San Francisco Chronicle - (Sunday)
Exworkers left out of startup’s jackpot
Sharethrough urged purchases of stock now worth nothing
Startups are risky ventures, and most fail. For every multibilliondollar IPO, Silicon Valley is littered with myriad ideas that went bust while other companies hang on until they can be bought or find another exit.
That risk is not only shouldered by investors and executives. The lure of taking a job at an earlystage company and pocketing stock whose value could skyrocket is enough to persuade some people to accept a lower salary now to gamble on future riches.
That was the arrangement for many former employees at San Francisco advertising technology startup Sharethrough. According to a group of former employees, former CEO Dan Greenberg and other company leaders encouraged them to buy company stock to make up for lower pay, and also as a way to buy into the company’s messaging about the “Sharethrough family,” supposedly at the core of the company’s culture.
The former employees said the company was honest about the risks and financial prospects during allhands meetings and in other communications, but that they felt duped when Sharethrough’s recent merger with digital advertising company District M that was worth millions resulted in them being left with stock options worth nothing.
A notice sent to shareholders last month, and seen by The Chronicle, said the deal had not cleared the threshold where common stockholders, like the onetime employees, would receive any proceeds.
“It’s definitely a common scenario that companies fail or they get acquired,” without all stockholders seeing a payout, said Vieje Piauwasdy, the director of equity at Secfi, a company that helps employees and shareholders understand and manage their equity.
Former Sharethrough employees like Alia Jaziri said they were aware of the risks of buying stock after they left if the company were to fail, but were caught off guard when they received papers asking them to approve the merger, along with millions in payouts and stock for executives and investors, and nothing for themselves.
“I feel manipulated,” said Jaziri, who now runs a restaurant called Medina Moroccan Baja Kitchen in San Diego. She and other former employees have refused to sign off on the deal, but it doesn’t appear to be enough to stop it.
Jaziri and other former employees who spoke to The Chronicle said they were encouraged to buy shares once they left, amid buzz of big payouts on the horizon if the company were to be acquired. “I feel like he was saying ‘This is family, this family’ just to get us to buy our shares,” Jaziri said of Greenberg, the former Sharethrough CEO and now a president at District M.
Jaziri said she bought less than $9,000 in the company’s stock after she left.
Former employees like Jaziri and others interviewed by The Chronicle, who asked not be quoted, said they knew the risks they were taking but didn’t expect to be deliberately cut out of a deal.
Jaziri said Greenberg’s talk of the company as a family made it feel like a betrayal when she and others were asked to sign off on the merger. The stock becoming worthless in a bankruptcy was different than “seeing it actively taken out of our pocket and shoved into the pockets of the CEO,” Jaziri said.
Greenberg stood to make several million dollars in bonuses and “parachute payments” once the deal was approved, according to documents seen by The Chronicle.
Greenberg did not respond to emails seeking comment. In a news release announcing the merger last month, he spoke of creating an advertising environment “Underpinned by respect and care,” and “Taking a humancentric approach to advertising and monetization.”
District M CEO JF Cote said he wasn’t aware of whether employees were encouraged to buy stock at Sharethrough before the merger, but that was not the case at his company. He said he “loved the culture” Greenberg and Sharethrough had created around its products employees.
Deals that devalue shares of common stock are not out of the ordinary, Cote said. “It was unfortunate for the vested exemployees,” he added, referring to those who had purchased shares after they left. For employees that came over to his company in the merger, “It’s fantastic,” he said, adding they were now part of District M’s own stock option program.
He estimated that about 80 former employees saw their shares devalued, while fewer than 70 came over in the merger. Cote also noted the comparatively small dollar amounts, saying former employees individually purchased between $500 and $15,000 worth of stock after they left.
Other former Sharethrough employees also spoke of a culture of togetherness, and executives that pointed to the potential future value of stock options when refusing to budge during salary negotiations or denying requests for raises. There is no indication anything illegal or even irregular took place, but the deal is a lens into a startup culture that can emphasize personal bonds and common cause, until money gets in the way.
According to a recent survey of more than 3,000 professionals, many in tech, about 60% said equity in a company would matter more than their base salary, while 58% said they would take a pay cut to increase their stake in a company. The survey was run by Blind, a site that lets employees verified through work email addresses talk about their companies anonymously.
More than threequarters of startups that received an initial round of investor funding between 2016 and 2019 went out of business, while a little over a fifth get acquired, according to data compiled by Secfi. The vast majority of startups backed by venture capital funding offer equity, usually in place of a more generous salary characteristic of a larger company, said Vieje Piauwasdy, Secfi’s director of equity. “A big, big reason for going to a startup is that package,” he said.
The decision to go through with the merger at a price that devalued common stock was linked to the coronavirus pandemic and its economic impact, according to deal documents that state Sharethrough began looking at its longterm prospects and decided on the transaction amid the uncertainty brought on by the pandemic.
Cote said that it is a done deal, but former employees still registered their objections. In February, two dozen common stockholders signed a letter of dissent seen by The Chronicle that referenced the culture of family and loyalty fostered at Sharethrough.
“It is disappointing to now see the ‘Sharethrough Family’ devolve to this and to watch its Senior Management and Executives ruthlessly breach their fiduciary duties to all common stockholders,” the shareholders wrote.
The document asks for the value of the shares they purchased to be repaid at a minimum, estimating it at less than $200,000.
As things stand, that is unlikely. Even company founders and investors have seen their stakes disappear during other sales, according to Piauwasdy of Secfi. “Employees do not have a lot of power,” he said.