Means investors get paid before founders during an exit.
The basic math: investors get their money back first, then everyone else splits what’s left.
Usually 1 times.
Sometimes 2 times or 3 times.
Occasionally, “participating preferred”... get money back PLUS percentage of remaining proceeds.
This means founders can build a $100 million company and get nothing when it’s acquired if venture capitalists structured it right.
Here’s how it works in a typical acquihire:
The startup raised $10 million. Gets “acquired” for $15 million. Sounds like a win.
The liquidation waterfall:
Venture capitalists get their liquidation preference first: $10 million.
Legal fees and transaction costs: $2 million.
Retention bonuses for engineers: $2.5 million.
Founder compensation: $500,000 vesting over 3 years.
Early employees who built everything: $0.
The $15 million exit becomes:
Investors made whole.
Lawyers paid.
The acquirer got talent locked for 4 years.
The founder got $500K spread over 3 years.
Employees got nothing.
In a real exit, liquidation preferences get worse with multiple rounds.
Series A investors: 1 times preference on $5 million.
Series B investors: 1.5 times preference on $15 million.
Series C investors: 2 times participating preferred on $40 million.
The company sells for $100 million.
Series C gets $80 million for their preference. Plus 30% of the remaining $20 million. Total: $86 million.
Series B wants $22.5 million. But only $14 million remains after Series C.
Series A gets $0.
Founders get $0.
Employees get $0.
The company sold for $100 million.
Late investors took it all.
That’s liquidation preferences.
The structure venture capitalists use to ensure they extract regardless of the outcome.
Build a $50 million company?
Liquidation preferences eat it.
Build a $100 million company?
Liquidation preferences eat it.
Build a $500 million company?
Finally, maybe founders see something.
But most companies never reach $500 million.
So most founders never see anything.
The preference isn’t protection.
It’s extraction by design.
Real-world example: Brex.
On January 22, 2026, Capital One announced the acquisition of Brex for $5.15 billion.
Brex was last valued at $12.3 billion in 2022.
58% down round.
$7.15 billion vanished.
But the real damage happens in distribution.
Brex raised hundreds of millions across multiple rounds.
Late-stage investors who invested at the peak $12.3 billion valuation have senior liquidation preferences.
The waterfall likely looks like:
Series D/E investors: 1 to 2 times preference on $300+ million.
Series C investors: 1 times preference on prior rounds.
Series A/B investors: 1 times preference on early rounds.
Total preferences could easily exceed $3 to 4 billion.
Leaving $1 to 2 billion for common stockholders.
Founders and employees hold common stock.
After 8 years building a company “worth” $12.3 billion that sold for $5.15 billion, the founders might walk away with a fraction of what they expected.
Or nothing at all.
Meanwhile:
Pedro Franceschi, co-founder and CEO, gets to keep working... for Capital One now.
Venture capitalists get their preferences paid.
Capital One gets the business.
Build a $12 billion company. Sell for $5 billion. Watch preferences eat everything.
The founders who built it get whatever’s left after investors take their cut.
That’s liquidation preferences in the real world.
Not hypothetical.
Happening right now.
But wait...
Won’t founder Pedro be fine?
Probably better than employees, yes.
Here’s the extraction hierarchy:
Capital One negotiates a management retention pool.
Pedro gets carved out before liquidation preferences hit.
Part of his payout comes as a retention bonus, not equity distribution.
He likely sold shares during secondary markets at peak valuation.
Translation: Pedro probably walks away with low 8-figures plus a retention package.
Not zero.
But nowhere near “co-founder of $12 billion company” money.
Who gets destroyed:
Early employees with common stock options: $0.
Mid-stage employees who joined at $5 to 8 billion valuation: $0.
Late employees who joined at $12.3 billion valuation: negative. Underwater options.
Engineers who turned down Google... $300K salary plus $500K stock.
For Brex... $180K plus equity “worth millions”.
Just lost everything.
The real extraction:
Pedro built an independent fintech company.
Raised billions.
Hired hundreds.
Served thousands of customers.
