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I don't think you can treat owners of the same shares differently in the way this is suggesting. The VC shareholders and the employee shareholders are probably

I don't think you can treat owners of the same shares differently in the way this is suggesting. The VC shareholders and the employee shareholders are probably on equal footing and getting the same price. VCs will own preferred but I doubt that is enough to windfall them at the expense of the common shareholders. So if VCs are getting paid a certain share price, employees with vested stock almost certainly are getting the same price. And probably employees with vested options can either exercise now or will just get paid the net during the transaction. Yes, the company is probably doomed so people staying there are not doing well, but they also just got paid a 3x premium on their vested equity.

Salman23 9mo ago
Yes I think you are right here. The purchase price is high enough for all parties to be get return on their shares, and whilst there will be a waterfall for who gets paid first, I doubt many people will be unhappy with this deal. Unlike Windsurf... who's 2nd employee only got 1% of what their shares were worth (https://news.ycombinator.com/item?id=44673296 https://news.ycombinator.com/item?id=44673296)
- lumost 9mo ago
  Doesn’t this depend on how the ip was structured? If it was kept as a separate entity, or the firm named ownership of the ip in nonstandard terms, then they could pay investors but not employees. Unfortunately, we could likely find thousands of different ways not to pay employees given they don’t have board seats, and are typically on non standard equity.
  - Salman23 9mo ago
    Definitely agreed that there exist thousands of different ways to not pay employees... but they don't have good incentive to cut them out. Purely from a social contract lens, why would founders actively seek out ways to cut out their employees from a (potentially life changing) exit.
    - Retric 9mo ago
      So they get more money, founders are unlikely to start a new company after existing like this.
- spiantino 9mo ago
  i thought so at first, but I did some digging and changed my mind. it's possible the following is how it goes: - secondary transaction with the preferred shareholders (VCs) at some price that implies a 20b valuation - founders quit and get new employment agreements - some cash is transferred to the company as a license fee - no acquisition means no DOJ approval in this scenario the headline can be $20b but the cash expense can be much lower, you have full flexibility to direct whatever cash or equity you want to founders vs the rest of the company, as an up front payment or as retention/salary, and the founders have no hinderance from working on anything they touched at previous company because of IP license. I actually bet this is how it went down. This is becoming the standard in the industry and it's just awful for the future of SV
  - lumost 9mo ago
    Wouldn't this imply that the founder's don't get paid either? The acquirer would simply need to have buy-in from the investors to make the deal happen, and the founder would need an offer that is bigger than any other possible "soft landing."
    - spiantino 9mo ago
      Founders could either get paid through secondary as well or through new employment agreements. Secondary is much more tax efficient, otherwise it doesn't really matter
  - jcheng 9mo ago
    To make this right they’d just have to amend the first part to “secondary transaction with shareholders at some price that implies a 20b valuation”. Has there been any evidence yet that the VCs got paid for their shares but the left behind employees didn’t?
  - theptip 9mo ago
    Don’t the founders (and the board) still have fiduciary duty to the common holders? You can’t stop the founders from leaving, but selling the crown jewel IP in a transaction that doesn’t benefit the shareholders seems a stretch.
DivingForGold 9mo ago
EXCELLENT analysis Ossama >"Non-exclusive" means no monopoly concerns (anyone can license Groq's tech) - except that you can bet only Nvidia gets the absolute top of the line architechture and design - - - - - all others get 2nd best or worse. >The "non-exclusive" label is legal fiction. When you acquire all the IP and hire everyone who knows >how to use it, exclusivity doesn't matter. But the “non exclusive” part is what significantly weakens any case the US DOJ may consider bringing forth, if at all.. If I was in the Nvidia camp I would be admiring how brillant the strategy was all formulated, in fact, I have to believe that IP attorney's were consulted on how best to avoid DOJ scrutiny. On the other hand, there will be those who can see how this limits competition. It would be interesting to have some of our HN attorneys weigh on on this deal. As you said about the remaining employees: . . . Their equity is worthless. . . <they> got nothing while Chamath made $2B. Is Chamath a conniving scoundrel ? I'll let others judge. Maybe someday we'll see Zuckerberg and Chamath in the ring together - - Elon seems to have bowed out.
- nwellinghoff 9mo ago
  The “non exclusive” thing may come back to bite them. If another big player comes in to lic the tech and get “different” tech than nvidia it opens up law suits. Also this seems like it’s just a bet on time. The head engineer who invented this technology will be replicated. But I guess that will take a while and the margin money machine will print Bs while the dust settles.
  - imtringued 9mo ago
    I'm pretty sure Nvidia overpaid so that groq can charge the same absurd price to the second customer to whom the company's IP is worth maybe a billion or two.
theptip 9mo ago
It’s also possible that both are correct, and the deal is actually illegal. It’s pretty common for deals to push close to the line to extract maximum value for one set of parties, and sometimes this is misjudged. I guess we just need to wait and see if the common holders are happy or sue.
- ece 9mo ago
  If you join a startup, be ready to hire a lawyer.
  - cj 9mo ago
    Or accept the fact that stock options are worthless, and don't accept a job offer if you're unhappy with the offer sans stock options.
    - iancmceachern 9mo ago
      This is the way
jiveturkey 9mo ago
> owners of the same shares differently it’s true, you can’t. however the VCs and the employees don’t own the same shares. even the VCs in different rounds don’t own the same shares. where TFA analysis falls short is assuming employees have to be paid out at all. since the execs are moving over, there’s definitely some equity being traded in this “non-exclusive licensing deal” but it doesn’t have to involve common stock at all.
- ethbr1 9mo ago
  > there’s definitely some equity being traded in this “non-exclusive licensing deal” It does bring up a curious question - what happens to the Groq equity owned by the leadership team that's being hired by Nvidia? And/or VC equity? If they're all being paid, then is Nvidia left holding that equity? Or is it being returned to Groq (the company)? One of two things would seem to be true: - Nvidia now owns a big chunk of Groq - Remaining investors in Groq now own a lot more of the company (on a percentage basis)
didntknowyou 9mo ago
very likely the VCs have a clause that allows them to trade at every re-valuation, whereas employees are locked in vested periods, and likely to see their stocks devalue by the time they can cash out.

