There are some really profound misunderstandings of how bankruptcy and credit work in this thread.
Creditors are ranked by seniority and get paid out in order by seniority. Equity is below every creditor and has been completely wiped out. Companies are not allowed to take cash or sell the furniture to pay out employees. That money is legally owed to creditors and attempting to stiff them is theft. I'm sorry to those affected at Convoy, but that is the reality of working at a startup that goes through a hasty liquidation. Convoy is not being "cheap" about this, as some are suggesting. Any "retention bonuses" are to keep executives around for long enough to unwind the company in an orderly fashion. Nobody is getting rich off failure; if everyone were to walk away there'd be nothing left and therefore nothing to recover and distribute. It's bad for everyone, but the alternative is worse.
As for the larger situation: Convoy were a digital freight brokerage. They acted as intermediaries between shippers and carriers and make money on the spread between the two. They got into trouble because the entire freight sector has been suffering a double whammy of cost increases due to inflation (ie. diesel costs) and a slowdown in demand. This has caused a number of carriers and brokerages to go bust. Freight brokerage has some other properties that make Convoy's situation particularly serious. In particular, carriers typically securitize their accounts receivable. In freight, this is known as "factoring." Convoy got stuck holding the bag after their partner carriers went under, having already paid them for their service, but still waiting for payment from the shipper.
Worst of all, Convoy had no exits because their only potential acquirers are in the same industry and are also getting completely crushed.
While in general what you are saying is true, employees owed wages are the highest seniority of creditor. As long as you were selling furniture for reasonable prices to make payroll, you should be fine.
Wages are fourth priority, but only up to $12,850 per person (one month's salary at ~150k a year).
The three priorities above wages are child support (not really applicable to corporate bankruptcy i assume), liquidator's expenses, and some mildly complex case i don't really understand. Taxes are eighth, two behind grain farmers and fishermen (lol America).
I think that this list might be talking about unsecured claims though. I think that secured claims might be separate. So, for example, if an individual declares bankruptcy and they owe $500k on their house, that claim would come before child support payments. I am definitely not a lawyer and bankruptcy law strikes me as particularly complex.
The third priority is tough to parse. From looking over it quickly, it seems like this might be claims from doing business between when i file bankruptcy and when i go into foreclosure. Again, not a lawyer, but my guess here is that if I'm a store and I file bankruptcy on Monday, but don't have a trustee until Wednesday, and I put in an order for a palette of water bottles on Tuesday, then the distributor of the water bottles might have a priority claim.
Obviously it depends on the jurisdiction. In countries with strong employees protections, redundancy payments have a high priority during administration.
I realize one possible misconception is severance vs "gardening leave" [0].
They look really similar, but legally entirely different.
In "gardening leave" you're still an employee and on payroll until the last day. Whereas severance you're not an employee and typically paid lump-sum (but doesn't matter for this discussion). So in this specific situation, yes, that would be wages and would be paid out first before creditors because you are _legally_ entitled to those wages.
The problem of course you cannot hope to put a whole company on "gardening leave" in hopes that it can "act as severance" for everyone. Your creditors will sue you and easily win. They'd probably put an emergency injunction on the company and remaining funds before the first month was even completed once they learned of "creditors hate this one little trick!"
You have X months notice ie the company has to tell you X months before yoir severance date.
Often the company will want somone they let go out of the office ASAP.
Thus you spend your X months on gardening leave paid as normal wages.
On your severance date you get your redundancy package - in the UK there is a defined minimum but in some markets e.g. finance they pay more as they do want to keep current employees happy so they see that they just don't get thrown out.
As much of the US is at will employment I doubt this scenario will occur often
It can happen during a partial acquisition where the relevant employees are likely to cause damage to or steal the product/property before the acquiring company has finished the acquisition (e.g. software with wide access that needs to be untangled).
The usual one I hear about is someone who’s in generally in good standing and who has a significant stock award coming, but who just isn’t “working out” and management gives them the gift of finishing out their term to get the bonus
It's not the way it is calculated. All payments attached to employment contract are wages, be it regular salary, bonuses, vacation pay or severance. Say the contract defines severance of 1 month for each full year worked capped at 3 months: at the moment contract reaches 1 year anniversary, the employee should be owed 1 month worth of severance upon contract termination
I've worked in the sf tech industry my entire career and my employment contracts have never included guaranteed severance. I've seen severance being paid out to fellow employees but afaik it is done as courtesy and wasn't legally required.
> my employment contracts have never included guaranteed severance
My assumption was that we would not be talking about "unpaid severance" if there was no severance defined in the first place.
> Are you European? Maybe it's different there.
Generally severance is not legally mandated, but can be mandated under some specific circumstances, e.g. no-notice termination. Usually it is similar to US: either defined in collective (union) agreement or part of termination contract.
Well your assumption is wrong. There was no defined severance, people are saying that Convoy should have paid severance anyway because its the “right thing to do” when laying off employees. And others are saying they couldn’t because of creditors coming first.
All official information mentions “shutting doors” and “winding down” and not necessarily a bankruptcy. For instance, in the same space, Shone just returned part of the equity to the investors, paid comp to the execs for a full year, and us, employees, got jackshit.
IDK if Shone did things the most intelligent way, but the general story is not uncommon.
Shareholders/creditors have a mess if the CEO and CFO walk out the door for their new job; it is financially beneficial for them to liquidate assets and shut the door.
Shareholders/creditors don't have a mess when the engineer and a product manager walk out the door to their new job.
This stuff doesn’t require the CEO or CFO either. Receivership doesn’t even require the active participation of the board, so yes there’s some benefit of keeping existing executives around but that’s often offset by the costs of doing so.
How would it possible help in this situation? The game is over and everyone knows exactly where all the money is. It will just be distributed back to the creditors and then remaining to the shareholders. Who needs the CFO for that? Basically anyone could run that process.
Words have different meaning in different contexts.
If your CEO is looking at records of individual office chairs when unwinding a billion dollar company someone has seriously fucked up. They don’t and shouldn’t know the details by memory.
However, the details are either available so everyone ‘knows’ them as soon as they become relevant, or the executive officers have been committing serious financial crimes.
Maybe they need something in bankruptcy law that requires the executives to stick around, at low pay, to do their jobs and unwind the company. After all, they're the ones who made it fail. Why should they be allowed to walk away?
If a regular individual declares bankruptcy and then doesn't bother doing any of the required paperwork and legal stuff, saying the court needs to pay them top dollar for their time, things will not go well for them.
You mixed up a lot of things here. On practical side: execs, and accounting already legally must do paperwork, however shareholders want them to go well beyond that. And you can't force people to do job properly just by legally obliging them, otherwise Soviet Union would not fail.
On moral side: business in general (and startups especially) requires navigation between things many of which are unpredictable, and plenty are beyond your control. Also I've seen startups failing because of software bugs, and technical limitations. In this particular case, do you know about any obvious wrongdoing? If not you probably shouldn't auto-assigning blame on "them".
Again, try declaring bankruptcy, and then refusing to do any more paperwork or show up for the bankruptcy hearing with the judge, and see how it goes for you.
In fact, bankruptcy is a process that, if you follow the rules, is beneficial to you: you get protection from your creditors so that your loss is minimized. If you refuse to do the labor to follow this process, you won't have any protection and things will go badly for you. I don't see why it should be different for the owners and executives of a corporation. These people are not employees.
There’s no obligation to run a company into the ground. If a company reaches a point where the end of its runway is in sight, and the company decides to let employees know that the company will be out of money in 2 months, to give employees time to start looking for options… that’s allowable and not some sort of theft from creditors.
Many companies are open with employees about the state of the business.
If you have less than 3 months runway and little prospect of any fundraising, tell your employees. You don’t need to steal money from creditors (?) to pay severance, you just gotta do your best to not blindside people who have rent to pay.
> Convoy had no exits because their only potential acquirers are in the same industry and are also getting completely crushed.
Some great insights here and you clearly know the business. I’m curious about this last statement however. Just how badly are other players doing?
Uber Freight just announced a major overhaul on a foundation apparently provided by their acquisition of Transplace [1]. There seem to be a number of synergies between Convoy and Uber Freight although I may be naive about that. In any case, I’m curious about your view on Uber Freight and whether they are viable or simply playing the long game based on deep capital reserves, and why you think they didn’t acquire Convoy (if that even makes sense as a possibility).
Uberfreight is also doing very poorly. From my understanding the Transplace acquisition was somewhat of a merger/UF trying to get out of only the 3PL business and Uber is just trying to get UF's losses off their books. There are not as many synergies as you might think due to the way freight brokerages and their deals with shippers+carriers work. One reason UF didn't acquire Convoy: it only makes sense for a brokerage to acquire another brokerage if they can get more customers (shippers) from that acquisition. But most customers of UF are also customers of Convoy, and are splitting their loads amongst multiple brokers to diversify risk and commoditize brokerages. So if you're a shipper giving 20% of your business to Convoy and 20% to Uber Freight, you won't turn around and give 40% of your business to UF now that they've acquired Convoy, you'll just go find another broker to give your business to.
Just to clarify your point about paying out employees... in what sense do you mean that? Some quick googling says that when a company goes into Chapter 7, employees become creditors for their unpaid wages, which means that they are at least in the same boat as other creditors (although it seems like they might sometimes be prioritized).
Your source is talking about unpaid wages (legally mandatory), but severance is additional (legally optional) payments the company chooses to make to support former employees.
That sounds like bullshit (i.e., it shouldn't be this way, I'm sure you're correct). Being a landlord should entail a certain amount of risk: you're betting the tenant will be able to pay the rent, so you need to be careful choosing tenants, especially if they're companies, and moreso if they're companies with risky finances.
Why should employees be prioritized below a property speculator?
There are plenty of people who get paid out before the landlord, especially when you're several months in arrears as you almost always are in this situation. It's why in other markets landlords will be pretty quick to evict non-paying commercial tenants, there's a lot of risk and minimal personal guarantees unless it's a brand new business.
"Convoy got stuck holding the bag after their partner carriers went under, having already paid them for their service, but still waiting for payment from the shipper."
This doesn't make any sense. What you're describing is normal course of business. Shipper pay terms are usually longer than when the carrier get's paid from broker. "Carrier's went under", doesn't make any difference. If the shipper doesn't pay, than that's a problem. But to say paying carriers that "went under" contributed to Convoy going out of business just isn't accurate.
This however is not a bankruptcy case, but a wage theft case.
Going through a perfectly legal bankruptcy procedure is very different than working your severs 72 hours a week for years without overtime then refusing to show up at court.
This comports with my understanding that piercing the veil usually requires illegal behavior.
I don't understand your point? It is a simple concept that wage liabilities, eg a last check that bounces, or 'wage theft'[0], can result in those liabilities passing through to become personal liabilities of the company's owner(s).
Again IANAL, and ymmv based on specific circumstances, but piercing for unpaid wages is very much a thing in (at least) California law.
I understand what you said, I just don't think it is true and none of the provided sources say so. Meanwhile, everything I have read says they are simply priority creditors up to a limit. Beyond the limit, judges will pay other creditors before employees.
>Because claims for unpaid wages due to insolvency do not fall under the Fair Labor Standards Act (FLSA) unless the employer willfully failed to pay wages owed and filed for bankruptcy as an attempt to avoid paying wages, the U.S. Department of Labor has no jurisdiction in this area and will not accept claims.
You really don't seem to. The allowed recourse, under contention, for unpaid wages due to bankruptcy isn't via the FLSA, its a lawsuit against the company's owners. If you run a taco stand, don't pay your employee, and then declare bankrupcy - validly or not - you will plausibly be held liable, as person, not an LLC, in civil court for those wages. To be paid from your personal assets and or garnished from future income.
Also your quote literally says 'unless declaring bankruptcy to avoid paying wages.'
This seems to establish precedent that unpaid wages by a bankrupt company, even in the absence of serious misconduct, are sufficient justification for veil piercing:
> The case therefore would up presenting a clear question of law: Where the workers are employed by a corporation, can an individual be held liable for penalties associated with statutory violations in the payment of wages where there was no allegation or finding that the corporate laws had been misused or abused for a wrongful or inequitable purpose? In other words, do sections 558 and 1197.1 allow workers to recover civil penalties for nonpayment of wages from individuals even when there are no other grounds for piercing the corporate veil under the doctrine of alter ego?
> The court of appeal concluded that under the clear language of sections 558 and 1197.1, the State of California, through the Labor and Workforce Development Agency (“LWDA”), can recover penalties associated with unpaid wages from individuals. Furthermore, PAGA allows employees to stand in the shoes of the LWDA and recover those penalties. Accordingly, employees are also permitted to recover those penalties from individuals.
>The only ambiguity to me in reading this is whether the court considered it different because the wages went unpaid for a while before bankruptcy.
This is my entire point.
If you go into chapter 7 bankruptcy, and a judge prioritizes senior creditors above unpaid wadges, you are clearly in different territory than if the corporation was neglecting wages before bankruptcy.
Everyone keeps linking cases for pre-bankruptcy cases, or ones without bankruptcy at all.
Meanwhile, There laws on the books about the prioritization or creditors, and where labors stands, and how much labor gets paid out before, and how much after other creditors.
> ...another industry faces the same problem: startups. The opportunity to create
the next big thing has “long lured ambitious entrepreneurs into shiny
co-working spaces and startup accelerators” in Silicon Valley, but the
reality is that most startups fail.15 These failures can be crushing for
all those involved.16 Not only does the death of a startup mean the loss
of a job and the death of a dream, it also means a lack of funds to
compensate employees for work they have already put in.17 Although
the practice of withholding wages is illegal, it is a rather common
problem when startup founders “put off paying employees as they wait
out their next round of funding.”18 If the funding falls through, there
is often no money left to pay employees the wages they have already
earned.
> That is what happened to plaintiff Brett Voris (“Voris”) in Voris
v. Lampert.
...which is the same case I linked above. So the whole issue is how long wages can be delayed. If you're arguing that "Convoy management is unlikely to be personally liable assuming they didn't delay any wage payments whatsoever and their wage payment intervals are found to be reasonable by the court", then I agree. But it's rather common for some of these conditions to not hold, so the potential for piercing the veil is very real.
(Perhaps you are arguing against other people who think that unpaid wages are always considered theft, in which case I would agree with you. I was respondsing to the comment "you cant prosecute a dead entity for theft"; often you can, and it depends on the details, which I presume are not yet public for Convoy.)
> If you're arguing that "Convoy management is unlikely to be personally liable assuming they didn't delay any wage payments whatsoever and their wage payment intervals are found to be reasonable by the court", then I agree.
This is exactly what I am auguring. Convoy isnt even delaying any wage payments. They are not paying severance or providing transition healthcare/COBRA.
It seems like Voris v. Lampert case had a much longer delay, and the court still decided against the the plaintiff.
I did learn that there is more case law on piercing the vale for wage than I realized, but everything I read still suggests that a legitimate bankruptcy without serious/illegal executive misconduct will not lead to piercing of the veil.