Now he’s a Capital One employee for the next 3 to 5 years.
Can’t leave. Retention package clawback.
Can’t compete. Non-compete clause.
Can’t build independently. Golden handcuffs locked.
He traded “founder of Brex” for “division president at Capital One.”
The money he gets is real. The freedom he loses is worth more.
The pyramid:
Top: Late-stage investors. Get preferences, exit clean.
Middle: Founder/CEO. Gets some payout, loses independence.
Bottom: Employees. Get nothing, lose jobs, or become Capital One workers.
Liquidation preferences don’t just determine money.
They determine who keeps their freedom.
Investors: always free to move to the next deal.
Founder: locked into the acquirer for years.
Employees: lucky to have a job offer.
Pedro won’t starve.
But he’s not independent anymore.
That’s the extraction that doesn’t show up in the press release.
The "refreshing" part here is actually the problem.
When an open-source project with real users can't find a sustainable business model, we treat honest admission as a virtue. But the real question is: why was monetization urgent in the first place?
VC-backed projects operate on extraction timelines—raise capital, hit growth targets, exit within 5-7 years. That model works for some businesses, but it's terrible for infrastructure tools that need decades to mature.
Contrast this with projects that grow without extraction pressure:
- SQLite: 23 years old, powers billions of devices, never took VC money
- Linux: 33 years old, runs the internet, community-funded
- Nginx: Built slowly, sold on founder's timeline (not investor timeline)
Astro built something valuable. But VC money came with a clock. When the clock ran out before sustainable revenue appeared, acquisition was the only exit.
This isn't a failure of Astro. It's a feature of the funding model. We need more ways to fund infrastructure that don't require artificial monetization timelines.
(Disclosure: I run a tuition-free school exclusively for entrepreneurs... 100% founder-funded specifically to avoid this extraction pressure.)
Meta response: This account’s recent comment history is almost exclusively self promotion for their content, YouTube channel, and school. Much of the comment text appears LLM generated with classic signs such as the em dash, bullet point lists, and this-not-that comparisons that are common to LLM generated output.
It’s noteworthy because this comment is currently the top voted comment, probably because it hits all the notes of what you’d get if you asked an LLM to generate some content to tap into anger in a Hacker News comment section. It’s scary that this type of LLM powered engagement bait is so successfully being used to advertise on HN.
The criticism is also not very pointed. Like, I don't understand what the core message is. There is disdain for VC money and an implication that Astro could have gone without monetization. Both of which don't seem very well argued. But even if we grant those points ... so what? What is our take away supposed to be? It's a bunch of negative observations that don't funnel into some concrete conclusion.
It seems like the takeaway is supposed to be to look favorably on the commenter. "This is bad. I am good."
The top comment doesn't even make sense. Sqlite actually had to get funding to continue operating! They weren't immune from worries like paying rent or buying groceries.
It's just an ad that people are upvoting uncritically.
I did notice after seeing all the em-dashes. Shame because in a sense I could've agreed with them or atleast have a good discussion but if they didn't even take time to write their posts then oof
If the purpose of this was to promote their academy or school or whatever, what was the point? Because at this point, they have lost all credibility and respect and HN isn't a gullible audience so I don't understand the point of why they did this
> If the purpose of this was to promote their academy or school or whatever, what was the point? Because at this point, they have lost all credibility and respect and HN isn't a gullible audience so I don't understand the point of why they did this
It’s the top voted comment right now. Their comment history has similar comments with links to their products and content.
I think they’re doing it because it was working for them. I bet they’re happy with the additional traffic they’re picking up for a minute or two of promoting an LLM and then appending a link at the end.
I thought this was a cheap shot, but then I checked the account’s comment history. Not all of the comments look like LLM output but a lot of the comments from this account are definitely in LLM style. It even has an em dash. With the plug attached at the end I think this is their advertising strategy: Plug into outrage threads with LLM generated content and then guide people toward their program after the hook.
This is 100% an AI generated post. Incredibly disappointing to see this stuff making its way to HN. If you want to promote your school, at least write a post yourself.
