I have very limited knowledge of this situation, but, I'm gonna pile on anyway:<p>With that kind of money raised, the founders didn't get "nothing". They got a salary, probably a decent one, for however long they were running the thing. Which is more than many startup founders get out of businesses that fail. If they don't have personal debt, or didn't lose relationships or friendships, they came out ahead of many startup founders who started a business that failed.<p>They raised more money than the business was worth. I don't blame them for doing so; many people have done it, and no amount of seeing other people make that mistake will necessarily prepare a founder to turn down several million dollars of extra runway to try for the big exit. But, it sounds like there is simply less money on the table than there are people wanting that money (and that have contractual rights to it).<p>Given the interests of GetSatisfaction were always misaligned with the interests of their customers (i.e. the business model was effectively a shakedown, in the same vein as Yelp), it shouldn't be surprising that eventually their dreams didn't align with the reality of how many people wanted to pay for it. No matter how good the product is, if you have to extort people to buy it, you're not building a sustainable business.<p>I'm all for ranting about VCs being assholes, because sometimes they are. But, as far as I can tell, that's not the case here. Founders made some bad calls, probably some other people did, too. The business failed. It happens. If I were them, I'd take this as a valuable lesson...and probably wouldn't burn bridges with the people who invested in me in the past, because history indicates they'll be the same people to invest in me in the future (a failed business is not a death sentence in the valley, and many investors have invested in the same team for multiple businesses).
The company tanked after having elected to raise $20M over 5 rounds, for what should have been a very profitable lifestyle business.<p>The lesson is not to raise VC money for a business where it does not make sense.
<p><pre><code> "Quick clarification: Many, many of the investors &
employees didn't see any money, not just the founders.
That's what I meant by fire sale."
</code></pre>
<a href="https://twitter.com/monstro/status/585808886508040192" rel="nofollow">https://twitter.com/monstro/status/585808886508040192</a>
Wow, the arrogance of expecting 'hush money' and complaining if you don't get it? Liquidations preferences are pretty much the norm in Silicon Valley, if they didn't understand how they worked when they chose to get outside investment, then they never should have agreed to the liquidation preferences to begin with (which may easily mean they never should have gotten outside investment to begin with).<p>They made a gamble and they lost.
This is pretty common.<p>When startups don't sell for above their valuations, the investors are going to get their money back first (and in varying cases more, depending on liquidation preferences).<p>Pulled GetSatisfaction's tables from PitchBook, take a look at their B round: <a href="http://i.imgur.com/zUzDrFp.png" rel="nofollow">http://i.imgur.com/zUzDrFp.png</a><p>Post valuation at over $50M - no data yet on the amount of the acquisition, but if it was equal to that or less (or if the liquidation preferences for the A/B rounds were greater than 1X) it's pretty clear the founders wouldn't have gotten anything from the acquisition. But as someone else pointed out, it IS likely they got a salary from those early rounds of investors, which, is better than most startup founders see.
This sort of thing happens to founders from time to time. I'm more interested in Lane's claim that OATV and First Round didn't see any money:<p><a href="https://twitter.com/monstro/status/585808886508040192" rel="nofollow">https://twitter.com/monstro/status/585808886508040192</a><p>This is interesting, because according to the screenshot from PitchBook elsewhere in the thread, OATV and First Round both participated in the Series B, which was the last equity round.<p>If that's accurate, in order for OATV and First Round to get nothing, whoever did that debt financing in 2014 would have had to have gotten 100% of the proceeds, with none left to trickle down to the Series B.<p>We don't have the details, of course, but taking on debt and then selling for less than the amount needed to cover the debt a year later certainly <i>sounds</i> like a party foul. If your company's in such a precarious position, normally you can't even <i>get</i> debt financing.<p>Based on the equity rounds, the founder has nothing to kvetch about - they raised and the company didn't get to where it needed to be. But if I were investigating this, I'd dig into the terms of and decision to take that final debt round. Could be nothing, but there's a lot that could've happened there that'd make a founder tetchy.
As a technical founder, I'd be very careful to start a company again.<p>I used to ignore finance and bureaucracy, but the industry has changed a lot. The popular quote 'just passionately build something' is nothing but a trap. Although something like YC doesn't fit this profile, one will eventually find himself in a hostile situation.
Here's their funding history:<p><a href="https://www.crunchbase.com/organization/satisfaction/funding-rounds" rel="nofollow">https://www.crunchbase.com/organization/satisfaction/funding...</a><p>And here's a handy explanation of "participating preferred" which is one way early sharholders can end up with nothing:<p><a href="http://www.feld.com/archives/2004/08/to-participate-or-not-participating-preferences.html" rel="nofollow">http://www.feld.com/archives/2004/08/to-participate-or-not-p...</a>
Founders probably had a lower liquidation preference than early investors. The acquisition didn't meet the minimum return requirement of these early investors, so nobody else received anything.<p>Read your term sheets carefully, this isn't uncommon nor something to be surprised about.
This isn't a "founders got screwed" story, it's the story of most failed startups. Usually the founders don't burn their bridges though.
According to their website they have 1000s of customers paying 1200+/m. At the low end they're getting 1.2 million in revenue a month and only have 9 employees. Why did they sell? Something is not adding up.
Judging by the tweets mentioned and linked in this thread, there are going to be some interesting articles come out of this.<p>I for one would love to see the intricacies of investor influence. This sounds like it was a total fluster cluck.
That's happened to other companies. Havok, the physics engine people, went through that. The founders and early investors way overexpanded the business (they had locations in three countries), blew through the initial funding, and tanked. Another group bought the business cheaply, replaced the management, and eventually sold out to Intel.
That's extraordinarily strange - in general, the founders will <i>always</i> get a bonus when a company is acquired. The only scenario in which I've not seen that happen, is when they've left the company - in which they are treated like any common shareholder - they are wiped out if the preferred liquidation preference isn't covered - but, of course, that's precisely <i>why</i> the common is valued at 1/10th of the preferred early on - because it really is worth much less.<p>The one scenario I've seen where founders who have left the company still get a "consulting" fee during a liquidation, is where they held enough common shares to cause issues during a lawsuit over minority shareholder rights - but typically the employees/founders still with the company being acquired have enough shares to not make it an issue - and, as I noted earlier, it's almost always the case that founders still with a company being acquired get some type of bonus, even if it's a retention fee.
"...if you prefer to provide great support on your own site with your own forums and your own help section and your own feedback mechanisms and your own FAQs, well, Get Satisfaction doesn’t play fair." ~Jason Fried, 37 Signals<p><a href="https://signalvnoise.com/posts/1650-get-satisfaction-or-else" rel="nofollow">https://signalvnoise.com/posts/1650-get-satisfaction-or-else</a>
must be a reason... and "Nothing" could mean so many things depending on what you consider value. I assume it means no money (cash) or equity.
Vcs deal in these companies like poor people deal in Beanie babies. No factory worker in China ever got a bonus when a beanie baby got sold for 10k. Cry me a rive.