I think most of their employees would have easily been able to get jobs elsewhere.
As it is, I don't really understand why, and I feel it's overly negative (though I expect to understand why I'm wrong once you explain it more fully).
I'm not disagreeing with your statement, but "toxic" is a strong word and I'd like for you to elaborate.
I just really object to how casually OP waved off people losing their jobs.
The same person at a later time (or someone who has obvserved that trauma second hand) can sometimes form a calm, rational, politically correct depiction of the issue for you.
If you demand the latter, you will learn much slower, because you are rejecting the best available information on what things are traumatic to people.
Employees staying onboard under the assumption that their equity, which is part of their total comp, may yet be worth something - that brings on a serious opportunity cost. If someone stays at FanDuel making $160k/yr + $0 in common stock options versus $350k/yr at Google, that's a shame. If 100+ employees do it, it's tens of millions of dollars of opportunity cost.
That kind of position at Google is one of the hardest to get in the industry. While I wouldn't label this attitude as "toxic", the idea that people from any random startup can just go get a $350k job at Google if it fails is detrimental to this industry. I doubt most of those working for FanDuel (or anywhere else, really) could clear that bar. Not to mention, Google has a limited capacity to absorb people, so the more who apply the higher the bar gets.
Put another way, losing money on a PE deal is terrible. Losing money on fewer than half of one's VC investments is positively great. When FanDuel sold, it didn't have enough upside left to justify pure venture capital. It was a distressed sale whose alternative was closing down shop. In this timeline, employees got a few more years of cash salaries. On the net, they did better with KKR et al than they would have without.