They paid their carriers before being paid by their clients? That is pretty bad cash flow management, and risk management. And it is decidedely not what forwarders I know do. Forwarders, e.g. DHL freight, rarely own their trucks and subcontract that out, much like a broker does. And those subcontracted carriers are usually the last to get paid in that line.
Unless, of course, Convoy had to because all their carriers insisted on upfront payments for reasons. In which case Convoy was propably already screwed any way.
What you are saying is true, but that doesn't mean a lot of underhanded "games" aren't played.
"Nobody is getting rich off failure; if everyone were to walk away there'd be nothing left and therefore nothing to recover and distribute. It's bad for everyone, but the alternative is worse."
Here's one such game. Executives, who enjoy information asymetry, and leverage can parlay this into one final earning event. Threaten to leave the company in disarray, unless they're paid. Coordinated, it's hard to say no to.
Imagine if the top 5-10 execs at an otherwise ok startup coordinated a demand to double their pay/stock or everyone walks tomorrow. They time the move using inside knowledge of cash flow, making the demand irresistible.
I'm not suggesting an alternative, but that doesn't mean a corpse isnt a feast for some.
Unless the law has changed, in California back pay is senior to everything except tax debt. And the company officers are personally liable for it.
It should work that way everywhere. Executives need to be incentivized to do layoffs while there’s still cash for it. Defrauding employees is a terrible evil.
We didn’t get our final check. The class action suit went on for several years and the lawyers got all the money. I believe I was entitled to something less that $100 in the end and I declined.
> Companies are not allowed to take cash or sell the furniture to pay out employees...Any "retention bonuses" are to keep executives around for long enough to unwind the company in an orderly fashion.
Could you help me understand where the line is drawn?
(Ex-)Convoy engineer here. No mystery as to why this happened, sudden tight market and low available capital demolished us. External reasons given in the article were the same we knew and couldn't do anything about considering that none of the M&A options materialized.
Detailed the shutdown on a call at 8:30am Pacific this morning. CEO said there'll be no severance or healthcare.
Lot of talented folks in Seattle and beyond who'll be looking for new gigs.
> Dang, no severance or healthcare is really brutal
When NCC Group fired me, they gave me zero days notice and no severance.
They did emphasize that my healthcare would stay good through the end of the month, but they didn't seem to have realized that I would be unlikely to find that useful after being fired on October 31.
A better fix would be for people to see their health insurance divorced from their employer. That would actually greatly benefit startups and be one step back from corporate serfdom.
U.S. tax law needs to change for this to happen. Individual health care should be totally tax deductible (the way it is for businesses) or should not be tax deductible at all for business (a small step in this direction by the Obama Administration was vilified as a "Cadillac Tax"
If proper single payer is out of the question, the biggest mistake in Obamacare is that employer-sponsored health plans remained legal. Everyone should have been forced into the same market.
Because startups are expected to fail, and VCs won't "waste" money unless they are forced to so they will leave the business with $0. Without legislation VCs won't assign any money for post-failure employee costs.
Running concern businesses don't have quite the same incentives nor the same risks of failure.
Given that you were in the company and presumably have an idea of how the company functions: where did the funding go? $260M gone in 1 year?
"Convoy, which raised $260 million in a funding round last year that valued the business at $3.8 billion, on Wednesday told employees in an email that it would stop accepting shipments until further notice and that it was rescheduling or canceling existing loads." (wsj)
They had that weird moment where they fired/rescinded a bunch of new hires after Peterson came back and basically said "oh yeah we weren't supposed to be hiring."
I've worked at 1k employee-sized companies. The CEOs definitely know what's happening, who shits on who, who's hired/fired, what each project is going through at a glance, etc. So I would attribute this 100% to either lying, incompetence and/or "faking" by trying to emulate a Steve Jobs/CEO persona.
The founder left the company and brought in a new CEO from amazon. He was still on the board. Then he saw they were hiring and complained on twitter, presumably fired the new ceo and came back to rescind the offers. I think it's believable that he was chilling on the beach or something until he saw the hiring news.
>1,000 employees means a burn rate in the hundreds of millions per year just on the costs of having employees, $260m burned in a year sounds about right for a company of that size.
According to Bloomberg they had a headcount of 1500 at their peak, so assuming that USD 1000000 gets you 5 employees for a year, USD 26000000 would get you 1300 employees for a year. (That’s a lot of hand waving on my part but overall the amount of money burned doesn’t seem mysterious)
So many variables, but it's easy to spend $260M in 18 months at a decently sized company. If they have 1200 employees, that's about $12k per employee per month. So you could easily spend that much just on salary + benefits for software developers in Seattle.
I used to work for an IoT startup several years ago. We were a small team and focused on attracting big clients for big money. I realized the danger in that once I learned one of our long-standing clients had been paying us for years for a solution that wasn't in operation.
No one else thought it important to try and get developers using our product to reduce our reliance on big players and well, here we are. My last check was paid out from the CEO's personal bank account.
Certain spaces are exciting to work in because you can clearly see a need but sometimes the stars don't align for you. I hope the Convoy team (sans leadership) lands on their feet. Q4 is the worst time to find jobs.
Obviously it didn't pan out, but you could think of Convoy as an aggregator of small carriers. A big shipper doesn't want to deal with 1,000 small carriers but they can deal with Convoy, and Convoy deals with the small carriers.
Convoy could interface with large companies as though they had a large fleet of drivers and trucks. That "fleet" wouldn't require paying for benefits to employees, maintenance or fuel on the truck, and could scale up or down based on demand.
I would have guessed that the network effects of getting this kind of marketplace going would be the hard part. It makes me think that a big mistake in leadership was made.
Logistics is so crazy saturated. We have an aggregator in Cincinnati, TQL, that was started by a dispatch employee and has just blown up like crazy ever since. They are still growing.
> Logistics is so crazy saturated. We have an aggregator in Cincinnati, TQL, that was started by a dispatch employee and has just blown up like crazy ever since.
Don't these sentences tend to contradict each other? What do you mean by "saturated"?
Everyone in startup world wants to come in and "hack" 3PL until they realize 3PL is a weird, complicated thing even if it's got a bunch of legacy players on legacy software. It's more or less like this: https://xkcd.com/1831/
The logistics industry is really old, backwards at times, and lots of penny pinches.
But supply and demand for carriers and capacity is pretty dang fluid too... market forces are already REALLY at play in logistics lands.
If covid showed anything it was that while there would be hiccups if people can't get to work ... stuff still flows through the system pretty efficiently.
If you want to be a 3PL you gotta manage your relationships with your customers / give them a reason to stick with you.
It's basically the same as Uber vs taxi companies [and Uber Trucking is a similar company to Convoy]. So traditional freight broker companies have a huge number of brokers who handle issues between shippers and carriers manually (on the phone constantly) while Convoy was going to automate this. So theoretically Convoy would have lower costs (not having to pay all these brokers) while at the same time it would provide better service (for example instant computer response vs hours for a broker to get back to you). This theory didn't work out.
Good management manages the treasury so those funds are available during a wind down. If you run out of runway and the bank account is empty, with nothing to provide workers who are getting term'd, you fucked up.
(have co-owned a business where we made folks whole for pay the owner skipped out on during the failure, asset acquisition, and their onboarding with us; plan ahead and you can do the right thing, fail to plan and people will experience pain; you're not saving the business while burning through the severance allocation, you're just lying to yourself that the business isn't already dead)
OTOH, I worked for a very small company during dot-bomb that cut salaries and the principals took no pay for a bit but came out the other side--for a decent number of years. Not sure I'd have been better off had they done a "Whelp. We did our best" a few months earlier. As you get larger, decisions obviously have longer runways.
There's always risk/reward evaluations that are made when in these situations. A handful of stories are being tossed around of examples where business owners ran the business to the redline, and then somehow pulled a rabbit out of a hat. These stories ignore that the significant majority of businesses fail. As an point of principal, is it better to bet on being the unicorn rarely, or to be the leader that takes responsibility for their employees consistently?
If I’m going to work at a startup, I want to know that the founders are going to aim for the stars. If they’re going to throw in the towel like this, I’d opt out. The incentive isn’t there with guys who don’t have any balls.
What am I going to do with one more year of pay. Absolute pittance. People who are going to do this should be upfront that they are ball-less.
> Good management manages the treasury so those funds are available during a wind down
Given Convoy's margins and operational leverage, I'm not sure it was this simple. Legacy freight brokers who have been doing this a long time are being caught surprised. They may have thought they had months of runway that rapidly collapsed to weeks.
We need stronger unemployment benefits. Barring a public solution, severance ensconced in employment contracts is next best. Convoy had nine figures of debt. Depending on the covenants, it may not have been able to hadn't over cash at windows to employees in the form of a novel severance package.
> Legacy freight brokers who have been doing this a long time are being caught surprised. They may have thought they had months of runway that rapidly collapsed to weeks.
There's at least one major US freight forwarder who has been in business for over 40 years and who has never done a layoff, not in 2008, not in COVID, and not now. They're not perfect and have other flaws (like every other company everywhere), but still.
If you run a company and you’re running out of money and you owe any secured creditors any money, and as the last act of the company, you pay all your employees a bonus so they can buy health insurance, you’ll find that in bankruptcy this might become a preferential transfer or a fraudulent transfer which will be clawed back by the creditors with priority.
Except in very rare circumstances, management team knows this is going to happen well before passing the threshold where this isn't possible.
So it's a (common) choice. They are balancing the +/- against other uses of the last bits of cash. To some degree they do it because the employee pool accepts and expects it, no better reason. If the representational damage was more acute, they might choose someone else to disappoint.
The more common problem is a "hail mary" play, where the management team is perhaps fooling themselves about the probability of success.
I think the ethical thing to do there is discuss it with employees, but that's just me.
If things are so dire today that they have no money and must shutdown immediately, they were dead in the water 6-8 weeks ago anyways. The company isn’t going to be miraculously saved during that time, so just take the cash you used to pay your employees to rearrange chairs on the sinking ship, call it 2 months early, and pay out their severance/health care during that time while they look for new jobs.
The company can certainly be saved in a period of months. FedEx supposedly had less than a week of jet fuel opex remaining when the founder decided to try to win the missing money by gambling.
"It worked once" is a very results oriented approach.
If you look only at people who won the lottery, you'd have to be an idiot not to spend all your money on lottery tickets. How many times has someone done this and lost all their money, screwed over thousands of people, and never been heard of again? We don't know, because they aren't famous, but my suspicion is it's a much more common outcome.
Oh, let's not pat Fred Smith on the back for his grit and determination here.
FedEx was already shafting their pilots for months before this. Bounced paychecks, pilots paying for jet fuel on personal credit cards, and more.
If I was a pilot there, I'd have said "Fuck you, Fred", even though he won. How sociopathic do you have to be to gamble company money (sorry, isn't that a felony?) while bouncing paychecks?
And yet you'll still have people here applauding your hustler mentality, apparently.
> FedEx was already shafting their pilots for months before this. Bounced paychecks, pilots paying for jet fuel on personal credit cards, and more.
This is bad.
> How sociopathic do you have to be to gamble company money (sorry, isn't that a felony?) while bouncing paychecks?
It sounds like he was about to bounce a lot more paychecks. Going all or nothing instead isn't something I would call sociopathic. What makes you call it that?
Normally "gambling company money" implies embezzlement, which is not what happened here.
> Normally "gambling company money" implies embezzlement, which is not what happened here.
Huh, what?
"In one instance, after a crucial business loan was denied, he took the company's last $5,000 to Las Vegas and won $27,000 gambling on blackjack to cover the company's $24,000 fuel bill."
"Embezzlement is the fraudulent taking of property by someone to whom it was entrusted, usually involving theft from a business or employer."
I mean I suppose you could try to make some argument that it was an officially sanctioned company act, but that's definitely some post facto rationalization.
"’The meeting with the General Dynamics board was a bust and I knew we needed money for Monday, so I took a plane to Las Vegas and won $27,000.’ I said, ‘You mean you took our last $5,000-- how could you do that?’ He shrugged his shoulders"
Sounds both unsanctioned and sociopathic to me.
And not Fred's first or last brush with financial malfeasance, indicted for forgery over a $2 million loan from his family's trust fund.
I'm inclined to think 'selfish' much more than 'plucky startup founder'.
Embezzlement as in, you bet the money and if it succeeds you pocket the excess. Or that you already stole money and you're desperately gambling company money to make it back and hide the theft.
This is not embezzlement. It's reckless, not theft.
> Sounds both unsanctioned and sociopathic to me.
Very unsanctioned, but I don't see how you get sociopathic from that quote.
Please explain what's sociopathic about it like I'm stupid.
The lack of funding is already there. This act shifts the odds but doesn't really make them worse. And if the company doesn't run out of money that seems like a good thing.
The first quote I saw here was that payroll was going to fail if he didn't do this. I don't think a guarantee of only paying half the employees is better than a 50% chance of paying everyone or paying no one, for example.
If this wasn't affecting payroll then sociopathy is even less of a worry.
Only if this was going to risk payroll with no benefit to payroll do I see a serious moral issue.
He took company funds and gambled them. That he won and was able to replace them is immaterial. Martin Shkreli was convicted for misusing company funds even though he made his investors money. It's not "not theft" because you can or do put the money back.
I can't understand how you can't see that.
That $5,000 ($40,000 in today's money) might not have gone very far, but you are very eager to whitewash it because he ended up winning on his gamble, and FedEx has gone on to success. He easily could have lost that bet, and that money could have reimbursed credit card bills for his employees. How that isn't reckless and malfeasance, I don't understand. "We're screwed. I can use the last of this money to try to do something right, or fuck it, I'm going to Vegas!" isn't leadership.
Okay, I don't want to argue about the exact semantics of the word theft and what kinds of "misuse of funds" it includes. Nothing went in his pocket; it wasn't embezzlement.
And Shkreli was moving money between companies and lying to investors, neither of which is relevant here.
More importantly, none of that explains what is sociopathic here.
> He easily could have lost that bet, and that money could have reimbursed credit card bills for his employees.
But would it have been used that way? Or would it have kept propping the company up for a bit longer until total collapse?
> How that isn't reckless and malfeasance, I don't understand. "We're screwed. I can use the last of this money to try to do something right, or fuck it, I'm going to Vegas!" isn't leadership.
I never said it wasn't reckless. But he got the business out of being screwed. If he failed, the business would have gone from screwed to... also screwed. What "do something right" do you have in mind that was so important it becomes sociopathic if he doesn't do it? And it has to be something that would have happened if he didn't gamble, but wouldn't have happened if he lost.
In other words, if your claim is right then there has to be a big human-impacting difference between the "he does nothing" outcome and the "he loses the gamble" outcome. And I'm not really seeing that difference. If both scenarios involve total shutdown and the only difference is a few days, that ain't it.
> I don't want to argue about the exact semantics of the word theft and what kinds of "misuse of funds" it includes. Nothing went in his pocket; it wasn't embezzlement.
See, the law very much disagrees with you here. It went into his pocket, and from there on a card table at Vegas. The moment he had decided to use company money like this, it was taken from its rightful owner.