> Linux: 33 years old, runs the internet, community-funded
Only in dreams, it took off thanks to the likes of IBM that decided it was a way to save costs on their UNIX development efforts, many key projects have been founded thanks to Red-Hat Enterprise licenses, nowadays also part of IBM.
GCC, clang, GNOME, Linux kernel, systemd, CUPS, AMD/NVidia drivers, have plenty of big corp money.
It's still the community when the community is via corporations.
Corporations are just groups of people. Pure grass roots "We collect the money, anonymously in cash shaking a bucket at our annual fundraiser" does not work at this scale. Even Zig, which I'm guessing is about as far away from "It's all just owned by an inhuman corporation" as you could ask for, does have big ticket corporate donors. So does ISRG (Let's Encrypt) or the EFF.
Venture Capital is a bad fit, that's the conjecture here. VC funding for infrastructure is a mistake because that big pay day won't happen if you did it correctly. That doesn't make VC inherently bad, or projects like Linux inherently defective, the claim was that it's just a bad match, like how an Irish Stout doesn't pair well with a subtle tomato and angel hair pasta dish.
The tone of OP was more like the "community of peace and love without money from the man".
Gathering around projects, talking over USENET, Gopher, phpBB forums, sharing code over email, Sourceforge, Savannah , living the FOSS dream, the whole mantra of when the GNU manifesto came to be.
All a matter of if the project dies when the money fountain runs dry, and developers have to find another way to pay bills other than a few meagre donations.
Not sure it's dreams to say "community-funded". Depends on terminology.
The funding assertion leverages the re-definition of “community” in “community funded” and relates to why all those big projects offer CE or Community Editions instead of calling it free or open source editions.
Enterprises are willing to take a look at free, but "community editions" are clearly for peons, not the big boys, so they license the commercial edition. It also productizes a subset of licensing rights in contrast with the commercial licensing rights.
In any case, in today's common parlance, community doesn't mean ICs and IC donations. It can, but it's been mostly co-opted by corp donations, which are still donations and not VC.
SQLite made and makes a lot of money from a lot of the people who use them. It's free for us to use, but it wasn't free for Motorola and AOL and Nokia (and later Google, Apple and Adobe) who contracted the team to build it out, add features, fix bugs on it. This wasn't FOSS funded by a few people's free time. It was a commercial business that made money by finding product market fit - the best embedded database in the world. Their scale then allowed them to find more bugs, fix them and become more reliable than anything else.
> I scrambled around and came up with some pricing strategy. [Motorola] wanted some enhancements to it so it could go in their phones, and I gave them a quote and at the time, I thought this was a quote for all the money in the world. It was just huge. ($80k)
> [Nokia] flew me over and said, “Hey, yeah, this is great. We want this but we need some enhancements.” I [Richard Hipp] said, “Great,” and we cut a contract to do some development work for them.
> We were going around boasting to everybody naively that SQLite didn’t have any bugs in it, or no serious bugs, but Android definitely proved us wrong. Look, I used to think that I could write software with no bugs in it. It’s amazing how many bugs will crop up when your software suddenly gets shipped on millions of devices.
If you can find paying customers that can fund your development, then it's fantastic. It's even better if those contracts give you scale that none of your competitors have. You don't need VC money if that's the case. But let's not pretend that Astro were in that situation. No one was paying for a web framework.
> If you can find paying customers that can fund your development, then it's fantastic. It's even better if those contracts give you scale that none of your competitors have. You don't need VC money if that's the case. But let's not pretend that Astro were in that situation. No one was paying for a web framework.
Didn't this just happen right now that Astro got acquired by Cloudflare? I am sure that Cloudflare has bot tons of money right now so Astro got an offer to good to refuse but worst case scenario they could've still partnered up with cloudflare,netlify,vercel etc. but also companies who deploy astro (even google deploys astro pages)
Plus, Astro has a very strong focus on being performant/fast (getting 100 lightscore) so they could've definitely focused on consultance as well to actually have the people who work in the craft who can take a look and help you get score who literally know the inside out of Astro
That being said, the Question is, could they have survived long enough to be in a position of sustainability without VC money or could they have gotten sustainability from the start, if so what could be the path that they could've taken so that they didn't need VC money or could be (day-1 profitable ie?)
