Eero’s acquisition by Amazon creates a financial catastrophe for investors and employees

Last month Amazon announced that it acquired the mesh Wi-Fi router company, Eero for $97 million. However, this deal, which sounded full of potential, struck Eero’s investors and employees with a financial catastrophe. Mashable, who first reported on Amazon’s acquisition, reported that Eero executives brought home multi-million dollar bonuses of around $30 million and eight-figure salary increases. However, the others did not fare well in this deal.

According to Mashable, “Investors took major hits, and the Amazon acquisition rendered Eero stock worthless: $0.03 per share, down from a common stock high of $3.54 in July 2017. It typically would have cost around $3 for employees to exercise their stock, meaning they would actually lose money if they tried to cash out. Former and current Eero employees who chose not to exercise those options are now empty-handed. And those who did exercise options, investing their financial faith in the company, have lost money.”

Eero devices, the first to mesh WiFi, hit the market first in the year 2016. However, companies such as Luma and NetGear launched similar products in the following year. According to an Eero former employee, another major challenge for Eero was when Google launched its own mesh network, Google Wifi, in late 2016, for just $299 whereas Eero’s was priced at $500.

To remain ahead of the curve, Eero later launched a smart home security system named Hive. And Google again produced a similar product called Nest Secure. Post this, Eero abandoned Hive leading which aroused a period of confusion. “The day they killed [Hive] was the day the company changed,” a former employee told Mashable.

“After Eero employees returned from the holidays, 20 percent of the staff was cut. Next came massive attrition. An ex-employee described it as a period of “desperate fear.” Morale was so low that HR disabled group emailing and prohibited employees from sending out goodbye emails to say they were leaving”, Mashable reports.

After Eero announced its acquisition last month, specifics of the deal was neither disclosed by Eero nor Amazon, which led the employees to bundle up their anger against this deal.

Per Mashable, “Employees tried to guess from news reports and social media what the deal meant for them. When the stock price leaked, some ex-employees breathed a sigh of relief that they didn’t exercise their options in the first place. Others were left with worthless stock and disappointment.”

All employees received a letter dated February 15 which mentioned that they had four days to decide what to do with their Eero shares. Some even received the letter on or after the deadline.

Source: Mashable

The employees who chose to purchase or exercise their stock received a "phonebook-sized" packet of dense financial information including acquisition terms. Nick Weaver, Eero’s co-founder, wrote in the introduction, “Unfortunately, the transaction will not result in the financial return we all hoped for.”

Rob Chandra, a partner at Avid Park Ventures, and lecturer at UC Berkeley’s Haas business school said, “One obvious way you can judge whether it was a great exit or not is if the exit valuation is lower than the amount of capital that was invested in the startup. So it's not a great exit.”

“The documents state that after transaction costs and debt, the actual price will be closer to $54.6 million. That means that Amazon is covering around $40 million of the debt that Eero owes. Ex-employees believe the debt to be from hardware manufacturing costs, since they said that Eero took on corporate financing to actually manufacture the products”, Mashable reports.

Jeff Scheinrock, a professor at the UCLA Anderson School of Management said, “What this says about it was that Eero was cash strapped. A lot of this money is going to pay off debts. They were having difficulty and probably couldn’t raise additional money, so they had to look for an exit.”

To know more about this news in detail, head over to Mashable’s complete coverage.

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