But the money stayed owned by the company the entire time. He bet it on behalf of the company.
Companies are allowed to make bets on things. And he was high up enough to be able to make that decision.
It went in his pocket, but it would have gone in his pocket if he was going to the office supply store too. That's not an issue.
But none of this explains why it's sociopathic. Most crimes don't rise to that bar. For example, embezzling money from a company that's already guaranteed to collapse and unable to make payroll is generally not sociopathic. Especially if it's some kind of technical embezzlement where you have no personal gain whatsoever.
Then they should have started easing off spending "6-8 weeks ago" if not sooner. Cancel contracts, stop dev projects, get rid of non essential personel, sell off unused assets, maybe even start laying off people, etc.
Perhaps conscript some doctors and pharmaceutical manufacturers under penalty of fine or imprisonment. Don’t let them go until they provide the health care we each and all deserve.
Are you suggesting they would also not pay out the final payroll, because of course they would never shut down unless they had literally used their last dollar?
What makes you think the executives are making anything from this? It's a startup, it ran out of money, it failed, there is nothing left. Joining a startup is risky.
Companies would only do that if required by law because otherwise it’s a huge advantage for your competitor that’s not doing that.
So yeah, if one thinks this is wrong, they need to take it up with their lawmakers. This is not something private companies can change on their own, otherwise all the well behaved companies would be much more likely to go out of business and only the poorly behaved ones would remain.
Can we stop calling companies with 1,500+ employees and millions in revenue "startups". At what point does the shine wear off and they just become medium-sized companies like any other?
By definition, a startup is any newly established company. We can argue over how much time defines what is newly established, but can't argue that the size, revenue, or money raised define what is new.
The definition of a startup is a company that is still searching for a viable business model / target customers / distribution channel. The size, age, amount raised or even revenue doesn't matter. Only that whatever revenue it has, it is sustainable, and customer acquisition is repeatable.
>It's a startup, it ran out of money, it failed, there is nothing left
It may not be that clear cut ...
From the article: The startup, valued by investors last year at $3.8 billion, had already whittled its staff down to about 500 people from a peak of 1,500, and was on track to run out of money in a matter of weeks
I don't see where you're seeing execs making any money off of Convoy in that quote.
If there are any outstanding debt obligations (which I expect there are), then those would be senior to voluntary severance even if the company hadn't spent its literal last dollar.
Shutting down 3 months earlier, but everyone getting severance is an option. Let's not pretend it had to happen this way because it's a startup. They made the decision, if true, to use up every cent clinging on trying to find an exit or more runway.
The very nature of a startup, especially one funded like this, means that your whole existence is predicated on the hopes that you make it big.
As such, spending your last cent to try to find a lifeline makes far more sense than calling it quits early. It's also certainly not in the interests of investors to just call things off.
> The very nature of a startup, especially one funded like this, means that your whole existence is predicated on the hopes that you make it big.
Convoy knows their situation very well, and it hasn't changed for 6 months.
As investors and founders you can make the call and be responsible to your employees, maintaining a good reputation for yourself (as founders), and enabling future deal flow (as investors) or this situation where they get 0 help transitioning.
This wasn't an early stage company. They're a late stage (series D iirc?) company that was valued at 1 billion+ with 5000 employees. It's not fair to characterize this with the same risk profile as an early stage co., and the expectations here should be higher in terms of severance and help.
As an employee you also know what situation you’re in, they already downsized from 1500 to 500. That in itself should be warning enough that you’re working at a very risky company.
>It's also certainly not in the interests of investors to just call things off.
And of course, we should prioritize a class of people who BY DEFINITION have significantly more resources available to keep themselves alive and safe and happy over the well being of 500 normal people.
I don't know about Convoy specifically but generally speaking it's not even certain a CEO is getting a paycheck at all, even when the company is still solvent. Some take all their compensation as stock, especially while it's early days and risk is high.
If it's not certain they are getting paid even while things are still working, how can you say he is getting paid after running out of money? Unless you mean "paid with worthless stock" in which case I would say "you can't fund severance and health care with worthless stock."
Seed and early days perhaps, but when you're taking hundreds of millions in funding, let's not act like CEOs are saying "Oh, I don't need to be paid, it's fine".
What makes you think the executives are making anything from this? It's a startup, it ran out of money, it failed, there is nothing left. Joining a startup is risky.
Because the executives (almost) always make sure that they are compensated before the fall.
Not when a company shuts down like this. If they did, the investors would claw it all back through the courts. The founders and executives walk away from this with $0.
How many people are leading a 1500-headcount company on a zero salary? Even Steve Jobs couldn't do it without backdating options to make himself Rockefeller while acting like Gandhi.
How much are the executives making from a shutdown? They're probably losing all the value of their options. If they're founders they're losing everything they didn't sell in secondary which means they're taking the biggest hit to their net worth.
Any insights on how effective the CEO and the executives were? I'm very curious how successful executives from big companies like Amazon function in a startup.
COBRA isn't employer-paid healthcare, its an ex-employee option to pay for the previously-employer-offered plan, while the employer offers a plan to current employees.
If there are no more company operations and no current employees, there is also no plan and no COBRA.
This could also be an issue if a company restructured so it didn't have to offer employees health care because of size or everyone being part time or whatever: COBRA doesn't guarantee that there is a plan from your former employer, it just gives you a right to pay for it yourself if there is, for a certain period of time.
Cobra is such a huge slap in the face too for most people. We know you just lost your income as of today, but do you wanna buy this health insurance plan for 3K a month?
You can often use it to game insurance between jobs though. You have like 60 or 90 days to decline coverage, and it backdates to the day you lost coverage.
So 46 days of gap between job 1 and job 2? Don't get cobra, just tough it out. If medical bills are >= 3k, then go ahead and sign up for cobra and get a chunk covered.
The COBRA option is pretty nice to have available as gap coverage if you need it even if it is pretty expensive at the family level. (Of course, personally paid 100% medical insurance in the US in general is expensive--especially at the family level.) COBRA at least means you don't potentially have to switch medical providers because of a short-term switch in insurance.
It's not mandatory and its capped at 2%, not 5%, but, yes, there is a potential additional charge beyond just the full cost (what would be the employer + employee share, for a current employee) of coverage.
If my understanding is correct, the idea behind cobra is to use it just-in-time for healthcare operations that are more expensive than the monthly premium, ie a $25k surgery + $15k hospital stay
That's a hack that is often described on HN, but the point of COBRA is, as the name suggests, continuity (originally, in part because pre-ACA an issurance gap itself had adverse consequences to future insurability, and acquiring private-market insurance isn’t typically instant, but also because people often have ongoing medical needs where a discontinuity in coverage could disrupt service, )
Yes—something people today might not know is that before the ACA, you could be denied insurance coverage for "pre-existing conditions," which in practice meant anything medically recorded before you were insured. Changing insurers (because you changed jobs) didn't reset this period, but having a gap over a certain length did—I believe it was 60 days. So it was very important to make sure you maintained coverage, or else your ongoing cancer/arteriosclerosis/diabetes/etc. treatment was suddenly 100% out of pocket.
Also, COBRA and medical insurance in general used to be a much smaller fraction of middle-class take home pay, so it was a lot more realistic to elect to pay it out of savings even if you weren't concerned about all the above.
You know, it's rather impressive the lengths the US will goto to avoid socialized/single-payer health plans (for anyone who isn't in the military or poor or over 65 at least). That sounds rather cockamamy to me.
The US has not one but two of the largest single payer health insurance programs in the world.
Medicare alone has more people enrolled than any European country's single payer programs other than Germany (pop 83,294,633) and the UK (pop 67,736,802).
> The US has not one but two of the largest single payer health insurance programs in the world.
Neither Medicare as a whole nor Medicaid is single-payer. (Individual state Medicaid plans may be single payer plans, but very often they aren't, either.)
Traditional Medicare is single-payer, but the majority (as of this year) of Medicare beneficiaries use partially-subsidized private insurance (Medicare Advantage) plans, not traditional Medicare.
I don't think having discrete programs for subsets of the population is single-payer. Single-payer to my understanding means that the health system itself has a single payer. Having the government pay for some patients and a myriad of insurance plans covering the bulk of other patients is not single payer.
As they said, it is bizarre the lengths the US will go to to maintain its layered system. It seems purpose built to screw people over.
I think it would likely be called a non-universal multiple single-payer system if you want to get pedantic about things, but either way given that Americans spend more on healthcare in relative terms while lagging in most health measures makes it all seem very foolish.
We do not have universal single-payer but we have a few very large government-run single-payer systems.
If you have an example of a country with a single program that has more effective outcomes for a population of similar makeup and size, that would be a useful comparison.
A significant administrative cost benefit to single payer is not having to identify the correct payer, do coordination of benefits, etc.
With multiple “single-payer” systems in the same population (often serving overlapping populations with each other and private health insurance) you've negated that benefit.
You’ve also negated the market power advantage of monopsony purchasing by having multiple of them, and again having them coexist with private health insurance.
(And that's even before considering that while Medicare and some state Medicaid plans have single payer components, Medicare is not a single-payer plan covering the listed number of beneficiaries, but instead just under half are in the single-payer traditional Medicare, and that Medicaid isn't a single payer plan, or even a plan, at all, its a funding mechanism for state-operated plans, each of which may or may not operate entirely as a state-level single-payer plan.)
> With multiple “single-payer” systems in the same population (often serving overlapping populations with each other and private health insurance) you've negated that benefit.
Turkey's system used to have that exact flaw (three single-payers, to be precise) until 2008. All merged thereafter.
I don't think military medical coverage really counts as single payer; it's an in-house employer plan, it's just that the employer is the federal government. Just because the federal government is paying for it, doesn't make it single payer.
Re: medicare, I think a reasonable way towards universal single payer (or whatever you call medicare advantage plans, as a sibling notes) would be to drop the eligibility age over many years, and eventually get full coverage; and at the same time, add all kids to medicaid. Ex: years 1-10, reduce medicare eligibity age by 1, have medicaid cover kids less than year number; after ten years, medicare covers you at 55, medicaid covers kids less than 10. Years 11-20, reduce medicare eligibity age by 2, still increase kids by one year per year; after twenty years, medicare covers you at 35, and medicaid covers until 18. Years 21-28?, add medicare one year from both ends, and I think at year 28, everyone is covered. Congress should adjust the rollout schedule regularly, as scaling problems emerge, or don't; if after a couple years it becomes obvious that it's too slow or too fast, it can be adjusted; it'd also work, but be more complicated, to do it on a % basis --- once a year, determine what age (years + months even?) would result in a 1% enrollment increase, and do that, you'll finish before 100 years, but I'm not doing the math to figure out how much sooner.
Not only this, COBRA may end up costing you up to 102% of the total premiums. Yes you read that right. Employers can add a 2% fee because they are helping you with COBRA administration (if they do). COBRA is garbage and in general, healthcare dependent on EMployers is garbage but this is unfortunately how America works.
> COBRA doesn't guarantee that there is a plan from your former employer, it just gives you a right to pay for it yourself if there is, for a certain period of time.
When a business close, if there is no money to pay the insurance company, the plan will be terminated by the insurance company, and correct, there will be no COBRA. Bad situation.
Only if there still is a group health plan to pay for. If the company has shut down, there is no health plan, and therefore no COBRA. (Although, in general, with ACA, marketplace plans are not clearly worse than COBRA would have been.)
Classy. Learning a lot about how certain people treat their employees during these last couple of admittedly insane years. Good for future reference, I guess - though not much solace now. I feel for the employees.
Edit: Wow, more responses than I thought! I admit that the tone of my comment was too reactionary, but my opinion stands. I won't modify the original comment but instead will add this quote from Dalton Caldwell, YC Partner:
"So what happens if you have less than three months of cash? It's important to face the issue head on and account for your liabilities and the scenario of shutting down your company.
In many cases, <2 months is the point of no return. If you are in this state it is immediately necessary to lay off your employees and give them severance, pay down your obligations, and use your remaining cash for shutdown costs. If you don't do this and instead end up with zero cash and outstanding payroll, tax or other obligations, things will get Very Bad." [1]
Convoy raised $1.1b including a $260mm Series E almost exactly a year ago.
If things are dire enough to close up shop now, they probably were dire enough to close up shop 2 months ago, and you can use the cash to give your employees some runway for finding new employment.
>If things are dire enough to close up shop now, they probably were dire enough to close up shop 2 months ago, and you can use the cash to give your employees some runway for finding new employment.
This might be true, but personally I'd rather the company try to remain a going concern.
Not just alerting, but offering severance. No one at Convoy was offered severance - now or in the past month. I edited my earlier comment to reflect my meaning.
Separate questions. You said the company knew it was "doomed in a month or 2 and [did] not [alert] employees." I've seen them messaging pain since their multiple rounds of layoffs last year and this [1], as well as in August [2]. Moreover, I haven't seen claims of employees being blindsided (as Yellow drivers were).
In the limit this means go insolvent/bankrupt and not pay out to creditors such as lease, caterers, cloud services. Finish with unpaid taxes and wages.
I'd always rather see employees get payouts on shutdown compared to companies, especially things like billion/trillion-dollar cloud companies and commercial real estate.
That being said if you're burning $30M+ every month in the current financial market I really hope you cancelled all your catering contracts a long time ago.
Depends: food can dupe people into working extra hours for free.
They think they are having a lunch break as they talk shop while chewing on their ciabatta.
Of course they will. What is the magic that separates success from failure that apparently only magically appears within the last 4 weeks with operating capital in the bank? Move your time tables up by 4-8 weeks, including funding raises and closing operations, and none of this is an issue.
According to what’s been said, they were chasing opportunities that they thought would finalize within that timeframe. 4-6 weeks ago they had good leads for closing a deal in 4-6 weeks. None of those happened to pan out this time, but every startup has been at a point like this where runway is coming up short. This is normal and expected operating conditions.
No, when you are in the fog of war/fundraising, it can be very difficult to decide between 100% let everyone go, verse some other percent where everyone keeps their jobs. Very much depends on the circumstances.
If no one was picking up their calls and it was obvious, then sure.
Not much is really that clear though.
In my tiny case a while back, I wiped my liquid savings to get me employees some time. Can't do that with over a thousand employees though!
> What is the magic that separates success from failure that apparently only magically appears within the last 4 weeks with operating capital in the bank?
I've heard it said that every boss of a failed company will tell you that they almost got a last minute investment, or almost made a big sale, or almost got acquired, if they'd only had an extra week or two it'd have all been different.
Of course that could be wishful thinking - or a sign that in the final days they were offering fire sale prices.
If you can still operate the business for another 8 weeks, there's a chance that things will still work out, and it's pretty pessimistic to preemptively shut it down because you assume you're going to fail. Pessimists don't generally find themselves in the role of founder/CEO of a startup in the first place.
Actually good founders and CEOs do tend to be realists. They know when to hold and when to fold, and they place a high value the well being of the people especially when things go poorly.
Manic founders who insist that a rescue will come right up until the last second often leave people feeling burned and don't get as many second chances when things don't go well.