Problem is, it was possible to get there with minimal effort. The default config of Astro was 100. I know absolutely nothing about web dev and my personal website was all 100s.
And in any case, consultancy doesn't scale. Interestingly Tailwind has that kind of model - free software, pay for beautifully crafted components. And their business isn't doing well.
We don't know what would have happened in an alternate universe. But it's hard out there building businesses on FOSS. Can't blame anyone for trying - VC or otherwise.
European Commission issues call for evidence on open source
The EU is looking for facts like this as it figures out how to use OS to begin to extend its digital sovereignty. I don't think it's as simple as, "get funding from a giant continental government instead of VCs!" but what I hope is that there is a structure the EU and Open Source can forge together that gives OS software the funding it needs to build more Nginxes and SQLites in a way that fosters the independence of those projects along with the independence of the entities that use it.
The VC funding model is broken in general - it's not only bad for open source projects, it's bad for most projects.
Modern expectations that a VC pumps in millions (or billions) of dollars and then extracts 10s of billions a few years later is an unrealistic expectation for most companies, and forcing everything into that model is killing off a lot of projects that could be successful on a smaller scale. The pressure forces small companies to sell out to bigger corporations, consolidating the industry into a few huge players who gate keep and limit competition and choice.
SQLite probably never took VC money, yes. People pay them for work.
Many, many people working on Linux work for companies that pay them to work on Linux. Linux is not, and I don't believe has ever claimed to be, community-funded.
Nginx was bought, a couple of times maybe, so they have had cash injections of some sort.
> We need more ways to fund infrastructure that don't require artificial monetization timelines.
Funding infrastructure isn't the problem, exactly. VC is for a specific type of funding: risky businesses that need scale to make money. We have found the answer: VCs, who are willing to lose all their money on your project.
Not really an apples to apples comparison. You are comparing it to core technologies that millions of things sit on. There will always be money for that.
Wait so are you doing the journalistic action? I can't wait for this to drop. Please give me more details if possible.
Massive respects to your journalism, I have a lot of questions regarding this tho, namely how long did it take you to build this expose and where are you gonna drop it because I searched net for Founderstowne but I didn't find anything special, are they the VC fund you are gonna expose?
After my first startup failed (didn't get PM fit) I got a bit obsessed with how to do good market research for innovation. Discovery interviews, JTBD, etc.
During my journey I took a beat and pointed my new skills at VCs. I interviewed a few dozen VCs trying to understand what they were trying to get done and what mattered to them, but with a bit of a bias trying to gauge whether they wanted to better predict market demand of their portfolio or prospective investments' products.
What I learned shocked me a bit. The sense I got was that they didn't really care about market demand or building a strong business, they mostly cared if the founder could sell the company up to food chain (series a, b, c etc).
Roughly speaking: "I don't care what value my portfolio companies create, I care about marking up my book so I can increase my take".
I don't know how much this had to do with ZIRP, but it really soured me to the VC industry. I've been committed to bootstrapping my companies ever since.
It's been submitted and will remain empty of comments until a HN user comments.
I see a post with 13 points (upvotes / positive reactions) and [flagged] (meaning the title alone upset a few people given there's been no time to read the content yet).
As with all HN submissions, YMMV - Your Mileage May Vary
Just a heads up. Oftentimes legally speaking a facade will only work if you haven't yet been found at fault.
And even if you know for a fact that you aren't at fault, an ounce of prevention is worth a pound of cure and all that. The legal process isn't exactly cheap.
I wouldn't go that far. IGF-1 which is released due to the consumption of protein (particularly leucine) has been shown to be responsible for increases in mTOR signaling which is a nutrient sensor responsible for initiating cell growth in some forms of cancer, see this study for example https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4392529/.
In effect, leucine and IGF-1 increases mTOR signalling which is responsible for growth, the opposite effect of calorie restriction (which turns off mTOR and has been shown to reduce the growth of cancer).
