“Those who hold common stock, like employees who bought stock during or after their years at the company, will see their stock canceled under the terms of the agreement, making those investments effectively worthless.”
Get a securities lawyer, sue and then lob a bunch of state and federal complaints against any lawyers or bankers involved. Cancelling stock outside liquidation is bonkers.
How many employees who invested in your company lost their money and/or stock options as a result of this transaction?
A total of 10 former employees who chose to invest in Philz Coffee by buying common stock years ago at much higher prices than the current price of the shares will unfortunately lose the value of that stock. There are no other Philz Coffee common stockholders or broader group of Philz common stockholders who were affected by the transaction and no current employees are Philz common stockholders who were affected by the transaction.
Additionally, out of our approximately 1,500 current employees, 47 were granted stock options (the right to buy stock at a certain price in the future) in 2022 and earlier that are not exercisable based on the current price of the shares. Unfortunately, those options will expire per their original terms, but since the employees did not buy stock, they did not lose any money.
Cancelling shares which had positive value is problematic. It's highly unclear to me why these stock holders would not be given a payout unless there were liquidation preferences. Given the employees may have purchased the shares rather than having been granted these shares - a lack of knowledge on the behavior and existence of said liquidation preferences could give them legal standing.
We really need to see arrangements where the ultimately small pool of employee equity is above the liquidation preference of any investors. The transparency around such preferences is quite suspect.
There is nothing I can see which suggests the shares have positive value. The FAQ I linked directly says the opposite. Nothing is suspect here, other than journalists and internet commentators making assumptions based on misunderstandings.
This happens hundreds if not thousands of times a year at startups that sell for less than the aggregate liquidation preferences.
The oddity here would be that the employees purchased these shares. If money changed hands, the employee would have a reasonable right to know of the liquidation preferences and their cutoff - correct?
> oddity here would be that the employees purchased these shares
You’re purchasing shares when you exercise options.
The oddity is both that these shares were sold to these employees, versus sort of occurring as a matter of course of employment, and that the company seemed to go out of its way to cancel them versus just declaring them worthless while the entity is wrapped up.
> Doesn't that just mean the Common was underwater and worthless? It’s another way of saying they are due $0.
That press release [1] is damning:
“A total of 10 former employees who chose to invest in Philz Coffee by buying common stock years ago at much higher prices than the current price of the shares will unfortunately lose the value of that stock.”
They’ve conceded there was a “current price of the shares.” That one sentence should be the beginning and end of the claim. (They should have said the shares are worthless. They didn’t.)
This happened at a previous employer of mine: the Nintex acquisition of K2. Not long before the acquisition, employees were offered the "opportunity" to purchase their vested options. I didn't invest, but my friend did (so I'm not sure what the details are). They had the power to band together and cause major problems for the deal (I want to say they could outright block it, but I might be hallucinating that). Once they began to organize they were quickly bought out - no details on how much, though.
I'm sorry, the company sold for $145 million with 1,500 employees? It wasn't bankruptcy. Simple math shows it was worth $100k per employee hired. There's clearly positive value there.
They're solely relying upon the fact the employees with common stocks won't sue. To recoup your $100k claim against the equity might take $1M in legal fees.
> Simple math shows it was worth $100k per employee hired. There's clearly positive value there
Not…how capital structures work.
First any debt would be paid. Then preferred-stock liquidation preferences. Then the rest gets divided up among all stockholders, including those with common. (Though not conventionally among those with unexercised options.)
What’s telling, here, is that the shares had to be cancelled. That implies they were due a payout.
Didn’t something weird and similar happen in the Skype sale to Microsoft where Silver Lake abused some technicality and left many common stock holders with nothing?
Why in the world would the executive even want to stay after all this nonsense and mistreatment has been reported? I think I would bury my head in shame…I think. Hold my beer, Andy Byron, I will screw the entire company. SMH!
“Those who hold common stock, like employees who bought stock during or after their years at the company, will see their stock canceled under the terms of the agreement, making those investments effectively worthless.”
Get a securities lawyer, sue and then lob a bunch of state and federal complaints against any lawyers or bankers involved. Cancelling stock outside liquidation is bonkers.
Doesn't that just mean the Common was underwater and worthless? It’s another way of saying they are due $0.
Edited to Add:
Yeah, the above seems right. This seems like standard fare. See the below FAQ from https://philzcoffee.com/stakeholderfaqs:
How many employees who invested in your company lost their money and/or stock options as a result of this transaction?