> there's a chance that things will still work out,
There is a big difference between a less than 1% chance and an 80% chance here. Part of the job is knowing that difference, and how to handle/communicate it.
What about 2 months before that? 2 months earlier still? Another 6? They raised $260M a year ago and it sounds like an extraordinarily capital-intensive business.
It's pretty easy to say "oh you should have done this differently" with almost zero actual knowledge of the situation or experience.
Tesla wouldn't exist if Elon had shut down at the 2 month dire point. At least, I recall him saying they were at one point about 2 days away from bankruptcy.
Not surprising though, that Elon would be in the same camp as this Convoy CEO, not likely to shed too many tears over worker concerns.
> At least, I recall him saying they were at one point about 2 days away from bankruptcy.
Elon has said several variations of this have happened on several occasions.
And yet this fragility never really made it into IR reports or SEC filings or annual reports.
So either he exaggerates (shocking concept from a man whose company has on multiple occasions had to follow him around and say "his claims of Tesla doing X, or doing it by Y date, are visionary, and not statements of fact"), or there's some hinky accounting going on.
I know of two companies with >$1B exits that were running on fumes when they turned it around. One had 3 days of runway remaining; one had 16 hours to get a wire in to make payroll. Today these companies employ thousands.
FedEx famously (allegedly) came down to a hand of blackjack in Vegas to make payroll & avoid bankruptcy.
I don't dispute that they were close to running out of money, but what does "2 days" even mean in that context? It probably means that soon they would have needed to decide when to start the bankrucpty procedues or something.
He said that before he said he had "funding secured" to sell the company at $420/share and after he laid out the planned 35 minute Hyperloop from LA to San Francisco, right?
(I'm just trying to nail down the timeline of full truths/no cap from Elon.)
No a company cannot begin winding up without reaching an agreement with its creditors - the winding up process is a de-facto admission of insolvency and the company needs to declare bankruptcy and the creditors get first dibs on the assets.
It’s nothing like a layoff. For example, imagine that you are a supplier to company A and now your contract is both unpaid and cancelled and you’re going to have to lay off some of your own staff. Do you recover the contract money from company A, to give your staff severance? Or can company A stiff you and use it to give their own staff severance? (No, they can’t.)
It is interesting to see that employees of Convoy aren't saying bad things about the CEO. But people on the outside who don't know the CEO are saying bad things.
>It is interesting to see that employees of Convoy aren't saying bad things about the CEO
A whole two people who claim to be ex-convoy employees have chimed in from what I have seen. Hardly representative of what the average ex-employee thinks. Certainly not enough to form a conclusion either way.
Is it your serious contention that because insufficient numbers of (now ex-) employees of this company haven't posted on Hacker News within three hours of learning about their unemployment, that it's a non-issue?
To be clear, it actually isn't a recognized psychological phenomenon as you can see at your own link. It was invented by a police psychiatrist who did a bad job being a hostage negotiator and came up with it to explain why the hostages were mad at him.
I've been part of several failed startups ... they ALL provided severance during shutdown. Where is the "obviously" coming from here? You only can't pay severance if you are shutting down because you "ran out the clock" on a clearly failing venture and deliberately screwed your employees.
I've only worked at one company that shut down, and we were notified a month in advance, giving us all time to find a new job while still getting a paycheck and healthcare.
If the CEO wanted to continue operations for another month to allow folks to find new work, they could have.
To be clear, in Australia, this would not be trading whilst insolvent. If the director was not negligent, and they had a legitimate reason to believe they would be able to pay their debt when it fell due, whether via new revenue, new debt or restructure of existing debt, then it wasn't trading whilst insolvent.
The directors had reduced expenses, had been seeking further investment, to increase revenue, and finally to sell the assets of the business, before voluntarily ceasing to trade. They executed their power and duties in good faith, with the care and diligence a reasonable person in their situation would have. It's not a crime to have a business fail.
> if a company is shutting down, it obviously can't provide severance
Not really true. The company is owned by its shareholders, and they may choose to use funds belonging to the company (after paying outstanding obligations) to pay severance, or they may divide the funds among themselves. If there are no funds, they can choose to invest more to pay severance. Obviously they're unlikely to want to do that, but it's not a case of "can't" but rather "won't".
> they may choose to use funds belonging to the company (after paying outstanding obligations) to pay severance
If they can do this, they can pay salaries another month. Making a go/no go call at the edge is difficult. It sounds like Convoy thought it was getting a loan that didn’t come through.
Put another way: if the CEO shut down the company while loan negotiations were in place, it would have zeroed out the common stock while giving preferred investors a pay-out (in addition to everyone some severance).
> If they can do this, they can pay salaries another month
If leadership decides to use the remaining funds on salaries rather than severance - then they should be judged on that! What good is buying one extra month for a doomed company? That month is more valuable to individual employees who can use it to look for new jobs
> What good is buying one extra month for a doomed company?
You don't know it's doomed. Plenty of companies have turned around while running on fumes. This is fundamental to start-ups.
> month is more valuable to individual employees who can use it to look for new jobs
Everyone who lost their jobs at Convoy is eligible for unemployment. The same unemployment most workers get when they're fired. Perhaps the discussion should be around improving this benefit for everyone?
It's swell when people gamble with employees well-being on the miniscule odds of a miracle. And even better idea is to offer severance, and those employees with the same appetite for risk can get additional options from the folks who leave. That'd be a win/win, except for the leadership who would rather gamble using other peoples chips but keep most of the winnings.
> Everyone who lost their jobs at Convoy is eligible for unemployment
Unemployment benefits don't come anywhere close to tech salaries! They take time to process.
> Perhaps the discussion should be around improving this benefit for everyone?
We can multitask. What is in my power to control is to avoid working with anyone associated with this decision and encourage everyone else to do the same - board-members and the entire C-Suite. We have a - let's call it poor culture fit
> It's swell when people gamble with employees well-being on the miniscule odds of a miracle
You don't know the odds ex ante! Again, they would have been roundly criticized if they'd prioritized severance (which means more for the highly paid) and preferred stockholders over their rank-and-file common holders.
> Unemployment benefits don't come anywhere close to tech salaries! They take time to process
You're arguing for special treatment of well-paid tech workers over e.g. truck drivers [1].
> What is in my power to control is to avoid working with anyone associated with this decision and encourage everyone else to do the same
The solution is to not work for a start-up. That, or gain empathy for the tens of millions of Americans who work for a restaurant or with variable hours or on contracts that provide them with zero heads up when business conditions change or their employer goes under.
So tired of companies that raise hundreds of millions from some of the wealthiest and most powerful people in the world trying to pull the “we’re a startup” card. You’re not two dudes eating ramen in a garage and you don’t get to use that image to excuse your shitty behavior.
Also tired of the “other people in poverty are exploited even worse! You asking for basic labor protections shows your lack of empathy for them!”
I’m seriously having a hard time imagining any of this was written in good faith.
The real solution is, and always will be, collective bargaining. These VCs aren’t going to make sure you have healthcare. They could give it to you directly, or they could use their wealth and power to make sure the government gives it to you.
People ask “what can a union do? My office already has free kombucha”. Imagine if all the SWEs at all these VCs backed companies went on strike unless the laid off Convoy employees got six months of healthcare (it would have been in the initial employment contract). The money for this stuff would magically materialize. It doesn’t materialize because there’s no organization to advocate for it, it’s that simple.
> tired of companies that raise hundreds of millions from some of the wealthiest and most powerful people in the world trying to pull the “we’re a startup” card
But they are one! If those wealthy people were getting perks in this failure, the way e.g. workers at Good got screwed, I'd agree with you. But if you're running with massive fixed costs and volatile revenue, knowing whether you're weeks or months from shutdown is difficult.
And again, people are assuming if he shut down six months ago everyone could have gotten severance. Convoy is $100+ million in debt. Wages are privileged; new severance obligations are not.
> real solution is, and always will be, collective bargaining
The closer solution is civic participation. How many people in Silicon Valley have written to their state elected to raise unemployment benefits? (Note: I'm not saying anyone deserves what's happening. But union participation in America is stubborn and dropping. We need another drum to beat.)
tech is fundamentally incompatible with unions for several reasons:
1. it will drive down the wages and give power to just another bureacracy
2. Union participation does not differentiate between highly skilled (and sought after) tech worker, from mediocre tech worker who gets by using copilot and chatgpt
3. I dont need union to negotiate with company on my behalf - I can negotiate by myself just fine
4. If startup goes bust - I can easily find a job at another startup, probably will even get a pay raise - just because my skills are highly sought after and in demand. There is literally zero upside for me that union can do
5. I dont want to share my specialist employee's power with faceless union burearacy
I know what it means to be a union worker - and trust me, it will never gonna work in software engineering
1. Hollywood unions disprove this
2. Hollywood unions (SAG, DGA) disprove this
3. Unions don't mean you can no longer negotiate. DiCaprio still does
4. One upside: Unions represent members who are no longer able to work
5. Hollywood unions have some pretty specialized folk and it works well for them
As an individual - you only bargaining chip is your ability to do work. If you lose capacity to work - temporarily or otherwise - you lose the ability to negotiate. Unions don't suffer from that weakness.
The things you can negotiate for are capped at the value of your work. You can't forbid your employer from replacing you/your teammates with AI foe instance, but unions can, because the collective value of their output is beyond what the employers may gain from ML models. Not so on the individual level.
You skipped the downsides of hollywood unionization:
Cost of hiring increases and there are fewer gigs around. Unionisation adds nontrivial transaction costs, so there will be fewer opportunities for new entrants, and fierce competition among existing workers for shrinking number of gigs.
For example look at how women actors get their cast roles with harvey weinstein studio - did union protect them from sexual predators?
Look at average unionized actor - very few are making big bucks, most are just surviving and have other day jobs.
UAW workers are still at the mercy of their employers, and are only dragging their companies down, while non-unionized automakers are taking over market share.
I am totally fine that my bargaining chip is my ability to work - it is the only austainable way. Otherwise there will be a lot of useless dead weights who dont contribute to the topline, and leech off of bottomline. (There is already unemployment for this use case).
Look at NYC MTA - all unionized and completely inefficient, unionisation can only work in monopoly situation.
Tech in the other hand is high growth particularly because all monopolies are being attacked by more flexible and lean startups.
Hollywood is not growing at all, while big tech is carrying the whole world
you are looking at the wrong stuff, box office revenues go to Motion Picture companies and Hollywood fat cats like harvey weinstein.
just look at labor data: it is not pretty. $28/hr mean pay in Hollywood! Much less in other areas.
There is a reason why successful actors prefer to become producers/directors: because it pays better to be your own boss, rather than be at a mercy of union. and you don't have to engage in high end prostituion and literally sell your ass to people like Weinstein and Epstein, just to get a role at a high profile movie.
SAG really is a gold-standard union. Critically, it has a monopoly to multiple buyers of its talent. (Sort of like the UAW.) Single-employer unions are more constrained.
You're taking a remarkably short sighted position here. Blacksmiths and cobblers were once highly in demand workers as well. Do you really think writing code is such a special beautiful skill that it's immune to the same forces of automation?
Software development is a trade skill, like any other. We're in a very brief window of time where it's a very lucrative skill to have. Don't expect that to last forever. When that stops being the case you'll want something between you and the harder facts of life that you might have had the privilege of ignoring for a while. There's a reason people bled and died to make these organizations. The moment it's possible the capital class will grind you into a fine paste and sell you in tubes to make a few extra percent on the quarterly financials.
> You're taking a remarkably short sighted position here. Blacksmiths and cobblers were once highly in demand workers as well. Do you really think writing code is such a special beautiful skill that it's immune to the same forces of automation?
No, but that's not required for the argument. Do you think any amount of unionisation would have forced society to keep lots of well paid blacksmiths and cobblers around?
(And if the answer to that is Yes, isn't that an argument against tolerating unions?)
I am not at the mercy of my employer or capitalist class for that matter.
And I will be the first one to automate my job and reap the benefits of automation myself.
This is the way of life - if you cannot adapt - those more flexible, more adaptable, smarter, younger, hungrier - will eat your lunch.
There is no way any tech union can enforce monopoly, because there will always be new entrants ( ew grads) and offshore workers and immigrants willing to take the job, if union workers decide to strike.
In fact, I will be the first one to create outsourcing and offshoring consulting company to help companies fight unionisation.
This is the way of capitalism, the way of life. Smarter, faster, nimbler will get larger piece of the pie.
If union is willing to get $xxx mln in labor costs from a company, I will happily help this company fight unionisation for a fraction of that - to drive unions out of business while pocketing the profits by myself
I hate to break it to you but if your job is automatable it won't be you reaping the benefits, it will be the people who have the most capital to deploy automating. That ain't you buddy, sorry. Your world view is basically peak HN techbro-iterianisim. I hope you never get the opportunity to experience exactly how wrong you are.
it shows that you have zero experience in automation, because no high value job is fully automatable.
Human augmented+automation will always be more superior/flexible/valuable and large corporations with a lot of capital will never be able to be as flexible and nimble for all customers and all their use cases, as a small player like myself can be
> it shows that you have zero experience in automation, because no high value job is fully automatable.
That's sort-of a tautology. What used to be a high value job can become a lower value job with some automation, and then be automated completely later.
Up to about a hundred years ago, many reasonably well-off people in the US and Europe used to have domestic servants. Those jobs could go to fairly high levels of skills and value. Nimbleness was rewarded. (But to be fair, they also could go down to pretty menial labour.)
Nowadays even really well-off people barely have any domestic servants. Instead they have dishwashers and vacuum cleaners and order their food delivered to their doorstep, and perhaps hire a part time cleaner for a few hours a week.
When stakes are high you are not going to ask a robot. When you have serious health condition or legal problem - you will find youself the best doctor/lawyer and seek their counsel.
Google search or chatgpt wont gonna cut it.
Same with tech - if you create a startup with big ambitions - copilot and chatgpt wont gonna cut it for your product.
and I see no mechanism for union to provide any value to tech workers. Hell, there is no even a category of tech workers: thousands of different specializations. I would never wanna be in a union with grandpas coding in COBOL for example
You sure make a lot of declarations about who is right and wrong and the poster is literally talking about their job. Is it possible you want unions in software so badly that you’re blind to successful models that work without them?
Physicians and Lawyers have been around forever and they don’t unionize.
technically they dont unionize, but they have cartel that regulates supply of specialists to the market (State Bar for lawyers and State Medical Board for doctors).
the reason why healthcare is such a mess and so expensive - is because Medical Board artificially limits supply of doctors to the market, by allowing very very few Medical Residencies perspecialty. This severely limits supply of doctors, keeps their pay high and leads to ever increasing cost of medical care for patients
Raising lots of money doesn’t mean it’s a sustainable business. I don’t think you know the colloquial definition of startup in Silicon Valley.
Raising millions doesn’t mean making millions either. If you took a bunch of investor money and just paid it all out to your employees and closed up shop that’s a misappropriation of funds.