Salman23 9mo ago

Yes I think you are right here. The purchase price is high enough for all parties to be get return on their shares, and whilst there will be a waterfall for who gets paid first, I doubt many people will be unhappy with this deal. Unlike Windsurf... who's 2nd employee only got 1% of what their shares were worth (https://news.ycombinator.com/item?id=44673296 https://news.ycombinator.com/item?id=44673296)

lumost 9mo ago
Doesn’t this depend on how the ip was structured? If it was kept as a separate entity, or the firm named ownership of the ip in nonstandard terms, then they could pay investors but not employees. Unfortunately, we could likely find thousands of different ways not to pay employees given they don’t have board seats, and are typically on non standard equity.
- Salman23 9mo ago
  Definitely agreed that there exist thousands of different ways to not pay employees... but they don't have good incentive to cut them out. Purely from a social contract lens, why would founders actively seek out ways to cut out their employees from a (potentially life changing) exit.
  - Retric 9mo ago
    So they get more money, founders are unlikely to start a new company after existing like this.
spiantino 9mo ago
i thought so at first, but I did some digging and changed my mind. it's possible the following is how it goes: - secondary transaction with the preferred shareholders (VCs) at some price that implies a 20b valuation - founders quit and get new employment agreements - some cash is transferred to the company as a license fee - no acquisition means no DOJ approval in this scenario the headline can be $20b but the cash expense can be much lower, you have full flexibility to direct whatever cash or equity you want to founders vs the rest of the company, as an up front payment or as retention/salary, and the founders have no hinderance from working on anything they touched at previous company because of IP license. I actually bet this is how it went down. This is becoming the standard in the industry and it's just awful for the future of SV
- lumost 9mo ago
  Wouldn't this imply that the founder's don't get paid either? The acquirer would simply need to have buy-in from the investors to make the deal happen, and the founder would need an offer that is bigger than any other possible "soft landing."
  - spiantino 9mo ago
    Founders could either get paid through secondary as well or through new employment agreements. Secondary is much more tax efficient, otherwise it doesn't really matter
- jcheng 9mo ago
  To make this right they’d just have to amend the first part to “secondary transaction with shareholders at some price that implies a 20b valuation”. Has there been any evidence yet that the VCs got paid for their shares but the left behind employees didn’t?
- theptip 9mo ago
  Don’t the founders (and the board) still have fiduciary duty to the common holders? You can’t stop the founders from leaving, but selling the crown jewel IP in a transaction that doesn’t benefit the shareholders seems a stretch.

