131–140 of 239 posts
VCs don't like dead equity, they will have pressed for this. Nonetheless you cannot lie and this could have been resolved with integrity.
What does dead equity mean?
Isn’t this essentially what Zuckerberg did to his cofounder? Or some variant of the same recipe…,
Not quite -- Eduardo Saverin has had a pretty good life after he was diluted out. "Eduardo Luiz Saverin is a Brazilian billionaire entrepreneur and angel investor based in Singapore. Saverin is one of the co-founders of Facebook. In 2012, he owned 53 million Facebook shares (approximately 2% of all outstanding shares), valued at approximately $2 billion at the time" https://en.wikipedia.org/wiki/Eduardo_Saverin I'd s…
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> the usual path in this type of situation is to dual-class shares Is that still tolerated by investors? Is it still legal? "Having your cake and eating it" is a really bad attitude
It shouldn’t be tolerated nor legal, but it is.
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Let's be nice; they've released Stable Diffusion and now SDXL for free, which has completely changed the landscape on what can practically be done by individuals. Having an open foundation model for image-generation is a service to the world. It just isn't exactly obvious how it could possibly lead to profit.
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In the UK, when this was all happening, the UK government was in the middle of saying they planned to change copyright laws to explicitly allow it. ( https://www.allenovery.com/en-gb/global/blogs/digital-hub/pr... )
Other countries, like Japan, explicitly allow training on copyrighted content for AI and machine learning - Article 30-4 of the Japan's Copyright Law.
As it stands, there are very few places where the law here is settled, and StabilityAI is, to my knowledge, not in any of those places. So it's probably not reasonable at this point to be so definitive in claiming that copyrighted content was stolen - it very well end up that the letter of the law ends up supporting this as explicitly legal. Or maybe not! We'll see.
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It shouldn’t be tolerated nor legal, but it is.
What's wrong with it? If people want to be allowed to buy/sell second-class shares that don't have voting rights, then I don't see the problem with there being a market for that.
One important role of government is to set and maintain standards for listing on markets, so that customers are protected. An example of such a rule would be that all publicly traded companies have equal voting rights across all share classes: one share, one vote.
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> the usual path in this type of situation is to dual-class shares Is that still tolerated by investors? Is it still legal? "Having your cake and eating it" is a really bad attitude
It shouldn’t be tolerated nor legal, but it is.
1. It's not like anything is being hidden - people who buy shares without (or with less) voting share rights know what they're getting, and can adjust the amount they're willing to pay for those shares accordingly.
2. Dual share is a double edged sword: if you believe and want a visionary founder to stay in control, you're good. At the same time, you should be clear that if the visionary founder goes off his rocker, there is not much people will be able to do to oust him.
Zuckerberg pretty much shows these pros and cons perfectly. People were wringing their hands at the end of last year when Meta stock was in the toilet that there was nothing anyone could do to replace Zuckerberg. Now, though, Meta is up over 150% over the past year, and the fact that Zuckerberg could play a longer game and wasn't just ousted due to the share dip was probably ultimately good for investors.
Odd story. The point at which you're selling your stake for $100, you've basically decided to give it away. Which raises the question: if he was just going to get $100 and nothing more, why not just hang on to it?
I've also done what the founder in the article has done - sold equity for very little.
The reasons for doing so are various - most of those reasons being more practical or rational than you might expect.
In my case, I sold my share because I had no faith in the vision, or faith in the potential or even worth of what we pivoted to. I had enough equity that I had a fiduciary responsibility to further the goals of something I was confident would tank the company. It was either fight the board/VCs and my cofounder, risk being sued for not acting in the best interests of shareholders, or sell me stake and move on.
Said company went out of business 2 months later as it pursued its unviable, worthless pivot.
May I just say, that the most ridiculous thing in this news really is selling a 15% stake in a company for $100? I'm no way rich, but I would not even bother taking the time to go to a lawyer or whatever and do all this kind of paperwork for such a ridiculous amount of money, I'd just ride it however it goes and not care.
In retrospect, perhaps I came out the winner?
This was it: https://dudefactory.com/
I went on to turn that £500 into approx $13.5m: https://torrentfreak.com/major-tv-torrent-site-thebox-bz-cal...
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Stories like this are bizarre. There are a million ways to ensure rights for a founder-owner that do not depend on 51% ownership, such as requiring supermajority votes for replacing the CEO, or right of first refusals granted to the founder-owner for share transfers. If they throw a fit about those terms, then don't do the deal! If you are selling shares to a PE firm with the explicit goal of retaining control, and y…
Simple answer: A successful founder will sell 1 (maybe 2) companies in their lifetime, while PE/VC firms do these deals every day of the week. It's like entering the ring with a pro MMA fighter and expecting to have a fair fight. You have a massive disadvantage that can't be overcome. The best you can do is take precautions and "do your best" but "your best" and "precautions" still isn't good enough if your opponent…
Eh, this was tried on a friend of mine selling his company. He simply said "the deal's off" and walked away. A couple weeks later, he got another call which said "ok" and he got the full price.
> That also puts bootsrapped companies at a severe disadvantage
It's very simple. Just say "no". It's an incredibly powerful tool. It's crucial to getting a proper deal on anything from selling/buying your house, your car, to your company. Be ready to walk away. Sometimes by the time you started your car and are backing out of the parking spot, they'll come running out and say "ok".
But you gotta mean it when you say "no" or you'll fail. They can smell weakness.