That NCBI study (which I am 100% was not scientific) was funded by the Winkler Family Foundation. Yep, the guy who produced the movie "Rocky" funded this. And the Winklers have direct ties to the evil Monsanto Corporation: https://usrtk.org/tag/winkler-family-foundation/ Monsanto (now Bayer) wants to eliminate meat eating. So, no thanks... I will pass your "tip."
Everyone... I mean EVERYONE needs to master the laws of debt collection. Even if we think we are "responsible." Because all of us are a "situation" away from losing it all.
Here in the USA, there is a "statute of limitations on debt". If we fall onto bad times, the laws protect us from aggressive debt collectors. We simply stop paying all debts... and the law cleans our slate fresh after x amount of years (depending on each state). No bankruptcy needed.
It's much more complicated than that. The law doesn't wipe the slate clean. Rather, it gives the debtor an affirmative defense against a lawsuit after X years. It does not stop a debt collector from trying to collect on otherwise uncollectible debt (phone calls, letters, calls to friends, family, and employers if the debtor doesn't respond). Additionally, debts barred by the statute of limitations can sometimes still crop up as "zombie debt" years or decades later. Collectors can (and will) put a new records on a person's credit report, preventing most debtors from rebuilding their credit.
When a debtor stops paying debts entirely, it can start a whirlwind of problems. They can be barred from finding housing, certain types of employment, their actual current jobs (certain professional licensing require financial responsibility). Additionally, most debts end up in the hands of collection attorneys (CA) who will sue en masse to obtain judgments. This effectively stops the statute of limitations and gives the CA 10 years, 20 years, or a lifetime to collect the debt. In these cases, a well-timed bankruptcy is (and should be) an option for people. In some cases of debt -- student loans for example -- the debt is presumed non-dischargeable and can create a lifetime of hardship for the debtor.
>phone calls, letters, calls to friends, family, and employers if the debtor doesn't respond)
They are only allowed to call to locate you, and they aren't allowed to tell people why they are calling.
Since the debt is past the statute of limitations, there's no reason to hide from them. You can send them a cease and desist letter to make them stop contacting you.
>Collectors can (and will) put a new records on a person's credit report, preventing most debtors from rebuilding their credit.
They can’t change the date the item went into collections. If they add an item and say that it’s new debt you can dispute it.
Of course debt collectors can always break the law and do whatever they want, but if they violate the FDCPA you can sue them for actual damages and statutory damages.
>Additionally, most debts end up in the hands of collection attorneys (CA) who will sue en masse to obtain judgments.
Yes, this is the real problem if you stop paying. You can still go bankrupt after this point though.
That tactic has been shot down by the courts, but there are some big loopholes to it. Any acknowledgement of the debt (normally in writing) or any token payment by the debtor can reset the clock. Sometimes, debt collectors employ shady practices to get the statute reset, such as telling the debtor, "If you pay us $10, we'll stop calling you for three months." This token payment will reset the clock.
Once upon a time (40+ years ago?) accepting partial payment for a debt using an instrument that declared something to the effect of, "for the satisfaction of all debt", was enforceable. This became a problem when automated payment processing systems became prevalent. Savvy debtors--presumably mostly lawyers--could write a check for $10 that extinguished a $10,000 medical bill once cashed. Needless to say, the law was quickly changed before it became too prevalent--much more quickly than laws designed to protect consumers.
Unlike the loophole regarding debt acknowledgment you mention, this loophole was an artifact of mercantile law. Terms on negotiable instruments are typically strictly enforced as compared to regular contracts, to ensure maximum efficiency of payment systems. (Or at least the rules for what's enforceable are very brightline, and aren't particularly concerned with fairness. Magical phrases are still very much important.)
"The takeaway from these two cases is that accord and satisfaction can only settle a disputed debt when both parties have knowledge of the outstanding issues to which the debt pertains, and the party negotiating the check has reasonable notice that by depositing the check the dispute is completely settled for the amount of the check."
