Jet.com ran a contest where they gave 100,000 shares as the top prize for the most signup referrals. This Guy is probably one happy guy right now. He spent $18k and the value of those stocks are probably worth in the millions.
The last $350 million round @ a $1.6 billion valuation priced common shares @ $5/share implying ~ 320 million common shares (napkin math ignoring a bunch of other variables). 100,000 options would represent .03125% of the company. Assuming the strike price was at least $500 million (maybe more), that's a gain of $781,250, or ~ 43x on his initial $18k investment. A great angel investment for sure, but perhaps not millions. If that's truly the same number of options that some of the earliest employees were granted (as mentioned in the article), then I feel bad for those employees as they probably deserved a bit more.
I wonder what the specifics are. It says "stock options" in the linked article and "He'll be able to vest or exercise his stock options if Jet ever goes public or sells to another company."
I always hear stories about early stage employees getting the short end of the stick during acquisitions. Could there be a chance that this acquisition ends up not in his favor and he is out $18k?
Pretty cool. While this is almost certainly in violation of general solicitation SEC regulations, I doubt there would be any action taken by the regulator.
The surprising part is that Jet.com's legal department let this fly.
I figured out what is going on here. Walmart thinks to themselves "we want to be like amazon, we want to be huge online" and then jet comes along and is something of an almost competitor to amazon, so corporate thinks "oh we should snap this up" but...my gut reaction here is this is going to be a terrible deal for walmart, what are they going to do, keep dumping $500M/yr for it at a loss or what? Pretty desperate, but whatever.. :)
Walmart has something Jet.com needs: one of the world's most advanced product delivery systems. Every Wal-Mart store is a distribution center waiting to happen. They are enormous and they are everywhere.
Jet.com has something Wal-Mart can use to rocket its online presence forward: advanced online infrastructure, patents, a wealth of technology experts, and users.
Together, Wal-Mart can beat Amazon at its own game by doing what Amazon is already doing (building more, smaller DCs everywhere) using what they already have (massive retail locations everywhere).
What's the likely scenarios for an employee whose been there for 2 years, an employee whose been there for 1 year, and an employee whose been there for 6 months? If we assume 1 year cliff on options.
Great question. The answer is the same for all of them: roughly 0.
Jet's last valuation was $1.6bn and it was, and continues to, burn cash like crazy. Investors aren't dumb, they see that.
So they add a terms to their investment whereby they guarantee a return on their investment. For a company that needs hundreds of millions of dollars and is trying to beat Amazon? Let's say 3x.
That means that if I put in $100m dollars at a $1.6b valuation, then you sell at a $4.8bn or above, then everything is fine because I got my 3x. If you sell for less, as they did, then I get my $300m first, before anyone down the line. That's called liquidation preference.
Jet was burning capital so they likely had to make a lot of concessions in fundraising. Given that their estimated total funding is around $800m, there isn't much else to go around.
You'll notice that some employees and the founders got around $300m worth of Walmart stock. Why would they need that if the company just sold for $3bn? Because the sale likely netted them next to nothing.
The company raised $500-800m at at least a $1b valuation, no idea on later round(s), seem less reported, maybe a downish round?
Investor liquidation preference guarantees investors get their money back 1x or 2x or 3x or whatever (assuming they don't lose all of it).
So if they raised at a $1b valuation, sell for $3b, a 2x preference means there's $1b in profit left after paying investors. Again, assuming you know how the rounds were structured, which I don't. And not counting taxes. Or other contract terms that kick in on certain conditions.
So best case scenario, there's $1b for employees + $300m in options. Unless liquidation pref is 2.5x which means $500m cash left + $300m in Walmart options. If it's not vested, they can make a problem out of it (or they can accelerate vesting, but it's up to Walmart mostly). Most employees will probably need to do their time at Walmart, so to speak, and not get fired there.
Early employee maybe got 1%? That would have been diluted of course. But $10m is probably best case scenario (after taxes, you can afford a pretty nice place in the Bay Area and have some left over) If you got more like .1% of the company (still kind of a lot, really, and the founder sold their last co for $500m so better odds?), you just made a million bucks, which will be about 700k after taxes. And you've got a job at Walmart.