DivingForGold 9mo ago

EXCELLENT analysis Ossama >"Non-exclusive" means no monopoly concerns (anyone can license Groq's tech) - except that you can bet only Nvidia gets the absolute top of the line architechture and design - - - - - all others get 2nd best or worse. >The "non-exclusive" label is legal fiction. When you acquire all the IP and hire everyone who knows >how to use it, exclusivity doesn't matter. But the “non exclusive” part is what significantly weakens any case the US DOJ may consider bringing forth, if at all.. If I was in the Nvidia camp I would be admiring how brillant the strategy was all formulated, in fact, I have to believe that IP attorney's were consulted on how best to avoid DOJ scrutiny. On the other hand, there will be those who can see how this limits competition. It would be interesting to have some of our HN attorneys weigh on on this deal. As you said about the remaining employees: . . . Their equity is worthless. . . <they> got nothing while Chamath made $2B. Is Chamath a conniving scoundrel ? I'll let others judge. Maybe someday we'll see Zuckerberg and Chamath in the ring together - - Elon seems to have bowed out.

nwellinghoff 9mo ago
The “non exclusive” thing may come back to bite them. If another big player comes in to lic the tech and get “different” tech than nvidia it opens up law suits. Also this seems like it’s just a bet on time. The head engineer who invented this technology will be replicated. But I guess that will take a while and the margin money machine will print Bs while the dust settles.
- imtringued 9mo ago
  I'm pretty sure Nvidia overpaid so that groq can charge the same absurd price to the second customer to whom the company's IP is worth maybe a billion or two.

theptip 9mo ago

It’s also possible that both are correct, and the deal is actually illegal. It’s pretty common for deals to push close to the line to extract maximum value for one set of parties, and sometimes this is misjudged. I guess we just need to wait and see if the common holders are happy or sue.

ece 9mo ago
If you join a startup, be ready to hire a lawyer.
- cj 9mo ago
  Or accept the fact that stock options are worthless, and don't accept a job offer if you're unhappy with the offer sans stock options.
  - iancmceachern 9mo ago
    This is the way

jiveturkey 9mo ago

> owners of the same shares differently it’s true, you can’t. however the VCs and the employees don’t own the same shares. even the VCs in different rounds don’t own the same shares. where TFA analysis falls short is assuming employees have to be paid out at all. since the execs are moving over, there’s definitely some equity being traded in this “non-exclusive licensing deal” but it doesn’t have to involve common stock at all.

ethbr1 9mo ago
> there’s definitely some equity being traded in this “non-exclusive licensing deal” It does bring up a curious question - what happens to the Groq equity owned by the leadership team that's being hired by Nvidia? And/or VC equity? If they're all being paid, then is Nvidia left holding that equity? Or is it being returned to Groq (the company)? One of two things would seem to be true: - Nvidia now owns a big chunk of Groq - Remaining investors in Groq now own a lot more of the company (on a percentage basis)

didntknowyou 9mo ago

very likely the VCs have a clause that allows them to trade at every re-valuation, whereas employees are locked in vested periods, and likely to see their stocks devalue by the time they can cash out.