> Imagine if all the SWEs at all these VCs backed companies went on strike unless the laid off Convoy employees got six months of healthcare
Why would they do that? I’m not going to go on strike because other employees are incapable of understanding the risks of joining an unprofitable company that is default dead. If you want 6 months of paid healthcare, quote it and demand it as a signing bonus before you start.
Startups blow up. It’s your responsibility to prepare for it. Established companies blow up too. Sometimes you even just get fired because you suck.
SWEs have zero excuse to not have saved enough money to pay for cobra for six months if things fall apart.
> Imagine if all the SWEs at all these VCs backed companies went on strike unless the laid off Convoy employees got six months of healthcare (it would have been in the initial employment contract).
Congress made secondary strikes illegal a long time ago. Maybe it would still be OK since that wouldn't technically be cross-industry; I'm not sure.
There was a time when US unions striked despite being met by a risk of people getting outright murdered. Without hyperbole, the 8 hour working day was won with blood. The question needs to be whether you think a strike is right and morally justified, and worth the potential consequences, not whether it is legal.
> In economics, a normal good is a type of a good which experiences an increase in demand due to an increase in income, unlike inferior goods, for which the opposite is observed. When there is an increase in a person's income, for example due to a wage rise, a good for which the demand rises due to the wage increase, is referred as a normal good. Conversely, the demand for normal goods declines when the income decreases, for example due to a wage decrease or layoffs.
It's entirely expected that people will want to consume more comfort and safety at their income increases.
If you compare different countries, you will find that these kinds of things track with income much more than with history of union activism.
For a striking example see https://pseudoerasmus.com/2017/10/02/ijd/ which is an article on the divergence between Japan and India. Japan has a long history of labour repression, especially compared to India. But by and large Japanese workers have a it a lot better today than workers in India, especially if you go by what's happening in reality and not just by what's promised on paper.
And that difference tracks with the difference in incomes between the two countries, but stands in stark contrast to what we would expect from your sketched theory of union activism driving these things.
"Will want to" yes. But it was not being offered until after that extensive union activism despite decades of demands. To the point that people died for it. May 1st is the international day for labour demonstrations because of the US union fight for the 8 hour day. The demand long preceded a rise in income allowing people to risk walking over it, or be able to afford to offer to take less pay for less work.
It took decades from the demand was there until it became normalised to offer it, with concession after concession won as direct and explicit outcomes of industrial action.
That good conditions are offered far more easily when a working population is in a financial position to walk if it's not offered is entirely unsurprising and irrelevant. That you can't possibly win the same level of outcomes when the financial position of employers doesn't allow it is also entirely unsurprising and irrelevant.
Nobody expects magic. Nor does anyone suggest that there aren't other factors also at play.
Given we can look back at history and see direct causal links between industrial action and subsequent improvements, there is no way to take this seriously.
I have no doubt you're right that it correlates neatly with different income levels, but I find it comical that you think that addresses the issue.
I also note that you claimed working hours as a normal good whose demand would rise with income but ignored the point that the demand far preceded the economic ability to bargain for it with money, and that the demand was not constrained by lack of money. The notion that it fits your description at all is bizarre.
EDIT: I'll also note that after having had time to skim the article you linked, it does not appear to even attempt to make an argument aligned with yours. The author very specifically points out significant confounding factors, such as whether or not unions resistance in the specific given conditions affected productivity negatively or hindered productivity improvements.
A union certainly can make a wrong tradeoff - Indian unions prioritised keeping the intensity of the work down, at the cost of reducing their then-future ability to demand higher incomes. But they were only able to have that negative effect on future wages because their activism had a substantial effect on working conditions and by extension productivity.
That their goal was short sighted does not change that if anything it is a demonstration of the substantial impact unions do have.
That there is a risk that a too successful union can end up having an adverse effect by accident is nothing new either - it's if anything one of the historical conflicts within the labour movement in terms of outlook on the approach between seeing it as about conditions at individual workplaces or tied to local concerns vs. inherently a political and society-wide and international concern.
> I also note that you claimed working hours as a normal good whose demand would rise with income [...]
No, leisure is the normal good. And so is safe food and clean air etc.
> Given we can look back at history and see direct causal links [...]
How do 'see' direct causal links? Just because people work to achieve X, and then X happens, is not a direct causal link. Eg praying for winter to be over, doesn't mean that there is a direct causal link with spring coming eventually. And fans cheering for their sports team to win, don't have much of an influence on whether their team actually wins.
Or to give an example from history: the assassination of Franz Ferdinand is often seen as the event that triggered the Great War; but few people assign it much importance as an underlying cause.
> I have no doubt you're right that it correlates neatly with different income levels, but I find it comical that you think that addresses the issue.
If income levels explain all the variation between countries, and levels of union activism are just noise, I am not sure why you need to appeal to union activism as a cause?
It's like looking at the correlation between taking antibiotics and recovery from infection, but then adding fervent prayer as a causal explanation for some reason.
The tide eventually receded from King Canute, but that's not because of anything he did.
EDIT: I mostly agree with your edit. A parasite should be careful not to kill the host.
> No, leisure is the normal good. And so is safe food and clean air etc.
You got what I meant unless you're being obtuse. The point remains that the demand preceded the financial ability to bargain for it. It was independent of income.
> How do 'see' direct causal links?
By looking at when employers offered concessions in order to end strikes etc. Now you are being obtuse. Go back and look at newspaper archives from major labour conflicts and the concessions negotiated with the union actions as the direct and immediate reason cited by employers themselves, even at times after having spent fortunes on people like Pinkerton to try to intimidate and harm workers to get them back to work first.
> If income levels explain all the variation between countries, and levels of union activism are just noise, I am not sure why you need to appeal to union activism as a cause?
I've seen no evidence that they explain all the variation. I've agreed they likely correlate with much of it. Now consider that income-differences do not just magically spring into existence either, and while there are certainly multiple factors again we have extensive examples of direct cause and effect in terms of negotiation and subsequent agreements.
> A parasite should be careful not to kill the host.
When you describe workers as parasites, that is utterly vile and explains a lot. And so we are done here.
Unions are bureaucracies and have an organisational life of their own. You can't just equate them with workers. (In addition, there are also non-unionised workers.)
> but ignored the point that the demand far preceded the economic ability to bargain for it with money, and that the demand was not constrained by lack of money
You don’t know what demand means in an economic context here. Ops point is that as wages increase, people aren’t going to accept 70 hour workweeks if they can get by on 40.
> Given we can look back at history and see direct causal links between industrial action and subsequent improvements, there is no way to take this seriously.
Feel free to point them out and show how unions were required in every country to get the same thing. Things happening around the same time does not imply causation.
Union members were likely emboldened as pay increased because they could ride out strikes. At the same time, people could just get by on fewer shifts because pay increased. This creates downward pressure on required weekly hours (because many people to value their time), regardless of the union activities.
“The 8 hour work day was paid for in blood” is a great signal that you’re already very pro union (it’s literally union propaganda), so I don’t expect your view to shift much here. But consider that many professions flourished without unions (tech, law, banks, engineering, etc).
> You don’t know what demand means in an economic context here. Ops point is that as wages increase, people aren’t going to accept 70 hour workweeks if they can get by on 40.
Which misses the point that when these changes started being demanded and won people couldn't afford to walk away.
> Feel free to point them out and show how unions were required in every country to get the same thing.
Nice try, but that was not the claim I made, nor one I even agree with. The 8 hour working day was largely won by US unions, after which it became substantially easier to win elsewhere as the doom and gloom predicted by employers didn't materialise and reduced the perceived need to resist it.
With respect to US unions, there is plenty of material you can easily google, but you can start by looking at e.g. the 1835 Paterson textile strike, which was one of the first major ones, and which "failed" when employers only offered about half the reduction in working hours employers demanded, but it nevertheless gained them a significant reduction as a direct result of the strike.
> Union members were likely emboldened as pay increased because they could ride out strikes.
History largely shows the opposite. Workers coming to the cities facing lack of employment opportunities were relentlessly exploited, and were a major factor in the growth of labour unions.
In the US you also saw major effects of actual salary drops in some cases, e.g. the Great Railroad Strike of 1877.
Union members risked life and limb and imprisonment early on because the conditions they were working in were horrific. Unions have softened and their membership has cratered as pay then increased because if anything better paid workers are less interested in disrupting what they already have and tend to be less interested in putting effort into it.
> At the same time, people could just get by on fewer shifts because pay increased. This creates downward pressure on required weekly hours (because many people to value their time), regardless of the union activities.
This is just entirely counterfactual. Taking fewer shifts wasn't generally an option on offer, and didn't become an option until decades into the fight to lower working hours.
> (it’s literally union propaganda)
It's literally true, whether you're pro union or not.
See e.g. the Bay View Massacre, when the Wisconsin National Guard fired at strikers demanding an 8 hour working day and 7 people died as a result. It is by no means the only incidence of US government or Pinkerton agents and others firing directly at strikers.
The reason May 1st is the international day for labour demonstrations are incidentally a direct after-effect of the Chicago Haymarket Massacre, also an outcome of the eight hour working day demonstrations. I gave the Bay View Massacre because it's a simpler one - not nearly as murky. Preceding the Haymarket massacre police murdered workers the day before. During the demonstrations at Haymarket, someone - who is unknown - threw a bomb, and so while the police ended up killing multiple murders, it's unclear how to assign blame. Several union organizers were then executed without any evidence they had anything to do with the bomb.
> But consider that many professions flourished without unions (tech, law, banks, engineering, etc).
>
> They are by no means requisite for improvements.
Yes, in roles that are either highly regulated and/or high skilled so there is a reasonable balance of supply and demand people can do well, yes. Nobody has claimed no improvement can happen without them, nor that there are no groups who won't do well without them, so that is irrelevant to the claims I've made.
Im not sure I agree with your normal good characterization. It only applies to goods purchased with money - not ones purchased with time, blood, or death.
Someone with more income might exchange more money for time/comfort, if all things are held equal including the price.
I think the inverse is true when you consider exchanging things other than money for more comforts.
That is to say, people will pay more money because they have more of it the higher their income (because the marginal value of each dollar goes down)
Asking would you be willing to risk your life for more comfort, that answer changes. The higher your income/comfort/happiness, the less willing you are to risk your life for more comfort.
The less people have to work, the less they are willing to risk their lives for more free time.
Who would risk death protesting for more leisure: someone working 80, 40, 20, or 2 hours?
> . The higher your income/comfort/happiness, the less willing you are to risk your life for more comfort.
And indeed both the level of union membership and the militancy of union actions supports that. Union membership cratered in developed countries and conditions have improved, and labour conflicts have gone from being outright armed in some cases in the past to being mostly relatively tame and regulated affairs.
No, you can simply choose your cut off time for a hail-mary at 2 months of runway, rather than 0 months of runway. Leaders don't have to rundown the clock (and bank balance) to 0 - they may choose to, like they did in this instance.
> You're arguing for special treatment of well-paid tech workers over e.g. truck drivers
Again, no. I'm arguing against your suggestion that the Convoy folks without severance are going to be alright because they have unemployment. I hope none of them are on H-1B visas as they just lost all control to when their clock starts ticking.
> The solution is to not work for a start-up
This is a false dichotomy. There are plenty of startups led by people who do right by their employees; I have worked with some before of them, and I will not hesitate to work with them again in the future because I trust them not to screw me over like this.
> you simply choosing your cut off time for a hail-mary at 2 months of runway
I'm saying it isn't that simple to project runway in some businesses.
> arguing against your suggestion that the employees without severance are going to be alright because they have severance
Sorry, we agree on this. This will suck for everyone involved. If it was preventable, that's on management.
> plenty if startups led by people who do right by their employees
When push comes to shove, constraints apply. Shutting down a start-up with cash in the bank isn't something that happens without a fight. There will be lawyers, possibly lawsuits, and delays. Convoy had $100+ million in debt; the employees would have had to fight claims of wrongful conveyance.
Put another another way: the CEO paid employees another few months' salary instead of handing that cash to its lenders.
>millions of Americans who work for a restaurant or with variable hours or on contracts that provide them with zero heads up when business conditions change
wouldn't you consider your statement itself to be a giant heads up, right now? Heads up! save some money, don't spend everything you earn. And don't tell me you didn't get a heads up.
> wouldn't you consider your statement itself to be a giant heads up, right now
No, I'm saying it's fucked this is the status quo across the country. Making severance--particularly in cases of business failure--the private obligation of the employer is recapitulating employer-funded healthcare.
(That said, yes. If you work at a start-up you should maintain a cash cushion if possible. That, and check your contract's severance terms and ask for them to be proper before the company enters shitsville.)
Don’t join a fucking startup if you can’t handle it shutting down at any given moment.
If you want employment stability join a profitable company or the federal government.
> That'd be a win/win, except for the leadership who would rather gamble using other peoples chips but keep most of the winnings.
It’s a startup! You’re there to try to make the options work out as an employee as well. I would 100% rather ride to the end with any chance that it will take off.
They failed to get a loan in time, it’s not like they knew it was a fantasy that could never work out. They had a viable business and got caught in counter-party risk.
> Everyone who lost their jobs at Convoy is eligible for unemployment. The same unemployment most workers get when they're fired. Perhaps the discussion should be around improving this benefit for everyone?
I think you can take out private unemployment insurance, if you are worried about that? (Or just have savings.)
You’re calling this poor leadership, can you share a time you were in a similar situation and did something different or are you armchair quarterbacking?
We don't have enough information to know if it was reckless leadership. If the CEO had an email from a reputable lender saying we'll have funds in your bank account in two weeks, it would have been irresponsible for him to shut down the company to pay off creditors, preferred shareholders and severances.
I'm not advocating for the CEO. Just against condemning him while in the maelstrom. More fundamentally, there is a thread through this discussion which essentially holds that tech workers--we're highly paid!--should have post-termination benefits others don't.
You responded to that with even more mental gymnastics - this time a ‘reputable lender’ who will jump in with an emergency loan then run off.
Then you’ve thrown in another red herring claiming this thread argues that tech workers should have more options. Nobody said anything close. Rather, the argument is that letting your company run down to zero is irresponsible.
If the hypothetical of terms on the table for a loan is a red herring, so is the supposition that management had months of visibility into their demise.
Convoy wasn't a pure software business. It didn't operate on massive gross margins; it was operationally (and financially) levered. Decades-old trucking companies are going down unexpectedly; I'm not sure why HN's armchair executives figure they could have called this cleaner.
At least two ex-Convoy employees have posted in this thread saying they are "extremely unsurprised" that this happened, and could see it coming.
Handwaving away things like you have doesn't add value - many of us have worked at startups, and the warning signs are common and repeated. A handwaving dismissal along the lines of "plenty of companies have turned things around at the last moment, running on fumes, so it would have been irresponsible for Convoy to do anything but run it to zero!" is disingenuous, fatuous or both.
> two ex-Convoy employees have posted in this thread saying they are "extremely unsurprised" that this happened, and could see it coming
They were laying people off every few months for over a year. There is a difference, however, between a material chance of default and being completely fucked.
> it would have been irresponsible for Convoy to do anything but run it it zero!"