I would be surprised if the actual outcomes for employees were higher; unsurprised if lower.
The short answer is that it's very hard to know as Jet was a fairly unusual company. They raised (and spent) a tremendous amount of capital and it's not generally known what terms those raises were done on.
If the terms were favorable (standard preferred stock) the employees likely made several billion dollars (in aggregate) on the deal. If the terms were not favorable the employees could have made relatively little. You'll note that some other people in this thread are assuming various liquidation preferences just to validate their priors (employees always get screwed) with no real evidence to support their claims.
One way to look at it however is to consider the question "What is Walmart buying in this deal?" From my perspective they're not really buying a pile of code or a customer base or a brand name (none of that seems this valuable). What they are really buying is an energized and engaged team working until the leadership of a reportedly excellent CEO. They hope that this team will do a lot to help Walmart to capture a larger share of the future of e-commerce (where Amazon is clearly kicking their ass at the moment). So if a lot of the asset Walmart is buying is the people then it would't be an effective purchase if most of those people got screwed as part of the sale. This is just speculation on my part but I think it makes logical sense.
There was an article where the cofounder mentions everyone gets the same lump of stock depending on pay grade. He also mentions it helps incentivize people to work nights and weekends so based on his unrealistic expectations of work life balance and giving out stock based on "lumps" I can come to my own conclusions.
Usually for large acquisitions like these the employees are kept on the same vesting schedules they were already on (especially if the company is so young). There is probably additional stock options issued for retention on top of this. So, if you have been there for 2 years, you are probably 50% vested, 1 year 25% etc. Typically if you have not reached your cliff, it is kept in place.
There are some circumstances where in a big acquisition like this founders or key employees are asked to re-start the vesting clock on their shares. This is more common in small buys but can happen in big ones too. In this case you get some payout for e.g. the 2 years you were there and then the rest of your stock (and maybe a refresher) get spread over 3 or 4 years.
In terms of payout, if you assume by series C that 50-75% of the company was sold to investors then $1.5B to $2.25B will go to investors and the remaining 750 million to $1.5 billion goes to founders and employees. Obviously this is a huge range and you need the cap table to know what really happened.
I don't know. But I can offer up some speculation. To do that we have to put in a guess about what "common" shares of stock would be worth, and how many of those shares our employees could access.
We know that Jet has been a bit unconventional in their pay practices [1] with their transparent salary metric. But we don't know how their options differ. Sometimes options have a "change of control" clause. In those cases the vesting schedule for common shares is accelerated when the company is acquired.
TechCrunch says "$3B cash plus $300M in shares to the Founders and employees". That sounds like part of the acquisition offer is stock offers to employees to come to Walmart. The new stock options would have cliffs and restrictions as well but they are for a publicly traded stock (so you know that you will be able to trade them, vs a private company where you may never be able to trade them). If the Crunchbase article is correct and there are 1K - 5K employees, we'll assume the distribution follows the power law but even with that, smallest grants would be at least $100K if distributed over 5K points with a $300M total.
Second there is the "value" of common stock. If the company had raised a total of $800M, and already had a 2x liquidation preference with participation, that would have $1.4B to distribute across the final common pool. In common scenarios that would mean that people who had been employed for a year or more would be able to exercise n/48ths of their stock option (where n was months of service as long as n was 12 or higher). The Tech Crunch article also said that they had been shooting for a $3B valuation in the last funding round. Given that jump you might expect common shares from the resulting acquisition to have a value that was at least 2.1 times their strike price. That might not represent a lot of money though, a million shares with a strike price of 10 cents a share, now worth 21 cents a share is a $110K gain. That said it would depend on how many shares were outstanding. If they had held back 20% of the share pool for employee options, and distributed half of it, that would be 10% of the company in options, or potentially $300M in value. That arbitrarily lines up with stock number quoted in the press release. If that relationship was accurate, it would suggest that Walmart was converting the options straight to Walmart share options (another common practice) where the acquiring company keeps the previous vesting schedule.
