Consider the prospect of establishing a billion-dollar organization and raising millions and leaving with nothing 

It is the story of the founders of FanDuel. 

FanDuel, a fantasy sports corporation, was co-founded with the goal of transforming the sports betting industry. The company has raised $416 million and reached a staggering valuation of $1.3 billion over the years. However, the founders did not receive any compensation from the exit when FanDuel was sold for $465 million. 

How did this happen? 

1. The crux of FanDuel's exit woes comes down to liquidation preferences.

Liquidation preferences are a standard feature in VC financings. These provisions give investors the right to be paid back their investment, sometimes at a premium, before founders and employees receive a cent.

For obvious reasons, they can impact the outcomes for shareholders in an exit situation.

2. FanDuel, like numerous other ventures, accrued debt over time. The pool of money available for distribution was further diminished by the necessity of repaying this debt before any equity holders could receive proceeds from the sale. 

3. The founders' ownership interests were reduced with each funding round. Their payout was substantially diminished as a result of the fact that their shares represented a reduced portion of the pie at the time of the exit. 

4. The transaction price of $465 million, while substantial, did not live up to the expectations that had been established during previous high-value funding rounds. The total investment and debt obligations exceeded the sale proceeds as a result of this discrepancy. 

5. The sale agreement's specific terms were advantageous to investors who had successfully negotiated priority rewards and protections over the years. 

Key Takeaways:

Liquidation Preferences and Dilution are the most important issues to plan for when negotiating an exit.

This unfortunate narrative serves as a poignant reminder that the process of establishing a successful company extends beyond the mere acquisition of capital and the attainment of high valuations. 

It involves comprehending the financial complexities and making well-informed decisions to safeguard your interests and those of your team. 

As a founder of a start up, I have experienced some of these exact issues, so let us help you make more than zero.