They should have put severance terms into their original employment contracts. Providing employees with de novo severance after you know it's going under guarantees creditor lawsuits. (Remember: Convoy was heavily indebted.) One thing worse than getting shafted like these guys would be receiving a subpoena months later clawing back severance.
If there is a non-civic action item from this, it's to put good severance terms into your employment agreements before shit hits the fan. (Counterpoint: it could accelerate your demise.)
> Providing employees with de novo severance after you know it's going under guarantees creditor lawsuits.
Citation needed. Providing executive suite with bonuses and parachutes does. Indeed, even law firms talk about this:
> Severance payments to “insiders” (generally defined under the Bankruptcy Code as officers, directors, persons in control of the business, and relatives of such individual(s)) could be subject to lawsuits to avoid or clawback the severance payments.
Fraudulent conveyance, there. No mention is made of creditors issuing lawsuits against rank and file employees.
Indeed, even for severance payments that were never in employment contracts, courts place them at/near the front of the line in bankruptcy proceedings, witness Toys R Us.
But I'd be very curious to see any cases where creditors have been able to block severance payments that are not to the C suite.
Clawback is one year for insiders, 90 days for all others [1]. We're describing something closer to simultaneity, where "the debtor enters into a severance agreement simultaneously with an employee’s termination" [2]. This is precedented for clawback, and would almost certainly be litigated given the number of employees involved.
TL; DR The moment you find the business insolvent, it belongs to your creditors. Many commenters are treating Convoy like a run-of-the-mill equity-funded start-up.
> No mention is made of creditors issuing lawsuits against rank and file employees
Most likely, the creditors would file an injunction and put the company into bankruptcy on the basis of management having essentially said that it’s insolvent.
> even for severance payments that were never in employment contracts, courts place them at/near the front of the line in bankruptcy proceedings
Closer to the middle [3]. With Toys ‘R’ Us, the creditors voluntarily provided the severance [4]. No court forced it. And it wasn’t provided by management or shareholders.
In [1], it'd be hard for a trustee to argue that making severance payments to rank and file employees is not something "made in the ordinary course of business" (which is a statutory defense against clawback).
Your reference in [2] refers to an executive, an "insider", which is exactly what I said - that there is precedent against allowing such payments to insiders (hence the one-year clawback window).
I still can't find any cases where unsecured creditors have successfully injuncted a bankrupt company from making severance payments to non-executive employees.
> With Toys ‘R’ Us, the creditors voluntarily provided the severance [4].
The creditors did no such thing. From your source, emphasis mine:
> Two of the private equity firms that used to own the defunct toy store have allocated $20 million to a severance fund that will be distributed in the coming months."
The mediators who were handling part of the bankruptcy proceedings agreed to administrate the disbursement of funds.
> it'd be hard for a trustee to argue that making severance payments to rank and file employees is not something "made in the ordinary course of business"
Typically in exchange for value and in Chapter 11, where you’re trying to preserve asset values.
> can't find any cases where unsecured creditors have successfully injuncted a bankrupt company from making severance payments
Senior unsecured. Higher priority than employee claims.
> mediators who were handling part of the bankruptcy proceedings
Mediation is voluntary. In the Toys ‘r’ Us bankruptcy, the original equity was wiped and creditors took over. They may have owned both debt and equity. But they were acting qua former creditors.
I’m not going to argue who would win. What I will say is the creditors would sue. There would be months of litigation, not a smooth transition to handing the firm’s last cash to employees. (Different picture had they never issued debt.)
The problem is you don't always know it's doomed. A company I co-founded got to within 5 days of insolvency before we secured the next $5m round. The company never got a big exit, but it did sell a few years later, and the product still exists 22 years after.
I think the big question is how well communicated the risks are. In our case I believe everyone knew, and there'd have been no hard feelings if people had chosen to look for new jobs once funds got tight.
FedEx famously got to within days of running out of money early on, and there is a story Fred Smith made payroll by taking the remaining cash to Las Vegas and gambling.
We have laws. There’s a trade off between more vibrant economies (easier to start, fail, start again) and more stagnant ones (harder to start but more safety nets).
There’s no perfect set point and the trade offs will always have downsides.
Given the risks of working for a company in the stage Convoy was in I’m not exactly sure this is a bad outcome.
Deploying capital into something that literally has no return just doesn't make sense. You're also ignoring the reality that most capital comes in at the start. It doesn't come in at the end. That's an irrational investment. Would you buy a house that's burning down in the interest of the current homeowners?
Could a company receive funds at the end? Legally, sure, maybe (maybe not given fiduciary duties to LPs).
Investors would have to say to their limited partners: we're going to take your money, and hand it over to employees, and those employees will do no work for us and the company is shutting down anyway. That's a very ineffective use of capital and those types of decisions are worse in the end for the economy, I would argue, which does impact everyone.
Startups are risky for investors. They're risky for employees too. I think a better solution might be to bolster unemployment insurance. After all, investors often have downside protection (usually in the form of preferred shares or preferences). Employees need downside protection too. But let's not perverse how capital should work.
> That's a very ineffective use of capital and those types of decisions are worse in the end for the economy
Disagree - it frees those employees to begin working for more productive companies sooner rather than drag them through "you are fired with no provisions for healthcare. Good luck and don't get sick during the donut period."
- yes, it's an special qualifying trigger for the exchanges but you are asking someone navigate this in short order(likely end of the month or less than two weeks)
Disagree to disagree - employees are free to begin working for more productive companies when they're fired with no provisions for healthcare.
In spirit though, I agree. Social healthcare not tied to employer would allow for more labor mobility. These transitions should not abrupt or catastrophic ideally.
Employee claims supersede equity and debt holders. The question is whether the company shuts down with money in the bank or keeps running until it's out.
People should remember the board and CEO for screwing over employees.
My understanding is that in the US, earned wages (while employees were employed) are indeed employee claims. Not paying these is what YC guidance above says will lead to "very bad things."
After people are let go, severance and continuation of healthcare beyond some term mandated by law (maybe state, maybe federal, maybe varies by state, don't know) are not considered employee claims in this sense.
CEO and the board didn't follow the YC guidance mentioned above, and it's on them.
>People should remember the board and CEO for screwing over employees.
This is important if you're staying in more or less the same field - many specialties are smaller worlds than you may think.
I am somewhat bad with names, so I've learned to take notes. I have a list of people I'd love to work with again, and another of people whose presence will stop me from accepting an offer.
No; the fiduciary duty of the CEO/board is to the shareholders. If there is a chance to salvage continuity of operations and preserve the value of equity, that is what they will do, even if it means operating until cash runs out. It is a matter of basic incentives. As much as we'd love to do the "right thing" and pay weeks/months of severance for no work (I am a founder myself and would love to, in a perfect world), startup employees should know the risks of working at a high-risk venture and plan accordingly. The middle road here is to do a significant layoff with severance, but this isn't possible in every case. Additionally, a company-saving customer contract or funding round can fall apart at any moment. This is, unfortunately, just the nature of the business.
Ehh, talk to a lawyer, but at certain point, often before technical bankruptcy/insolvency, mgmt/board actually have an obligation to the creditors, not shareholders (as they are no longer the beneficiaries)
At some point, during a monthly accounting reconciliation, someone should have piped up and said "Unless $<x> revenue comes in the next <y> months, we will be unable to fund personnel/payroll in <y> months." .
This is the worst take I have ever seen. This company just raised $250 million. That is more money than 99% of companies will ever have in the bank. Being a "startup" does not given you license to wantonly play with your employees' lives and wellbeing. As the quote from Dalton above shows, there are norms around these things which companies 1/100 this size regularly abide by.
This is not normal behavior for any company, and you should run away from anyone trying to convince you otherwise. The people responsible should be treated like pariahs.
They raised $260 million and had at their peak 1500 employees.
Think for a moment how far $260 million gets you when you have 1500 tech employee salaries in Seattle to pay. Plus operating expenses. Don't forget to add 15.3% for payroll tax. Median software engineer compensation in Seattle is 219k. Infrastructure and office space isn't free either. Seattle office space averages $43/sqft and the average employee space is 150-175 sqft.
That. Money. Is. Long. Gone. It's not a bad take, you just won't do basic math.
Raising $260M doesn't mean you're rich. The investors expect you to spend that money and otherwise why are you raising that much?
They spent 4 months looking for a buyer and had already shed 1000 employees before shutting down operations. It's not like current employees were clueless about what was going on.
Functionally there's little difference between operating up until now or giving 500 "chosen, lucky" people severance 3 months ago.
None of those factors are unique to this business. Somehow adults at thousands of other companies are able to handle this situation reasonably despite also having to pay rent and taxes.
I'm sure very few of the people whose continued work they were depending on for a sale would have stayed this long if they realized they were going to be treated like this.
Actions and comments like this are how you kill an ecosystem.
If your company is multiple funding rounds in and lays off two thirds of its employees in a day, you should be putting your applications out before the close of business day if you're in a situation where you need to make ends meet.
Just because you remained does not mean that your job is secure. This is strictly common sense.
Also I've had a pretty long career and I don't know of any company in this situation who paid 500 employees severance after ceasing operations.
I don't doubt that you've had "a pretty long career," but I wish you had spent a moment Googling before posting this take. I immediately found an example of a 250-person company paying employees severance after deciding to shut down operations. If it's possible at 250 employees, it's possible at 500.
Quibi was also a ludicrous company that gave streamers multi-million dollar up-front no-milestone deals and then shuttered.
They absolutely cratered within six months of launch.
I wouldn't use them as an example of how to competently operate a business. They literally gave all of the investors' money away. They operated more like a charity than a business and if I were one of their investors I'd have been suing.
As if a month or two of severance, which I'd wager your average critic in this thread would promote as laudable, would do much of anything in the grand scheme of job security.
Given the upside of a company surviving, or even ultimately succeeding, as an employee, I'd rather try to help a good/fair company ride it out and survive than folding early to pay out a few months.
This is why dissolution isn't some whopsey-doodle word. When there's nothing left, there's nothing left. If that is a risk, including in that is your private healthcare provision, leave this stuff up to the 20 year olds that don't have the health concerns. Coddled might be too diminutive of a phrase, but if it's a risk you can't live with by your life expectations, don't get involved. Pick another job on the market.
Now healthcare shouldn't be tied to employment, and it's not in my country. But this is the political choices of Americans in America. Not the fault of the individual companies who are subject to the system.
The whole issue with this premise is that someone has to bear the risk. There are no 20 year olds who know with certainty that they don't or will not soon have health concerns that require insurance. Anyone could be get hit with a car walking across the street or get a photon to break some DNA in their skin and cause a melanoma. 20 year olds are not invincible or always in perfect working order.
And yet, statistically, the vast majority will be healthy. And the ones with chronic issues should know where they need to be on how to manage it. It's down to you if how you want to live your life. Plenty of tech companies that aren't startups. Plenty of countries that pay less and have higher taxes that have the safety net. Pick your lifestyle and live with your decision. I did, took the risks, it didn't pay off, but I would do it again.
I don't think you understand how much money is in the bananastand here in the US. Even with a european tier safety net, its not like a huge tradeoff will be made. You could easily pay people the same and give them solid benefits to boot with just a little bit more taxation at the top end of the economy. People act like taxing rich people will scare them off, yet there are probably more rich people in California than in Texas or some other red state where they'd be taxed less presumably.
So move to Europe then. Enjoy your $75k/yr salary with 42% income tax. Other fomments in this thread are using $150k as a baseline salary of reasonable expectation. It's not a big deal to you after all. I on the other hand emigrated from Europe already and don't plan on returning. I make more here now per year than I did cumulatively in my first 7 years of work combined and finally have hope of not living with my mother for the rest of my life and can afford housing. And this is the "it didn't work out" timeline.
Take it up with your elected representative, healthcare should not depend on your employer. Convoy literally does not have money. That's why they're shutting down.
And you aren't being "let go" - the entire company is going under. If you are laid off and the company stays healthy, it makes sense to have some concessions. But if the entire business ceases to exist. I don't know why would you expect anything from it.
Wonder if it might make sense for the social safety net to include such a provision for workers of businesses that go under. If we're not going to have universal public coverage, might as well add provision for such an extenuating circumstance as that.
I love that COBRA isn't just paying the entirety of the health insurance your employer was paying (or partially paying for you), but an additional 5% fee on top of that.
Talk about insult on injury. Gotta love the lobbying that allows that.
Is that part of the contract that if the business is shutting down or laying people off that they need to continue to pay for things for you? I don't see why there's any obligation.
I understand what you're saying, but I think you may be missing my point, which is: Jeff Bezos's reputation is damaged by this. I will not work for anything he touches because I don't think he's behaving decently.
So he already put up and risked his personal money to even start this venture and it failed and you're saying he should continue to lose money on a failed investment even though these people will receive unemployment insurance that his business already paid tax into to fund?
Startups are risky and even though you work at one, I don't think they're for you.
There's plenty of other union labor jobs with pensions out there that seem to be more your speed. Your position isn't a reasonable one.
You want to have your cake and eat it to. All the rewards of being an early stage startup employee without any of the risk or skin in the game.
Why is it a requirement to have "skin in the game"? What does that even mean?
The risk to an employee at a company that got $250 million should only be accepting options that could be worthless in lieu of a portion of salary. There absolutely does not need to be any risk of losing healthcare, lacking severance, or any other loss of benefits. Founders want you to believe this but it doesn't have to be true.
The risk of joining a venture backed startup is that no new money comes in and there is no exit and you are out of business in a matter of weeks, like what happened here.
This is constantly looming over your head and used to be something understood by startup employees before the era of zero interest free money and "startups are kewl".
Any money raised got spent, otherwise they didn't need to raise it.
The trade off to take on the risk of being underpaid and possibly soon-to-be-unemployed by a startup are the potential equity payoff, the work environment and the human-networking. And it's usually worth it because you're buoyed by the local startup community and the high chance you get another job with people you know tomorrow if things don't work out.
The problem here is that our industry is flooded with the types of people who would otherwise have become lawyers or finance people because they chase comfort and status as opposed to a desire to work on cool shit with cool people. It kind of makes me hope these conditions extend for a while to weed out the people who don't belong and we can get things back to relatively-normal.
You keep insisting that a startup operating out of a garage with employees that all know each other requires the same risk profile as an at peak 1500 employee company with a quarter of a billion dollars in funding.
The only people who insist this must be true are founders that want to unload as much of the risk on their investors and employees as possible so that they themselves carry little to "skin in the game"
If you're operating in the red and funding pools dry up, there is no difference. That's the point.
The only things that matter are cash on hand, burn rate and your ability to raise new money. Convoy's cash on hand was tiny, its burn rate was enormous and its ability to fundraise was zero.
what that "skin in the game" means is that you are participating and take on some of the risk.
"why it is a requirement" has nothing to do with the law, the whims of "the founders", etc.
why it is a requirement is an economic truth - if there are enough players that believe that a gamble on working for an early stage startup is worth taking on some substantial, but perhaps not ruinous, risk, then that sets the bar.