I wonder if you could put a 'warning sleeve' or something around a check that is sent to someone who may process it automatically.
Unfortunately US 'aggressive debt collectors' can leverage legal loop holes and corrupt officials to take your possessions by force.
The 2008 housing repossession stats from lenders such as wells fargo are a good example. in some cases they were repoing houses that had no late payment or mortgage issues whatsoever.
They are aggressive only when they smell blood. Ignore them and you can settle for 20%. They probably bought the debt for 5% so they are still ahead. "Ignore them" is also easier said than done since they will ruing your credit report and maybe sue you.
Exactly. Some blogs and other websites are offering bad advice. Performing overt actions such as: checking one's credit, sending debt validation letters, paying small amounts, maintaining other debt at the expense of another, seeking jobs which check credit, and others can empower debt collectors to pursue that individual vigorously. On the other hand, a completely destroyed credit report (100% charge offs) with no known mortgage or vehicle with a hard-to-find debtor is unlikely to be pursued since they are more likely to be collection/judgment proof.
What many people do not realize is that most charged-off debt is uncollectible. Only a small fraction actually gets paid. Most debtors cannot be located by their collectors, and that's the primary reason why debt collectors will normally settle for less than what is owed.
Checking your own credit doesn't show up on the credit report collectors pull, so they would have no idea you did this. It also costs them money each time they pull a credit report, so they're unlikely to do it very often (or at all) by the time the debt is old enough that it's unlikely collectible.
Actually, the latest credit product systems from Experian and TransUnion (not sure about Equifax) allow creditors to see inquiry data as a list of dates. This array may include pre-approved offer checks and third-party pulls (such as those from Credit Karma). I believe you can even see this date list on Credit Karma as well.
In the same way that a debt validation letter is a "smell" to the debt collector that the debtor is concerned about their debt (and potential credit status), any indicator that the debtor is evaluating their own credit can also potentially raise the debtor's file with the collector to high-attention (or litigation) status (versus being sold off to another collector).
> Actually, the latest credit product systems from Experian and TransUnion (not sure about Equifax) allow creditors to see inquiry data as a list of dates. This array may include pre-approved offer checks and third-party pulls (such as those from Credit Karma). I believe you can even see this date list on Credit Karma as well.
This is not the same thing as checking your own credit, which is not visible on reports that creditors see.
Soft vs Hard inquiries. There is a problem with various credit apps doing hard inquiries without the user being fully aware - ie Did you read and fully understand the disclaimer?
There are different types of debt. I don't know for a fact if it is still true, but medical debt on your credit score wasn't even considered for a mortgage for the most part. If you had 20 past due copays that was worse than owing 20k
> If you had 20 past due copays that was worse than owing 20k
Copays are typically (though not always) paid at time of service, not billed after-the-fact. In any case, it takes a long time for a bill to become overdue and get sent to collections; before that, it won't show up on your report at all. Having 20 different overdue bills (of any sort) in collections is definitely an objectively worse sign of creditworthiness than having a single active loan of 20k of any nature.
Master the laws in all 50 states? And perhaps a few territories too?
I think the safest thing in this case is to only bank with an organization that has no presence outside your home state, like that credit union with 6 branches that my friends make fun of me for using.
Let's talk about “Liquidation preference”.
Means investors get paid before founders during an exit.
The basic math: investors get their money back first, then everyone else splits what’s left.
Usually 1 times.
Sometimes 2 times or 3 times.
Occasionally, “participating preferred”... get money back PLUS percentage of remaining proceeds.
This means founders can build a $100 million company and get nothing when it’s acquired if venture capitalists structured it right.
Here’s how it works in a typical acquihire:
The startup raised $10 million. Gets “acquired” for $15 million. Sounds like a win.
The liquidation waterfall:
Venture capitalists get their liquidation preference first: $10 million.
Legal fees and transaction costs: $2 million.
Retention bonuses for engineers: $2.5 million.
Founder compensation: $500,000 vesting over 3 years.
Early employees who built everything: $0.
The $15 million exit becomes:
Investors made whole.
Lawyers paid.