A total of 10 former employees who chose to invest in Philz Coffee by buying common stock years ago at much higher prices than the current price of the shares will unfortunately lose the value of that stock. There are no other Philz Coffee common stockholders or broader group of Philz common stockholders who were affected by the transaction and no current employees are Philz common stockholders who were affected by the transaction. Additionally, out of our approximately 1,500 current employees, 47 were granted stock options (the right to buy stock at a certain price in the future) in 2022 and earlier that are not exercisable based on the current price of the shares. Unfortunately, those options will expire per their original terms, but since the employees did not buy stock, they did not lose any money.
Cancelling shares which had positive value is problematic. It's highly unclear to me why these stock holders would not be given a payout unless there were liquidation preferences. Given the employees may have purchased the shares rather than having been granted these shares - a lack of knowledge on the behavior and existence of said liquidation preferences could give them legal standing.
We really need to see arrangements where the ultimately small pool of employee equity is above the liquidation preference of any investors. The transparency around such preferences is quite suspect.
At least with the public companies, there will be lawyer to take up a class action lawsuit on behalf of the share holders.
There is nothing I can see which suggests the shares have positive value. The FAQ I linked directly says the opposite. Nothing is suspect here, other than journalists and internet commentators making assumptions based on misunderstandings.
This happens hundreds if not thousands of times a year at startups that sell for less than the aggregate liquidation preferences.
The oddity here would be that the employees purchased these shares. If money changed hands, the employee would have a reasonable right to know of the liquidation preferences and their cutoff - correct?
> oddity here would be that the employees purchased these shares
You’re purchasing shares when you exercise options.
The oddity is both that these shares were sold to these employees, versus sort of occurring as a matter of course of employment, and that the company seemed to go out of its way to cancel them versus just declaring them worthless while the entity is wrapped up.
> Doesn't that just mean the Common was underwater and worthless? It’s another way of saying they are due $0.
That press release [1] is damning:
“A total of 10 former employees who chose to invest in Philz Coffee by buying common stock years ago at much higher prices than the current price of the shares will unfortunately lose the value of that stock.”
They’ve conceded there was a “current price of the shares.” That one sentence should be the beginning and end of the claim. (They should have said the shares are worthless. They didn’t.)
[1] https://philzcoffee.com/stakeholderfaqs
This happened at a previous employer of mine: the Nintex acquisition of K2. Not long before the acquisition, employees were offered the "opportunity" to purchase their vested options. I didn't invest, but my friend did (so I'm not sure what the details are). They had the power to band together and cause major problems for the deal (I want to say they could outright block it, but I might be hallucinating that). Once they began to organize they were quickly bought out - no details on how much, though.
I'm sorry, the company sold for $145 million with 1,500 employees? It wasn't bankruptcy. Simple math shows it was worth $100k per employee hired. There's clearly positive value there.
They're solely relying upon the fact the employees with common stocks won't sue. To recoup your $100k claim against the equity might take $1M in legal fees.
> Simple math shows it was worth $100k per employee hired. There's clearly positive value there
Not…how capital structures work.
First any debt would be paid. Then preferred-stock liquidation preferences. Then the rest gets divided up among all stockholders, including those with common. (Though not conventionally among those with unexercised options.)
What’s telling, here, is that the shares had to be cancelled. That implies they were due a payout.
It probably means that the series c investors got whole 145 mil payout through a stacked liquidation preference or something.
Didn’t something weird and similar happen in the Skype sale to Microsoft where Silver Lake abused some technicality and left many common stock holders with nothing?
So poor baristas paid thousands to exercise options and got them cancelled? Isn’t this just theft?
Yes. The company was more than happy to take their money for a promise of a "stake" in the company.
People often take lower pay in a startup to get equity, but because it's "common" it can be zero'd out to nothing. On the premium shares matter.
> The dissolution of common stock is rare outside of cases of liquidation or bankruptcy,
Without exception, every startup my friends and I have worked at that got acquired dissolved the common stock and made the options worthless.
Sounds like there's more to the story than is being reported
Well there's this Philz Coffee close to closing deal to sell to private equity firm for $145M (62 points, 12 days ago, 80 comments) https://news.ycombinator.com/item?id=44760902
And subsequent: Philz Coffee sold to private equity firm Freeman Spogli for $145M
Philz is I think a rare case where it started to suck before private equity bought it. Maybe Freeman Spogli was glad since it saves them the trouble.
In this case they started to suck when they took VC money with the intent of growing a bunch.
Why in the world would the executive even want to stay after all this nonsense and mistreatment has been reported? I think I would bury my head in shame…I think. Hold my beer, Andy Byron, I will screw the entire company. SMH!
Why would the executive even want to stay after this nonsense? Like, Here Andy Byron, hold my beer, while I screw ALL my company. SMH