Lots and lots of variables. On the plus side, if an employee did have a stock option and it was at least partially vested, that option was probably worth non-zero dollars so in the world of startups that counts as a win. How big a win will vary from person to person.
I really hope Walmart doesn't scrap the Jet Anywhere cash back program [0].
It seems not well known and somewhat controversial, but offers generous rates higher than everywhere else. For example, 4.8% from Expedia, 5.6% from Orbitz. Unlike every other cash back program they do not cap the amount for flights.
JetCash is effectively real cash because many items are available cheaper than even from Walmart, Amazon, or Costco. Presumably Jet was taking a loss on those transactions in the short term. It really has been my favorite cash back program ever.
If they were taking a loss on those items, isn't it practically a guarantee that they were doing that with VC money in order to grow their customer base either to build a sustainable business later or make them a more attractive acquisition target? Either way, I wouldn't expect it to continue. Not even after a normal acquisition, and certainly not from WalMart. WalMart (in)famously pinches every penny; they don't sustain money-losers.
The next logical thing to do with the Jet Anywhere program is to launch a credit card that creates customer stickiness to Jet.com. While some of the incentives are great, e.g., 20% cash back at Nike, the process is cumbersome (receipt -> photo -> email -> wait -> cash back!!).
A cashback credit card would significantly reduce friction, with minimum overhead for Jet. If Jet doesn't want to get into the credit business, it can piggyback on the system deployed by MasterCard for Sam's Club [1]. Sam's Club is part of the Walmart umbrella of companies.
For a more comprehensive listing of cashback programs, try using Cashbackholic [0]. You type in the store you're buying from and it lists almost every cashback program that offers additional cashback on that store.
Good for them. I talked to a couple of folks there regarding potential roles that they'd had in the HN hiring thread. We never went anywhere on that front, but everyone that I interacted with was a total class act. I hope this works out well for the existing employees.
I get why Walmart would buy them, but it seems to me they could have waited 6-12 months and bought the company for $300m. There's just no way they were showing growth. The only thing that makes sense is that Jet would have been damaged goods in 12 months and this was the only option for Walmart to build a millennial friendly competitor to Amazon.
Amazon is getting worse for non-prime users. They've increased their free shipping limit, longer shipments, and kept pushing their deals onto Prime users only.
I've bought more from Jet.com this year than Amazon in the last two years and Jet was faster with its free 2 day shipping than Amazon's free shipping.
They're not just buying a pile of code. They're also buying an energized and engaged team that they hope will be able to modernize Walmart's ecommerce systems. They wouldn't have gotten that if they had purchased a broken failure of a company somewhere down the road.
I have to wonder if the employee stock options were worth anything? Most telling is that Walmart decided to throw ~$300M at the founders "and others" to retain them. Does that mean, in this case, that the founding team is the only one who walks away with a payday?
And to be clear, this isn't a cynical musing. I'm genuinely curious to see how this worked out for them.
There are always retention bonuses for the founders. What scenario would the options not be worth anything? It's a cash acquisition that is 2x larger than the post of their last round of funding which was fairly recent.
It's important to consider that sometimes these acquiring company stock options come with additional vesting attached to them. It can be time based + milestone based.
Walmart easily owes over 3 billion in taxes every year. There is a tiny almost non existent chance they will get a return as profit. However there is a 99.999% chance they get jet.com for free when they write it off as a complete loss in 2 years. If nothing else they get a valuable 3 letter domain name for nothing.
Is anyone here using Jet on a regular basis? I tried it once a few months back and dismissed it as nothing innovative enough to be a sustainable Amazon competitor.
I must have been very wrong. I don't see how Jet justifies 3B from Walmart.
I will credit them on one point - They do seem have great employee sat that is a result of investing lots of time and energy to create a healthy environment.
Call me a sceptic but a hail-mary acquisition of this kind is not going to save Walmart.
Amazon is built through and through as a tech company. The people running it all have tech backgrounds so they're all able to get behind the Bezos vision of automation and scale trumping all.