> Founders want you to believe this but it doesn't have to be true.
Whether that is true, or "has to be true" depends only on the market. It certainly seems that it was true very true and probably still is. But neither you, the law, nor the founders have any control over whether it is worth it at the moment in your situation.
>Startups are risky and even though you work at one, I don't think they're for you.
Fortunately, there are many startups whose leadership is prosocial enough to try to offset some of the risk to its employees.
Since you seem like a Chicago School kinda guy, I'll put it in terms I think you can understand: employment is a market, and I am fortunate enough to have a optionality. It's bizarre that you fail to recognize that; it's pretty critical to your own analysis.
People who think that a rich investor who puts up some seed money to start a new venture should chase a bad investment with more of their personal funds to make sure employees are taken care of after the business fails (even though they paid into unemployment insurance, which already does that)...and they believe this so strongly that they would never work for any company that investor is associated with, regardless of the opportunity, are who I'm talking about.
These are the same types of people who think tech workers are treated so poorly that they need to unionize and should be free to spend their work time doing political things that have no contribution to the company bottom line.
It has nothing to do with negotiating the best deal for yourself. Severance is voluntary and is rarely negotiated up front. Especially at the level of employment for the 99% we're talking about where the company going out of business really matters -- negotiating severance up front is like negotiating a prenup. It's requires leverage and people in these income brackets don't have it.
It's beyond odd. If we take him at his word, it follows that only the likes of Bezos are allowed to benefit from an open job market. I am at a loss for what the parent post is even trying to say.
You could easily rewrite this comment to be about child labor in coal mines and textile mills. At the end of the day people are starting to expect certain basics from businesses considering places like In n Out are now offering benefits packages, and its about time we also enforce certain standards. If that raises the cost of doing business, so be it. I expect the business would be even more lucrative if you didn't have to pay your employees at all but that's not a good argument for exploiting the worker.
Boilerplate vapid moralizing nonsense. Are you assuming there's some magic stockpile of millions upon millions hiding somewhere that could be used to sever all of these people? You've already been told this is fantastically unrealistic for a startup bankruptcy. Unless you can suggest where to find the funds, you need a reality check.
Well, back in the old days, they did just that and called it a pension plan. Takes a little foresight and is too little too late for convoy of course, but these things can be planned for too but clearly the worker is not prioritized in these ventures.
There's been some pretty clear suggestions up thread on where to find the funds, namely "several months ago in the past". To be more clear:
The business (Convoy) should have shut down in e.g. August of 2023 when it was clear that they still had enough cash to pay out severance and still cover the expenses of winding down the business. They did not take this option, choosing to instead risk it all that they could bring in an infusion of cash without firing folks.
This is not "boilerplate vapid moralizing nonsense"; to take such a risk when you have a company of 500+ employees is a poor business choice.
When you get on a plane do you think they fuel it to run out exactly at the moment the plane stops at its final destination, and not a drop more? Don't you think that they reserve fuel for emergencies?
Why shouldn't a business consider itself at 0 operating dollars but still have a full account for healthcare or equivalent severance?
There is risk of not working for another twelve years, of being laid off, or the C-level getting paid out and no one else.
But a startup that raises a billion dollars and fails to set a cut-off that gets everyone out the door with their last paycheques is one that people will jump out of earlier.
>Planes prepare for basically 0 chance of failure.
NO, the entire point of plane safety is that you are prepared for the VAST MAJORITY OF FAILURES, through extensive planning, testing, regulations that force certain choices, redundancy, backups, etc.
Maybe companies should stop trying to play check kiting as SOP for business operation, and be willing to admit that they sucked at business, burned a billion dollars, and didn't even keep any of it to help any of the people who did the work survive for the next few months as they adjust.
You misunderstood my meaning. Planes prepare for, I guess what I'd call individual component type failures, so the flight as a whole doesn't fail. They do not accept a 1% chance of failure. The plane stays grounded and doesn't leave the gate.
Startups on the other hand, (normally) must accept some risk of failure in order to have any chance of success.
You are not “owed” X amount of pay after you lose your job. Maybe you will get it. Maybe you can negotiate it in your employment agreement. But getting paid your agreed rate for hours work isn’t “shafted”
Severance is basically marketing for future hires. You hope, as a company, you will be around in a few years and will be hiring again. If all the employees laid off during tough times get severance, then the company can say "even if we hit tough times, we have a track record of doing the right thing", which is attractive to future employees they are attempting to attract. Since the company is dead, their reputation doesn't matter.
In the 2001 DotCom downturn a friend worked at a company where they were informed that the paycheck they had received the prior month was the last payment they'd get. So not only no severance, etc but they also worked a few weeks gratis.
My favorite start up, with regard to cashflow, was where the CEO would tell us at every company meeting how many months of cash we had in the bank at our current burn. They pissed me off in other ways, though, and I never heard how they treated people when they finally shut their doors.
> I'd argue the business failing is a strong counterpoint to that assertion.
That statement is pretty naive. There are plenty of things that can kill a startup without them having done anything specifically wrong at any level, let alone at the level of technical team.
While true, most of these startups that have already found product/market fit and go bust are operating off of unrealistically rosy projections.
Did this company need to burn their entire round in a single year? Probably not. Could they have established themselves with lower operating expenses and still grown over time? Probably.
I wasn't speaking to that point... excessive operating expenses are clearly a management failure. I was contending that this shutdown is not likely simply "through no fault of their own"
People who can't asses fair value of a business from a discounted cashflow perspective shouldn't be running a company. It's usually financially ignorant people like this that lead the business down a dark path. The prior round valuation, and thus the implicitly underwritten future expectations of growth, is evidence enough that something along these lines happened here.
> Lot of talented folks in Seattle and beyond who'll be looking for new gigs.
Which you took issue with and suggested the failure was counter evidence. That was pretty clearly about the technical team that was just let go, so that idea doesn't hold much water.
Beyond that, the mere existence of failure doesn't mean that the plan wasn't reasonable; you need a lot more data to determine if the mgmt team was functioning well. I have no opinion on the particulars here because I don't know the details. But the contention that the fact of failure alone is clear indication is a bit silly, which is what I was pointing out.
I had addressed the wider point I thought, apologies if not clear enough. The mere existence of a failure, without other data, simply isn't good evidence for anything you have claimed, and any assertion that "it's usually X" needs pretty serious support to be taken seriously. It's a complicated area, and reducing it too much leads to oversimplification at best.
The other reason we'll see it in these businesses first is it's entirely measurable - did you get the shipment where it needed to go without destroying it?
Nothing else matters beyond that and the price. And it's entirely fungible - nobody cares if it's UPS or FedEx or some random truck that delivers stuff to Walmart or whatever.
The only way they had a chance was getting their APIs so ingrained in companies they couldn't switch, and companies are rightly suspicious of that.
From a friend: Everyone was laid off with no severance or benefits. The CEO put all the blame on a lender in order to explain why there were no severance packages. This sucks because they took it upon themselves to offer staff retention bonuses earlier this year to keep people around after the earlier layoff.
regardless, C-level salaries were probably high enough that they can skate by a while without a salary for a bit and pay for marketplace healthcare coverage if absolutely necessary
fair, and if you work at a startup you should be ready for it to evaporate overnight
another point, though, is the c-suite probably had more information as to how precarious the situation had gotten that the rest of the employees might not
What would those be though? I work at a U.S.-based software startup with 100 employees and no one makes less than $80K. Avg cash comp is just under $200k. It’s likely Convoy had a very similar profile.
under $200k isn't a massive amount of money especially if you have a couple of kids and live in a high cost of living area. You definitely shouldn't be paycheck to paycheck but it would definitely be in the realm of "oh shit" if you lost it and your health insurance (again, especially if you had kids) overnight
versus a CEO who may be making double or triple that, and knew the end might be coming and started saving up extra
The people we have like that at my startup are contractors and may be out of work a short bit but their agency will just move them elsewhere when something comes up.
At higher levels you usually have insight that these things are coming and can negotiate retention bonuses and other benefits, or threaten to walk (sinking shop and all), and I think it's likely, so I asked the question....
I work for one of their competitors and I can empathize with them. My thoughts goes to all the employees and their families.
The Freight business is collapsing after an unrealistic high during the pandemic. Since April 2022, revenue per load has decreased to about 70%, this means less ways to generate a profit under the same headcount.
We also saw a decrease in volume as companies overstocked and consumer spending has shrunk to less than 50% of what it used to be. Just add it all up and you see why so many companies are collapsing, carriers and brokers alike.
But what we saw during the peak was crazy, and some investors and execs thought it would last.
At least in regards to what pertains FTL freight, we saw a drop of tougjly 50% in volumes as consumer spending is down when compared to pandemic height. I am pretry sure there will be a seasonal trend upwards, but no where in the way it was before.
If you are in the industry, you can easily check how much cargo is moving around. Maybe by November-December it will be less than a 50% drop, but expect it to return by kid January-February.
This just made me realize that things are back in stock regularly again. I suppose it happened slowly so I didn't notice, but shortages seem to be totally gone and things are back to 2019 stock levels.
Part of the reason being that workers have been ordered back to offices, meaning a significant portion of their income is spent on commute and eating out. Crazy how damaging rto is to everything around us.
Most of the reason is that asset prices (and thus wealth has shrunk), inflation is higher, so people are buying less and there's no Fed dropping money from helicopters.
Indeed, but add travel expenses and the cost of living in crowded cities and eating expensive food and you’ve got a cashflow crisis. Remote work is the single biggest economic boost the economy can get without the government printing money. Not to mention higher productivity.
It's weird since prices haven't really changed for customers. I thought freight going down by 70% would have an impact on pricing but I guess it was a smaller part of the total price than I originally would've believed?
What would a buyer have even been purchasing in this scenario?
A bunch of talented employees? Cool, they are all on the market anyway.
A bunch of tiny commodity contracts? Why?
A pile of code? Is it particularly hard to recreate?
Valuations are having a big wake-up call across the industry. While a company can be more than the sum of its parts, VC-backed tech companies have really struggled in industries where unit-economics rule.
Another example industry where you can see this well is manufacturing with Protolabs, Xometry sucking wind for the last several years. Surprising, you would have thought that large amounts of capital and economies of scale would beat out competition (they were planning on grinding incumbents into the dirt by now). Are we seeing a case where innovation is not restricted to automation and software?
Incumbents are also leveraging decades (or centuries) of investment in land, people, technologies to win in some cases.
Great deep dive into how drastically the freight market has shifted the last 12 months and the likelihood that Convoy will be the first of many more to fall in coming months.
Fascinating explainer of a market I didn’t know much about, especially the terms (covenants) laid out by banks that float the money on shipping accounts receivables.
Trucking startup? Convoy sounds like an ordinary freight exchange to me, where truckers trade available loading space against transport orders. For each assigned order, the trucker pays a transaction fee to the platform. Plus there are additional services like factoring: get paid immediately by the platform instead of 30 days later by the shipper, platform usually keeps 5% commission for this.
Dozens of platforms like this exist in Europe, not sure why everybody makes a fuss about it.
From what I can tell, convoy has not filed for bankruptcy protection yet, which indicates that after dumping the load of their payroll, they believe they can remain solvent long enough to continue to shop their tech stack around.
That’s kinda disgusting imo. People deserve severances.
“Hyper growth mode” = hiring as fast as possible. Startups gotta borrow and spend their way to success, and fast, ya know. Can’t keep the VC’s waiting on their returns.
No customers. If you get $1Bn in funding that doesn't mean you get to hire 10 people and never run out of money. You have to hire 500 people and run out of money in 5 years!
1.1B in NOLs. How does this not become a $200MM acquihire by UPS pre-bankruptcy? I’m asking because I would assume that the tax mitigation could be an asset and feel like I am missing something. I am not an accountant, but would love for one to explain why bankruptcy is the best choice.
Convoy effectively got into the factoring business and extended short term (30/60/90 days) loans to the trucking companies. Now, they don't hold these loans on their balance sheet but rather package them and sell them to lenders as asset-backed lending portfolio.
The thing with these is that typically the originator (in this case Convoy) will need to take the first tranche of losses. (This is where the $240M debt facility came in). As the freight market deteriorated, Convoy was effectively margin called by the lenders and could not come up with the money.
Any acquirer would then have to take up this debt. Even though Convoy may have a valuable asset, UPS is not in the business of managing a debt portfolio. Any acquirer would be dissuade by this baggage.
1500 employees on an average of $100k pa is approx $195m dollars in salary, taxes, benefits, etc. If you have a bunch of engineers and that average is more like $150k, it goes even faster.
"Between the lines: The shipping and logistics markets have turned south since the pandemic era's boomtimes."
I think what you mean is this business makes no sense when interest rates aren't zero and investors aren't looking for places to stuff money.
>The trucking marketplace gained a lot of buzz a few years ago, raising over $670 million from top investors like Jeff Bezos, Bill Gates, Capital G, Greylock, Y Combinator, and Fidelity.
My navel-gazing take (as a very early Convoy person):
It is really hard to get the kind of exponential efficiency gains in this space that a 'blitzscale'-focused startup needs in order to really succeed.
Trucking is an industry that relies heavily on relationships (trucker <-> broker, broker <-> shipper, broker <-> facility, etc), and you're not going to change that (required for true automation) without already being at an absurdly large scale.
Convoy spent too much effort on chasing things that had the potential to give the company those exponential gains without addressing the high-touch nature of the industry (but were just not a good fit, and ultimately fell flat).
And Convoy—conversely—had very little incentive to spend most of its effort on iterative improvements to the core brokerage (which would have probably led to profitability, but not the kind of returns that VCs ultimately want)
Vertical integration is one way. I'm not saying it's easy or they would have succeeded, but it doesn't have to rely on so many other parties. Definitely would require tremendous scale.
Yeah that relationship is important and no reason any given trucker, carrier, broker can't just offer lower rates and suddenly you're out of the picture.
And so it begins. A large wave of unprofitable startups that raised in 2021/2022 are going to fail at becoming profitable and be forced into fire sales or bankruptcy over the next 12 months.
If I had to guess, bankruptcies like this peak sometime next year since many of these companies will find a way to last 24 months on their last fundraise.
Another recent example is Clutter, a moving company that raised $300m, who was forced into a fire sale for $30m.
A huge part of modern startup culture is to put on a happy face in all situations to project an aura of confidence.
Cynics would call it fake it until you make it, but for many businesses if they don’t look secure they will find it harder to get new customers in order to survive.
A lot of companies that raised a lot in 2021-22 didn’t hire much because the labor market was so tight. Also, I think many knew that the availability of capital was unnaturally high and that they shouldn’t plan as if those conditions would continue.
I think behind most big failures (at least the ones where meaningful revenue was generated) is a healthy, sustainable business idea.
Oftentimes, the founders just grew too fast or flew too close to the sun.
So, there’s an opportunity to pick up the pieces and rebuild, or start from scratch with the learnings.
