs here.

[oblio]

With the job market being in the state it is in, there will always be people wanting to take their chances.

Let's face it and accept that the golden days of people working in tech startup (and soon large companies) are over.

RIP 1980 - 2023.

[oblio]

LOL@Americans waking up.

I guess you'll have to face the music at some point.

[throwawayqqq11]

Looking at GDP, the golden age is still right here.

https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?location...

/s

[CuriouslyC]

Different kind of gold raining down on us now though

[bugsense]

You should have just bought gold

[seehafer]

Though (very) unevenly distributed

[SecretDreams]

Need this plotted against cumulative American debt lol

[h2zizzle]

>As this gets more common

Boy, it would be so nice if a major correction were to drain these massive companies' warchests so that it doesn't become more common.

[Eridrus]

Can you say more about why mechanically she didn't get anything?

If you exercise your options you have real stock in the company, so I don't see how you can get shafted here.

Did investors do some sort of dividend cash out before employees were able to exercise their options? (Obviously shady, but more about investors/leadership being unethical than the deal structure).

Would love to know more about how this played out.

[kasey_junk]

Multiple share classes are the norm even before the new acquisition types we see here. It’s extremely common in an acquisition for employee shares to be worth nothing while investor and founder shares are paid out.

But these new “acquisitions” aren’t even that. They are not acquisitions at all. They just hire the talent directly with perhaps an ip rights agreement thrown in as a fig leaf.

[Eridrus]

I'm well aware of dual class shares, but preferences are typically 1x, and none of the deals were for less than the amount raised, so they're not relevant here.

The fact that these are not really acquisitions doesn't change the fact that Groq the entity now has $20b.

[depr]

Groq doesn't keep that money, it goes to VCs. They claim the company is "pivoting", not "selling" and avoid the payout trigger.

[badestrand]

Money can't just "go" somewhere, it needs a reason first, at least for book-keeping. I mean, VCs can get their invested capital back but on top of that, how would that money be transfered? $20B is a lot and for sure the VCs will not just write an invoice of $18B for consulting services.

[thehim58]

Hey, husband of that friend here, The bought company had huge debts to the investors (it is a startup, not tiny but small one, ran for several years) and after cashing those out from the purchase deal, the employees were left with shares that were worth 0$. (might be that the founders also grabbed some money out of that purchase, no one knows tho)

The employees of that bought company were given an incentive by the buying company to stay for a while and help tearing down and integrating their product into the buying company.

One could say shady, I'd say that it was just a bad deal.

[Eridrus]

Thanks for the details.

It's definitely true that common stock gets $0 if the acquisition price is <= (sum raised + debt).

That sort of sounds like the startup wasn't doing well, and the acquisition wasn't for a lot of money (relative to amount raised), which seems very different from these Groq/Windsurf situations.

[isubkhankulov]

There have been at least a half dozen of these deals in the past 1-2 years including Google “licensing” CharacterAI to pull their founders back into Google as valued employees.

In the deal mentioned above: my guess is that preferred class shareholders and common shares got paid out but the common shareholders had such a low payout that it rounded down to zero for most employees.

This can happen even in a regular acquisition because of the equity capital stack of who gets paid first. Investors typically require a 1x liquidation preference (they get their investment back first no matter what).

[Eridrus]

Liquidation preferences are typically 1x these days, so they only matter when companies are sold at fire sale prices where basically nobody is making any money.

The deals are all weird so it's hard to really know what's happening, but if Groq gets $20b, I don't see how common stock holders don't get paid.

[SecretDreams]

Special dividend to priority class and retain the rest to grow the remaining sham company?

I've seen some discussion that paying out normal employees might look more like an acquisition on paper which they may want to avoid for ftc reasons. I've also seen some discussion that this is a quid pro quo to the trump family to get Nvidia back into China (jr. bought in at the September financing round..).

Lots of speculation in general, including why nvda chose to spend 20bil on this.

[Eridrus]

Do you actually know this is what happened?

Dividends to only one class seems crazy. I would be kind of shocked if that was legal.

[mupuff1234]

If I had to guess I'd say investors get their returns but non exec employees mostly get screwed.

[snarf21]

I was involved in a (obviously smaller) situation with an acquisition that went to a top consumer CPU maker (you can guess). The investors got nothing as the buyout money was used to fund new pivots in the existing company. So no options or shares were monetized and investors maintained their existing stake that had technically the save value, just most of the value was temporarily all cash. The only people to make out were the ones who went with the asset sale (retention bonus stuff) and the leadership that stayed (raises, etc.)

[chaostheory]

Is it related to the FTC’s “anti-monopoly” stance with Khan? It’s continue under the Trump admin since her successor supposedly approved of her work

[benjaminwootton]

It’s yet another way for investors to screw early employees whose face doesn’t fit.