🍩Why did the founders end up with nothing?

The contract with investors included a clause on Liquidation Preference.

The trap is simple.
Investors (KKR and Google Capital funds) stipulated a condition: "Upon sale of the company, we first take back our investments (plus a guaranteed percentage), and everything that remains is divided with the rest."


In the case of FanDuel:
1️⃣The company raised many rounds of investment.
2️⃣Investor preferences (the amount they take first) accumulated and exceeded the sale price.
3️⃣When the company was sold for $465 million, all the money went to investors to cover their preferences.
4️⃣For common shares (founders' stakes), there was simply no money left.

The stage in the queue for money never reached them. Legally, everything is clean.

How to protect yourself?
When you raise a round and see a Term Sheet, don't just look at the company valuation; the payout structure is more important.

🚩An investment agreement is more complex than it seems. One line can nullify 5 years of your work. Such things are usually overlooked when you need to build a large project and have little time for documents.

Good thing there has long been a service that solves their problem.