In July 2018, Paddy Power Betfair acquired FanDuel for $465M, leaving founders with nothing due to strong liquidation preference rights held by lead investors. Liquidation preference determines who gets paid first and how much in an acquisition. Investors expect “VIP” treatment, taking their share before employees. The preference multiple and participation are key components. FanDuel founders lost out due to a deal that exceeded $559M, triggering the liquidation preference. Drag along rights granted to lead investors prevented founders from stopping the deal. Lessons: Build a healthy, fundable startup to attract more investors and negotiate favorable terms to avoid pitfalls like liquidation preference.
https://www.fundablestartups.com/blog/half-a-billion