To give you an idea of how savvy the management of Amazon are, I heard rumours that Diego Piacentini (Bezos' lieutenant managing the retail business) was known to roll out his own SQL queries. My own head of the team, who was a more conventional "retail guy", barely knew how to use excel and had chiefly gotten to where he was by politics and tenureship, despite being younger than Diego. Whether it is true or not, it gives an idea of the mindset and skillset valued at the top of Amazon.
Now I'm almost certainly biased given that I've worked for Amazon and not for Walmart, but I'd be willing to bet that Walmart has more of the latter "old school" types than CS folks looking to solve new fields. And to me, that says that the odds are tipped against this integration being successful as catching up with a tech company would require an overhaul of Walmarts entire infrastructure and culture. Not to mention that Walmart are at the mercy of their shareholders, whilst Bezos is still majority shareholder.
So what does this all mean for people currently purchasing shares of Jet? It's still a penny stock...but will this change later in the year when the merger is complete or perhaps in 2020 when Jet claims it will be profitable? Based on the valuations of the company's worth, where do a analysts estimate Jet stock to go?
[+] [-] KenCochrane|9 years ago|reply
http://www.businessinsider.com/jet-insiders-referral-program...
[+] [-] nugget|9 years ago|reply
[+] [-] Zombieball|9 years ago|reply
I always hear stories about early stage employees getting the short end of the stick during acquisitions. Could there be a chance that this acquisition ends up not in his favor and he is out $18k?
[+] [-] elbasti|9 years ago|reply
The surprising part is that Jet.com's legal department let this fly.
[+] [-] kilroy123|9 years ago|reply
[+] [-] lightblade|9 years ago|reply
[+] [-] rogerdpack|9 years ago|reply
[+] [-] camelNotation|9 years ago|reply
Jet.com has something Wal-Mart can use to rocket its online presence forward: advanced online infrastructure, patents, a wealth of technology experts, and users.
Together, Wal-Mart can beat Amazon at its own game by doing what Amazon is already doing (building more, smaller DCs everywhere) using what they already have (massive retail locations everywhere).
[+] [-] a_small_island|9 years ago|reply
[+] [-] tyre|9 years ago|reply
Jet's last valuation was $1.6bn and it was, and continues to, burn cash like crazy. Investors aren't dumb, they see that.
So they add a terms to their investment whereby they guarantee a return on their investment. For a company that needs hundreds of millions of dollars and is trying to beat Amazon? Let's say 3x.
That means that if I put in $100m dollars at a $1.6b valuation, then you sell at a $4.8bn or above, then everything is fine because I got my 3x. If you sell for less, as they did, then I get my $300m first, before anyone down the line. That's called liquidation preference.
Jet was burning capital so they likely had to make a lot of concessions in fundraising. Given that their estimated total funding is around $800m, there isn't much else to go around.
You'll notice that some employees and the founders got around $300m worth of Walmart stock. Why would they need that if the company just sold for $3bn? Because the sale likely netted them next to nothing.
[+] [-] dave_sullivan|9 years ago|reply
$3b purchase price + $300m in Walmart options
The company raised $500-800m at at least a $1b valuation, no idea on later round(s), seem less reported, maybe a downish round?
Investor liquidation preference guarantees investors get their money back 1x or 2x or 3x or whatever (assuming they don't lose all of it).
So if they raised at a $1b valuation, sell for $3b, a 2x preference means there's $1b in profit left after paying investors. Again, assuming you know how the rounds were structured, which I don't. And not counting taxes. Or other contract terms that kick in on certain conditions.
So best case scenario, there's $1b for employees + $300m in options. Unless liquidation pref is 2.5x which means $500m cash left + $300m in Walmart options. If it's not vested, they can make a problem out of it (or they can accelerate vesting, but it's up to Walmart mostly). Most employees will probably need to do their time at Walmart, so to speak, and not get fired there.
Early employee maybe got 1%? That would have been diluted of course. But $10m is probably best case scenario (after taxes, you can afford a pretty nice place in the Bay Area and have some left over) If you got more like .1% of the company (still kind of a lot, really, and the founder sold their last co for $500m so better odds?), you just made a million bucks, which will be about 700k after taxes. And you've got a job at Walmart.
