Some Employees Are Furious At Management Payouts In Walmart's Big Adtech Acquisition

AdchemyMurthy Nukala

Some employees of Adchemy, the adtech startup acquired by Walmart's digital marketing unit, @WalmartLabs, are angry that five members of the company's management became millionaires in the sale, when most employees got nothing. For some staff, the deal even cost them money, according to some former employees.

Walmart acquired Adchemy in early May for an undisclosed sum. Adchemy had taken $120 million in investor funding over 10 years. At the time, it was rumored that the deal was done for less than the money investors had put into it.

Since then, staff who held common stock or options on common stock in Adchemy say they have seen paperwork disclosing who got what in the deal, two former employees tell Business Insider. They believe that the selling price for the company was actually $30 to $40 million, and that Adchemy CEO Murthy Nukala and four top executives all got payouts of between $1.5 million and $2 million in the deal. Some former employees have joined a private Facebook group inside which they are discussing potential legal action.

Nukala did not respond to multiple requests for comment. Walmart declined to comment other than to say that the Adchemy selling price was "inaccurate." The company declined to say what it believed the accurate number was.

Adchemy alumni are angry because the employees were holders of common stock, which became worthless when the deal was done for less than the total invested. In such cases, holders of preferred stock - investors, usually - get paid out at 100% of the value of their investment, or more than that, depending on the terms. Whatever is left over goes to the holders of common stock, even if it is only cents on the dollar. In this case, because the deal was done for less than the face value of the outstanding stock, common stock holders' shares were worth zero.

Worse than that, according to an employee who has seen the letter describing the payouts, some employees bought options on common stock with their own money. Some spent a few thousand dollars. A small number bought "six figures" in options over time, one source tells us. That money is now all gone because the common stock became worth $0 at the close of the deal.

"The ones who got hurt the most are the ones who knew the least about how stock options work," a former employee says.

The situation is somewhat unusual because normally in tech startups employees are granted options on common stock for free. It's used as an employee retention incentive. They can vest over time or upon the close of a deal, at which point they can suddenly become worth a lot of money. But because option grants are essentially free gifts, there is no risk for the employee - at no stage is a worker asked to risk their own money.

A source tells Business Insider that between 2009 and 2011, when Adchemy took large investments from Microsoft and Accenture, it looked as if the company could be a prime candidate as an acquisition target at a price that was a multiple of what investors were putting in. So some employees bought options in Adchemy. Other staff who left the company bought options on their exit. In the early years, Adchemy stock was priced at a face value of less than $1, so this seemed like a good deal.

But the company wasn't acquired at that time. Instead, it continued through a chain of six different business model pivots, before agreeing to be bought by Walmart.

In the deal, sources say, CEO Nukala, CFO Rahoul Seth, VP engineering Rohit Deep, research head Esteban Arcaute, and VP product Ethan Batraski all got payments of between $1.5 million and $2 million each.

At the close of the deal, Antonio Garcia-Martinez, a former Adchemy employee who left to go work at Facebook, posted a long rant about the deal on his Facebook page. This part appears to have become true:

Between liquidation preferences and Murthy's stake, common shareholders will surely get nothing. No one who worked for Murthy will see a dime. This is a monumental failure, and Adchemy is one of the great train wrecks of ad tech history.