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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 $18B for consulting services.
Hey, husband of that friend here,
The bought company had huge debts to the investors (it is a startup, not tiny but small one, ran for several years) and after cashing those out from the purchase deal, the employees were left with shares that were worth 0$.
(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.
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.
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).
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.
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.
A new model doesn't address the fundamental reliability issues with OpenAI's enterprise tier.
As an enterprise customer, the experience has been disappointing. The platform is unstable, support is slow to respond even when escalated to account managers, and the UI is painfully slow to use. There are also baffling feature gaps, like the lack of connectors for custom GPTs.
None of the major providers have a perfect enterprise solution yet, but given OpenAI's market position, the gap between expectations and delivery is widening.
Which tier are you? We are on the highest enterprise tier and I've found that OpenAI is a much more stable platform for high-usage than other providers. Can't say much about the UI though since I almost exclusively work with the API. I feel like UIs generally suck everywhere unless you want to do really generic stuff.
It's highly specific to the country (and also to the social media where the community was once established), so I doubt it is relevant to you.
But think fandom non-english space with historical empathizes on female and lgbt members under antilgbt government.
Any social media on this particular language that wants to grow large will swiftly remove half of the discussions we can have there. Keeping separate from opinionated socially-aligned people is also a plus
Partykit is mostly an abstraction on top of Cloudflare Durable Objects and offers simplified Websockets for room-like multiplayer.
Jazz is a framework for building apps around locally mutable collaborative values which are granularly synced (you don't have to worry about data transport or coordinating sync between collaborators, you just set permissions and edit data)
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