The acquirer got talent locked for 4 years.
The founder got $500K spread over 3 years.
Employees got nothing.
In a real exit, liquidation preferences get worse with multiple rounds.
Series A investors: 1 times preference on $5 million.
Series B investors: 1.5 times preference on $15 million.
Series C investors: 2 times participating preferred on $40 million.
The company sells for $100 million.
Series C gets $80 million for their preference. Plus 30% of the remaining $20 million. Total: $86 million.
Series B wants $22.5 million. But only $14 million remains after Series C.
Series A gets $0.
Founders get $0.
Employees get $0.
The company sold for $100 million.
Late investors took it all.
That’s liquidation preferences.
The structure venture capitalists use to ensure they extract regardless of the outcome.
Build a $50 million company?
Liquidation preferences eat it.
Build a $100 million company?
Liquidation preferences eat it.
Build a $500 million company?
Finally, maybe founders see something.
But most companies never reach $500 million.
So most founders never see anything.
The preference isn’t protection.
It’s extraction by design.
Real-world example: Brex.
On January 22, 2026, Capital One announced the acquisition of Brex for $5.15 billion.
Brex was last valued at $12.3 billion in 2022.
58% down round.
$7.15 billion vanished.
But the real damage happens in distribution.
Brex raised hundreds of millions across multiple rounds.
Late-stage investors who invested at the peak $12.3 billion valuation have senior liquidation preferences.
The waterfall likely looks like:
Series D/E investors: 1 to 2 times preference on $300+ million.
Series C investors: 1 times preference on prior rounds.
Series A/B investors: 1 times preference on early rounds.
Total preferences could easily exceed $3 to 4 billion.
Leaving $1 to 2 billion for common stockholders.
Founders and employees hold common stock.
After 8 years building a company “worth” $12.3 billion that sold for $5.15 billion, the founders might walk away with a fraction of what they expected.
Or nothing at all.
Meanwhile:
Pedro Franceschi, co-founder and CEO, gets to keep working... for Capital One now.
Venture capitalists get their preferences paid.
Capital One gets the business.
Build a $12 billion company. Sell for $5 billion. Watch preferences eat everything.
The founders who built it get whatever’s left after investors take their cut.
That’s liquidation preferences in the real world.
Not hypothetical.
Happening right now.
But wait...
Won’t founder Pedro be fine?
Probably better than employees, yes.
Here’s the extraction hierarchy:
Capital One negotiates a management retention pool.
Pedro gets carved out before liquidation preferences hit.
Part of his payout comes as a retention bonus, not equity distribution.
He likely sold shares during secondary markets at peak valuation.
Translation: Pedro probably walks away with low 8-figures plus a retention package.
Not zero.
But nowhere near “co-founder of $12 billion company” money.
Who gets destroyed:
Early employees with common stock options: $0.
Mid-stage employees who joined at $5 to 8 billion valuation: $0.
Late employees who joined at $12.3 billion valuation: negative. Underwater options.
Engineers who turned down Google... $300K salary plus $500K stock.
For Brex... $180K plus equity “worth millions”.
Just lost everything.
The real extraction:
Pedro built an independent fintech company.
Raised billions.
Hired hundreds.
Served thousands of customers.
Now he’s a Capital One employee for the next 3 to 5 years.
Can’t leave. Retention package clawback.
Can’t compete. Non-compete clause.
Can’t build independently. Golden handcuffs locked.
He traded “founder of Brex” for “division president at Capital One.”
The money he gets is real. The freedom he loses is worth more.
The pyramid:
Top: Late-stage investors. Get preferences, exit clean.
Middle: Founder/CEO. Gets some payout, loses independence.
Bottom: Employees. Get nothing, lose jobs, or become Capital One workers.
Liquidation preferences don’t just determine money.
They determine who keeps their freedom.
Investors: always free to move to the next deal.
Founder: locked into the acquirer for years.
Employees: lucky to have a job offer.
Pedro won’t starve.
But he’s not independent anymore.
That’s the extraction that doesn’t show up in the press release.
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