> "Those would have to be some impossibly harsh terms"
Harsh terms yes, but not uncommon.
Preferred shares are common for investors that pay out at a multiple of the common shares, so in an exit the preferred pool can be paid at a dramatically higher rate than common shares.
Funding often also comes with guarantees on return - i.e., if the exit price is below a threshold, the investor gets a guaranteed minimum return before other are paid. This works out for the company if it's a smashing success (the upside is also capped) but can wipe out common shareholders if the company sells for anything less than stratospheric valuations.
This should be a lesson to anyone thinking about working for a startup: a company raised $570M and sold for $3B, and in all likelihood the employees will receive very little from this sale.
In the modern startup fundraising scene, and the way startup equity is structured for employees, if your company exits for anything less than a mind-boggling headline-making valuation, you are almost certainly receiving little to nothing.
I feel you just haven't proved your claim given the numbers. Even if the last round's investors were guaranteed a 3x return, that only takes up $1B of this $3B.
Granted, I don't think many engineers are making out with seven figures here, but they should be making whatever their shares were supposed to be worth at the most recent valuation. That's if they joined after the last funding round, more if they joined earlier.
Harsh terms yes, but not uncommon.
Preferred shares are common for investors that pay out at a multiple of the common shares, so in an exit the preferred pool can be paid at a dramatically higher rate than common shares.
Funding often also comes with guarantees on return - i.e., if the exit price is below a threshold, the investor gets a guaranteed minimum return before other are paid. This works out for the company if it's a smashing success (the upside is also capped) but can wipe out common shareholders if the company sells for anything less than stratospheric valuations.
This should be a lesson to anyone thinking about working for a startup: a company raised $570M and sold for $3B, and in all likelihood the employees will receive very little from this sale.
In the modern startup fundraising scene, and the way startup equity is structured for employees, if your company exits for anything less than a mind-boggling headline-making valuation, you are almost certainly receiving little to nothing.