In most cases, the firm handling liquidation auctions off the firm’s assets, so if you have the motivation to pick up the pieces and grind out a sustainable business, you can usually purchase the tech and customer lists for six or low seven figures (varies based on size of business of course). If you actually pursue this, my advice is to make your offer as simple as possible (don’t ask for a bunch of diligence) and set an expiration on your offer so they don’t shop around. The liquidators are often not incentivized to maximize value - they just want to finish the project as painlessly as possible.
Never heard of this company. Thought it was another automated trucking company. Bloomberg profile of the company shows it’s actually a platform for truckers (finding “routes”), and larger companies to manage routes, their fleets, and status of delivery. Most of this appears to rely on GPS.
Not sure why this was valued at $3.8B. Wall Street investment bankers smoking crack while evaluating this one.
Because trucking is an enormous industry and $3.8b is a tiny slice. Sure, it's a tough nut to crack, but if someone does crack it they can be worth a lot more than that.
Are they not going to pay us? We hauled the load from convoy but didn’t get the payment that was supposed to released yesterday. I tried calling them but nobody answered.we are just a small company and we are not getting paid for the we have done. Diesel is so expensive. Do I have pay expense out of my pocket?
Hopefully the ZIRP idea that dies is that VC and Big Tech can create companies off a conveyer belt.
VCs today go after shiny baubles, like “27 innovators under 27” nonsense, and have forgotten they’re mainly looking for high talent very resilient technical weirdos and any other characteristics are bonus.
We normally talk about the risk burden of founders (we're all either founders or will be soon, right?).
We don't often talk about how everyone involved in a business takes on risk. This is a great example of all the employees risking being cut off from funds and health care.
Those employees won't be lionized for "learning from their mistakes" when they get a new (better paying?) job, will they?
Those employees also didn't get a say in how the company was run despite the fact that they were taking a serious risk, too. Probably a more serious risk than a founder, given that most founders are wealthy or backed by wealth.
Convoy closing sucks. But it does not suck at all as an illustration of the problems in startup culture . . .
Wow! I did not expect this. Convoy was hiring like crazy at one point, touting how fast they are growing and how much money they have raised. They were going to be the Uber for Trucking.
> A "faltering company" is not required to give notice of a layoff or plant closing when, before the plant closing, it is actively seeking capital or business, which if obtained would avoid or postpone the layoff or clo- sure, and if it reasonably believes that advance notice would hurt its ability to find the capital or business it needs to continue operating
This…not to mention NOLs, contracts, MSAs, etc. At some level there is a market price for these “assets”. Maybe we need an eBay for near bankrupt startups? The bankers aren’t getting it done.
I'm a bit confused by the fact that the article doesn't seem to mention what the company was even trying to do. Like they had 1500 people at their peek... what were they doing? What was the business model here? Just farm investment and pull out before they notice you dont actually have any idea what to do?
The entitlement in the comments for severance, healthcare etc baffles me.
You were paid a salary for your services while you were employed. You didn't give more, they didn't pay less. Now you're not - that's the end of the contract.
Yes, it's a nice thing some companies do when they lay people off but that can't be an expectation.
Employees do much more than they are contractually obligated to.
There's a reason why "work to rule", meticulously doing exactly and only what one is required to, is functionally a strike. Same with why there was all the uproar over "quiet quitting", where a worker only did their minimum job duties. So this is as acceptable as "quiet quitting" is.
In an industry where it's normal to do more than the bare minimum legally required, someone who does no more than the minimum required is blackballing themselves. These c-levels will never start a successful company again.
sucks for employees, but lets be honest - if you worked at a company of 1500 people, and you watched that number dwindle to 500 over the course of a year, unless you lived under a rock, you pretty much knew this day was coming.
Exec's can probably be faulted to waiting until the last minute/dollar to close up shop to see if they could pull a rabbit out of the hat - but it seems there were about 500 employees also hoping against all hope that said rabbit would be pulled.
Advice for employees - when the writing is on the wall, read it, and plan/act accordingly - best to start interviewing for a new job before everyone else from the same company, in the same area, is doing the same thing.
Are we not getting paid? I hauled a load from convoy and I supposed to get my payment yesterday but didn’t get any. I tried calling them but nobody answered my call. Diesel is so expensive. Are we not getting the payment that we worked for?
Money losing VC backed transportation brokerage goes broke. Doesn't sound like this amazing ripe area for automation anyways as long as truckers are still at the wheel. Can't imagine they were adding much if any value.
start-up idea if anyone is bored: disrupt car shipping. When I moved from Seattle to Raleigh shipping my car was BY FAR the biggest headache. It's a 20th century business where you have to call people, who will bid for you, and you have no idea if your bid is accepted. Agents will promise a low price to get your business, then tell you a week later that bid was too low, you need to double it. I eventually just gave up and drove it cross country.
Businesses like these are hard to "disrupt" because despite all the fancy websites and apps, pricing algorithms, scheduling, reminders, live video feeds and whatever else you can build, underneath it all the success or failure still depends on some guy showing up at your house, picking up your car and trucking it across the country. Unless you can automate that part nothing will fundamentally change.
It goes deeper than that. Even after all the sophisticated systems and automation, a huge amount of logistics is still email-driven, and it seems next to impossible to get account managers, carriers and customers past that.
I think the expectation is even worse for the car case than anything since so few people bother shipping cars to begin with. But just looking at moving and shipping, even then no one has really beaten the model that Uhaul has created. Have the 7/11 or big box hardware store parking lot and clerk be your brick and mortar and labor force. Have a very basic website match you to pickup and dropoff locations. Buy a bunch of cheap aluminum trailers that won't rust out on you. They will even sell you overpriced cardboard boxes they probably get a ridiculous markup on. I don't think you can lighten this sort of business much more than that, and yet the profit margins still aren't as high as you'd expect from such a skeleton crew of a business. 16% last earnings.
"Disrupting" this is quite a challenge due to the nature of the service and the logistics around this type of freight. You either pay for someone to drive it which will be on an ad hoc basis when someone is available and interested or you pay to ship it on a Class 8 hauled flatbed or car trailer.
A possible brokerage opportunity would be to inquire with Carvana or Carmax if you can buy slots on their cross country shipments as capacity allows, and sell those to customers. You'll be at the mercy of their schedules and capacity, but could be a service tier along with other more "white glove" services (dedicated driver "hot shot", semi shipment, etc). You could also buy capacity on freight rail cars shipping back empty to factories (depending on destination and routing). High touch biz, beware, there be dragons.
I've dealt with this, I've had friends deal with this, etc. Every person I've known who shipped a car was screwed over by it. Even military people. You're lucky they told you up front that your cost was double. I had a shipper tell me that I they were doubling the fee about 45 minutes before they delivered it (I called their bluff and said I'd just report it stolen - it was an $800 rat rod Miata though).
I think the fact of the matter is, shipping cars is not going to be cost effective for an individual. Trucks are expensive, putting fuel in them is expensive, paying a trained person to drive one is expensive.
Maybe a company like Carvana could offer this as a side service, drop your car off at a local Carvana, and eventually pick it up at another location. Even then, I think the costs are going to be order of thousands of dollars.
If one searches Reddit, there are brokers who will pass on wholesale car shipping prices which are lower than the prices of those one may find on Google.
Last time I moved a car halfway across the U.S. I just went online, submitted a request, got a quote, paid and it was all done. It was about as friction-free as something like that can be.
Just need to use a direct carrier like Intercity, NOT a broker. Brokers have infested Google SEO.
> Just need to use a direct carrier like Intercity, NOT a broker.
So because you mentioned it I just called them for transporting by enclosed carrier on the east coast between 2 cities. High end car enclosed carrier.
Intercity wanted $1995 for the same transport that the car dealer (a high end car dealer well established no less) want $1600 dollars for.
Intercity essentially said 'busy time of year etc etc'. Didn't give remarkable reasons why they would be better than anyone else. Picked up the phone right away and was otherwise business like.
Also their website to get a quote they want an 'auction' number. That made me call them (which I would normally never do.)
Additionally their price was higher than other brokers I had checked including the one that just moved a car for me (same route) not enclosed who quoted both enclosed and not enclosed.
Would like to point out that the job of a broker is not to match you with anyone but match you with people who they know and trust and have used. And specifically the broker I used (for the last open move) made a total of about $250 the rest paid to the driver on delivery.
Their point is that brokers are generally terrible. That you found an ok one is cool. We went through a broker for moving our possessions from California to Montana. Worst professional experience of our lives. They kept our shit at some lot for around six weeks while they tried to job out to other freight providers because the first one didn't work out. Or the next. Or the next. Finally they got someone who should have been on medical disability to drive our stuff up after the broker declared bankruptcy. Not sure how that worked exactly. I had to threaten to drive down there to pick up my own shit and load it into a uhaul or two.
Don't have experience with trans-continental vehicle transport but as part of an old job one task I had was "drive this truck from Utah to North Carolina.. work there for a few weeks then drive this van back to Utah". Certainly cheaper than designated shippers for a company...
As a consumer I'd assume there are hotshot truckers/services that would be used for this? People have mentioned similar "agent oriented" experiences with moving services and how it's opaque and unreliable.
'Dealer trades' are pretty common now. If you want a very specific car it might be the only way to get it these days since the used market is so anemic.
My local dealer somehow got a lead that I want a very specific year and trim GTI and twice now they have offered to bring one in for me.
sometimes, but they mostly get put on a transporter like any new car. If it’s something valid able (claaaic car, race car, etc) they’ll usually sprint for an enclosed hauler, which is am several times more expensive
This is the actual problem, because transporter trucks are almost always just used to bring a group of vehicles to a dealership from a rail depot.
The ones carrying cars across the country for moves are quite rare, unscheduled, and harder to find. They also can't carry anything else besides cars on the transporters - you might almost have better luck driving your car into the back of a box semi and letting them load other LTL loads behind it.
Did you ship your furnishings? I have shipped my car by simply including it in the move and it traveled with my other goods in the same truck. Not that it was a huge SUV.
Not sure I understand - is this direct to consumer play? If so, you will have no return customers because on avg people buy a car like once every 7 years - bad business
I shipped a car across the country a decade ago, and I didn't go through any of this. I used a website, it gave me a price, I paid it, and a truck showed up.
I rented a flatbed car trailer and attached it to the back of the moving truck. Even if you hire a moving company, the same should be able to be done, right? I've never used a moving company. Is this not something they handle? I at least had experience pulling a trailer, so it maybe wasn't as daunting of an idea for me.??
A large, established moving company can. Last time I moved, they just drove my truck into the semi-trailer along with the rest of my stuff then took it across country.
Yeah maybe do it via some kind of car rental. Someone going from Seattle to Minneapolis pays peanuts and insurance to drive your car. Someone else going from Minneapolis to Memphis after that. And so on.
Pretty much, yeah. And from my personal experience, uship is useless. Lots of independent people that charge too much due to small economies of scale (one guy with a goose-neck truck vs. a car carrier). The few times I've had to ship a vehicle cross country I've wasted time on uship before going back to a traditional broker and letting them handle it for less money and less hassle. It's still annoying dealing with the salespeople, but if you're good at playing that game you can at least use the usual negotiation tactics to get an even lower price.
They already do lose a lot of money if things go south. Its a risk they should, as investors, be willing to take. If their idea is successful, as they expected, they will make it back.
Wage labourers lose a lot of time and money invested as well, when their livelihood is taken away from them, do they not count?
Freight broker that wanted to use technology to automate the work of finding trucks, managing the communication between truck, shipper and facilities, and auditing the job of moving the load.
But the job is very high revenue (thousands of dollars per cargo depending on the distance) but low profit (5%-10%) in these times.
Reading a lot of comments it's clear to me some of the people commenting have never been through a startup in its final phases. At least in my case, it was well obvious to everyone 1+ year before it happened because repeated attempts at funding kept failing, parties got smaller/disappeared, pay freezes, layoffs, snacks in the fridge started getting slimmer and slimmer pickings.
The worst part though is when you're in that spot you should jump ship, unfortunately, there are sunk cost fallacies involved and sometimes a fair amount of equity that makes you want to try to hold on for just one more month. Who knows, maybe a miracle will happen or a deal will be closed.
I did not appreciate in my scenario that the founder REJECTED a buy offer for what would have been a life changing amount of money for me, because he thought it was too low. We were gone less than a year later, and in the final 4 months, we didn't receive paychecks and were told if we left it'd ruin an acquisition and we'd screw all of our coworkers over. So that wasn't fun. We never got bought and were peddled around the country like prized cattle to disinterested companies that didn't want or understand our tech. Very miserable.
> I did not appreciate in my scenario that the founder REJECTED a buy offer for what would have been a life changing amount of money for me, because he thought it was too low.
Same scenario for me - so I left - and then shortly after they did sell. Argh.
"The appetite for venture funding of freight brokerages has been dead for over a year and is partially responsible for the reason Convoy has failed. VC investors have woken to the reality that freight brokerage is not venture-investible."
So they WeWorked it. Instead of focusing on long-term growth strategy for a very good and sustainable business, the top management decided to get rich quickly, destroying the company. But I am sure they did get rich quickly.
Of course, if you have specific information about fraud or other bad behavior in specific cases, that could be relevant to a discussion. But quoting something generic and then using it as an internet cynicism trampoline is quite a bit below the quality bar for what we're looking for in this forum. It just leads to repetitive, tedious, and ultimately ugly threads.
How would top management get rick quick with no exit? Equity presumably went to 0, so their compensation is the cash flow they got from their salary while Convoy was in business.
I have no knowledge specific to this company, but I did check and it looks like they last raised a “series e” round which suggests at least 6 rounds of funding.
It’s grown pretty normal over the last ~10 years for investors to enable founders to sell some of their own shares, thus taking some of the round directly into their pockets. Normally called “taking money off the table” the idea behind it is that a founder with a successful company should be able to participate in the success without forcing an early exit that might not be best for the investors.
Not saying that’s what happened here but occasionally you can get money off the table by selling some of your equity during a funding round. Afaik that’s how Hopin and WeWork ceos got hundreds of millions despite their companies going to zero basically
I used to really enjoy BB&B shopping. It was like Santa's Workshop of medium-quality products stacked floor to ceiling. And I liked their Wamsutta brand stuff years ago when the quality was still decent.
Arguably Bed Bath is better described as privateer capitalism: they were already on their way out in a big way and while there were certainly better avenues they could've taken, odds are they were going out of business anyway between the overall drops in brick and mortar spending among consumers combined with the pandemic drought.
And in the end, what do we expect? The executive classes show up, buy their way into these firms that are struggling but have some intellectual/data/brand assets, and the executives slam them into the ground, sell the valuable pieces that fall out, and then sail away to buy their way into other businesses. I was always told growing up that if you failed in business you lost money but it seems once you get to a certain size of business, you can count on either free money from the Government to keep the ponzi-scheme that is our economy these days from toppling over dead, or at the very least, sell the scrap components of a business you didn't build for other companies to hoard until they too collapse.
Linens and Things was a pretty similar chain that went out of business quite a while before. My sense is that, while there are some more cooking-centric retailers that are still doing OK, broader (often optional) midrange home accessories and decor has been a tougher category.