I would be surprised if the actual outcomes for employees were higher; unsurprised if lower.
[+] [-] harryh|9 years ago|reply
If the terms were favorable (standard preferred stock) the employees likely made several billion dollars (in aggregate) on the deal. If the terms were not favorable the employees could have made relatively little. You'll note that some other people in this thread are assuming various liquidation preferences just to validate their priors (employees always get screwed) with no real evidence to support their claims.
One way to look at it however is to consider the question "What is Walmart buying in this deal?" From my perspective they're not really buying a pile of code or a customer base or a brand name (none of that seems this valuable). What they are really buying is an energized and engaged team working until the leadership of a reportedly excellent CEO. They hope that this team will do a lot to help Walmart to capture a larger share of the future of e-commerce (where Amazon is clearly kicking their ass at the moment). So if a lot of the asset Walmart is buying is the people then it would't be an effective purchase if most of those people got screwed as part of the sale. This is just speculation on my part but I think it makes logical sense.
[+] [-] djb_hackernews|9 years ago|reply
[+] [-] eladgil|9 years ago|reply
There are some circumstances where in a big acquisition like this founders or key employees are asked to re-start the vesting clock on their shares. This is more common in small buys but can happen in big ones too. In this case you get some payout for e.g. the 2 years you were there and then the rest of your stock (and maybe a refresher) get spread over 3 or 4 years.
In terms of payout, if you assume by series C that 50-75% of the company was sold to investors then $1.5B to $2.25B will go to investors and the remaining 750 million to $1.5 billion goes to founders and employees. Obviously this is a huge range and you need the cap table to know what really happened.
[+] [-] ChuckMcM|9 years ago|reply
We know that Jet has been a bit unconventional in their pay practices [1] with their transparent salary metric. But we don't know how their options differ. Sometimes options have a "change of control" clause. In those cases the vesting schedule for common shares is accelerated when the company is acquired.
TechCrunch says "$3B cash plus $300M in shares to the Founders and employees". That sounds like part of the acquisition offer is stock offers to employees to come to Walmart. The new stock options would have cliffs and restrictions as well but they are for a publicly traded stock (so you know that you will be able to trade them, vs a private company where you may never be able to trade them). If the Crunchbase article is correct and there are 1K - 5K employees, we'll assume the distribution follows the power law but even with that, smallest grants would be at least $100K if distributed over 5K points with a $300M total.
Second there is the "value" of common stock. If the company had raised a total of $800M, and already had a 2x liquidation preference with participation, that would have $1.4B to distribute across the final common pool. In common scenarios that would mean that people who had been employed for a year or more would be able to exercise n/48ths of their stock option (where n was months of service as long as n was 12 or higher). The Tech Crunch article also said that they had been shooting for a $3B valuation in the last funding round. Given that jump you might expect common shares from the resulting acquisition to have a value that was at least 2.1 times their strike price. That might not represent a lot of money though, a million shares with a strike price of 10 cents a share, now worth 21 cents a share is a $110K gain. That said it would depend on how many shares were outstanding. If they had held back 20% of the share pool for employee options, and distributed half of it, that would be 10% of the company in options, or potentially $300M in value. That arbitrarily lines up with stock number quoted in the press release. If that relationship was accurate, it would suggest that Walmart was converting the options straight to Walmart share options (another common practice) where the acquiring company keeps the previous vesting schedule.
Lots and lots of variables. On the plus side, if an employee did have a stock option and it was at least partially vested, that option was probably worth non-zero dollars so in the world of startups that counts as a win. How big a win will vary from person to person.
[1] http://www.forbes.com/sites/erikamorphy/2015/07/21/jet-com-i...
[2] https://www.crunchbase.com/organization/jet#/entity
[3] https://en.wikipedia.org/wiki/Power_law
[+] [-] theflork|9 years ago|reply
[+] [-] tedmiston|9 years ago|reply
It seems not well known and somewhat controversial, but offers generous rates higher than everywhere else. For example, 4.8% from Expedia, 5.6% from Orbitz. Unlike every other cash back program they do not cap the amount for flights.
JetCash is effectively real cash because many items are available cheaper than even from Walmart, Amazon, or Costco. Presumably Jet was taking a loss on those transactions in the short term. It really has been my favorite cash back program ever.
[0]: https://jet.com/anywhere
[+] [-] Analemma_|9 years ago|reply
[+] [-] jhatax|9 years ago|reply
The next logical thing to do with the Jet Anywhere program is to launch a credit card that creates customer stickiness to Jet.com. While some of the incentives are great, e.g., 20% cash back at Nike, the process is cumbersome (receipt -> photo -> email -> wait -> cash back!!).
A cashback credit card would significantly reduce friction, with minimum overhead for Jet. If Jet doesn't want to get into the credit business, it can piggyback on the system deployed by MasterCard for Sam's Club [1]. Sam's Club is part of the Walmart umbrella of companies.
1. http://www.samsclub.com/sams/pagedetails/content.jsp?pageNam...
edit: Deleted redundant reference to Jet in the 2nd paragraph.
[+] [-] kevindong|9 years ago|reply
[0]: http://www.cashbackholic.com/
[+] [-] MicroBerto|9 years ago|reply
[+] [-] ikeboy|9 years ago|reply
[+] [-] ffggvv|9 years ago|reply
[+] [-] SmellTheGlove|9 years ago|reply
[+] [-] rdlecler1|9 years ago|reply
[+] [-] mikhailt|9 years ago|reply
Amazon is getting worse for non-prime users. They've increased their free shipping limit, longer shipments, and kept pushing their deals onto Prime users only.
I've bought more from Jet.com this year than Amazon in the last two years and Jet was faster with its free 2 day shipping than Amazon's free shipping.
[+] [-] harryh|9 years ago|reply
[+] [-] wheaties|9 years ago|reply
And to be clear, this isn't a cynical musing. I'm genuinely curious to see how this worked out for them.
[+] [-] tommynicholas|9 years ago|reply
[+] [-] tedmiston|9 years ago|reply
[+] [-] dpeterson|9 years ago|reply
[+] [-] WhitneyLand|9 years ago|reply
I must have been very wrong. I don't see how Jet justifies 3B from Walmart.
I will credit them on one point - They do seem have great employee sat that is a result of investing lots of time and energy to create a healthy environment.
[+] [-] yomly|9 years ago|reply
Amazon is built through and through as a tech company. The people running it all have tech backgrounds so they're all able to get behind the Bezos vision of automation and scale trumping all.
To give you an idea of how savvy the management of Amazon are, I heard rumours that Diego Piacentini (Bezos' lieutenant managing the retail business) was known to roll out his own SQL queries. My own head of the team, who was a more conventional "retail guy", barely knew how to use excel and had chiefly gotten to where he was by politics and tenureship, despite being younger than Diego. Whether it is true or not, it gives an idea of the mindset and skillset valued at the top of Amazon.
Now I'm almost certainly biased given that I've worked for Amazon and not for Walmart, but I'd be willing to bet that Walmart has more of the latter "old school" types than CS folks looking to solve new fields. And to me, that says that the odds are tipped against this integration being successful as catching up with a tech company would require an overhaul of Walmarts entire infrastructure and culture. Not to mention that Walmart are at the mercy of their shareholders, whilst Bezos is still majority shareholder.
[+] [-] cosmoharrigan|9 years ago|reply
[+] [-] plandis|9 years ago|reply
I wonder if Walmart's more physical presence can help with this?
[+] [-] throw42|9 years ago|reply
Our very own Marissa Mayer. We also have Kevin Systrom on teh WM board.
[+] [-] blackaspen|9 years ago|reply
[+] [-] Fej|9 years ago|reply
Damn shame, I was hoping to maybe apply there at some point.
[+] [-] JHutson|9 years ago|reply
Thanks!
[+] [-] mabramo|9 years ago|reply
[+] [-] perseusprime11|9 years ago|reply
[+] [-] mikeyjkk|9 years ago|reply