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StabilityAI cofounder says CEO tricked him into selling stake for $100

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Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#161

Post by sbierwagen »

Spivak wrote: post #85
wongarsu wrote: post #68

Earlier quoted context omitted.

Zuckerberg (and a small group of other Meta shareholders) hold shares that have 10x as much voting power as normal shares. He has about 90% of those special shares, giving him a solid majority in most matters. Some other companies like Lyft or Alphabet have similar structures, but it is very unusual.

I'm actually surprised it's not more common. If I buy meta stock I have zero expectation of being able to sway company decisions. I just care that if they make money I make money.

The NYSE and S&P 500 banned dual class stocks for several decades: https://www.investopedia.com/terms/d/dualclassstock.asp

During periods when VCs have more leverage they'll lean on founders to not issue dual class stocks, since of course it reduces their power to fire CEOs when things aren't going well.

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#162

Post by boomchinolo78 »

busyant wrote: post #122
pyuser583 wrote: post #105

Earlier quoted context omitted.

Having 51% control guarantees nothing. I know a guy who had 51% in the family company. His retired dad had, in exchange for money, deprived the 51% shares of their voting power. His dad then sold the shares on the local stock exchange. A couple months later, his CEO/son was fighting a hostile takeover of the family-run, but publicly traded company. So his son bought the 51% from the local stock exchange, thinking he…

> Having 51% control guarantees nothing. Maybe. But something (literally) doesn't add up in the original story. If the CEO had 51% and sold the 49%, there is no place for the PE firm to capture the 2%. Unless there is convertible debt or some such thing. Or the story is overly-simplified in some other way.

The CEO did not have 51%.

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#163

Post by boomchinolo78 »

anyoneamous wrote: post #89
TrackerFF wrote: post #74

Earlier quoted context omitted.

Small story on these kind of takeovers, but on a MUCH, MUCH smaller scale: Back home we have this small newspaper that's been going on for 25 years. It's just a small 3 man operation, and it's just a weekly paper that covers local stuff in our small county. Most of their customers are expats and older folks. When they started out 25 years ago, they raised funds by selling private stocks. All in all, there are maybe 1…

> started cold-calling all the listed owners, asking if they could purchase their stocks - warning that the newspaper was on the brink of bankruptcy In a sane world, this kind of behaviour would be identified as fraudulent and the party responsible would lose their shirt.

Sane people would say "I don't know you" and hang up.

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#164

Post by boomchinolo78 »

mediaman wrote: post #25
cj wrote: post #7

I was chatting with a company who sold a large minority stake in their company to a well known private equity group (think 49%) with the explicit purpose of retaining control. Soon after the transaction closed, the PE firm was able to covertly buy another 2% of voting shares from a pre-existing investor in the company, which resulted in the PE firm gaining full majority control over the company, kicked out the CEO, r…

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…

Yeah, the way it's done in my country is the founder and his existing investors pool into a holding for the 51% which the founder controls. Then, they cannot sell around his back

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#165

Post by neilv »

cj wrote: post #42
mediaman wrote: post #25

Earlier quoted context omitted.

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…

> "Btw, we can't do the deal anymore at this price, but we can sign tomorrow for 30% less".

Is this bad-faith stunt pulled after the company spent months focusing energy on the deal (rather than on the business)?

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#166

Post by mx_02 »

anonylizard wrote: post #125
NoRelToEmber wrote: post #100

Earlier quoted context omitted.

> A couple of years ago some of the leading media companies in our country (Norway) started consolidating "power" by acquiring small local newspapers all over the country. This sounds like it should be a pretty big story. "Extremely dangerous to our democracy." On the other hand, it also sounds like it wouldn't be.

The era of small local newspapers is long over. Its like saying buying all the libraries would be a threat to democracy.

Local newspapers are vital for towns/cities.

Sadly no one wants to buy the papers.

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#167

Post by dav43 »

cj wrote: post #7

I was chatting with a company who sold a large minority stake in their company to a well known private equity group (think 49%) with the explicit purpose of retaining control. Soon after the transaction closed, the PE firm was able to covertly buy another 2% of voting shares from a pre-existing investor in the company, which resulted in the PE firm gaining full majority control over the company, kicked out the CEO, r…

That sounds like the result of a poorly worded and should never happen under well thought out agreements. Poor advisors if any on this one.

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#168

Post by fsckboy »

kristopolous wrote: post #64
dpiers wrote: post #58

This story by itself might sound like sour grapes, but in combination with other reports about the CEO(1), I suspect bad news ahead for Stability's investors. It seems like a narcissist with a very 'dynamic' relationship with the truth chased the AI hype train and ended up with a bunch of money and attention due to a stupid VC. He pissed off the teams that invented Latent Diffusion and his partners at RunwayML in the…

The finance side of the AI boom is just the crypto bros chasing a new hustle. Before that they were the Uber for x/y as a service people. It's a shame we can't get things financed without these PT Barnum clown cars

it would actually be pretty cool if we could run Uber Pool with PT Barnum clown cars!

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#169

Post by TheNewsIsHere »

kristopolous wrote: post #64
dpiers wrote: post #58

This story by itself might sound like sour grapes, but in combination with other reports about the CEO(1), I suspect bad news ahead for Stability's investors. It seems like a narcissist with a very 'dynamic' relationship with the truth chased the AI hype train and ended up with a bunch of money and attention due to a stupid VC. He pissed off the teams that invented Latent Diffusion and his partners at RunwayML in the…

The finance side of the AI boom is just the crypto bros chasing a new hustle. Before that they were the Uber for x/y as a service people. It's a shame we can't get things financed without these PT Barnum clown cars

I have often thought that the current AI hype is a perfect example in some intersection of i) tragedy of the commons; ii) the idea that you don’t have to be smart or skilled to make money; and iii) new fools and new shills are born every minute.

Re: StabilityAI cofounder says CEO tricked him into selling stake for $100

#170

Post by TheNewsIsHere »

bloudermilk wrote: post #31
cabaalis wrote: post #19

Earlier quoted context omitted.

Hanging onto stock from a company I co-founded a few years ago has caused me tons of stress because that company constantly files for tax extensions forcing me to do so as well. I have other financial processes which rely upon timely processing of my completed tax filing, and every year it causes me trouble. So if something is thought to be worthless and about to fold, "just hang onto it" could cause a non-zero amoun…

Guessing you're a member of an LLC or shareholder of an S-Corp with pass-through taxation. Can't agree more what a pain it is to wait on your old partners to do their taxes every year before you can do your own. If you're just holding shares/options in a corporation that isn't going through ownership changes, that problem doesn't exist. That said, there are still valid reasons to cut ties with past partners/employers…

I feel for the original commenter. My cofounders and I traded the hassle of personal tax involvement for double taxation with my C-corp, and it was truly one of the best business decisions we have ever made.
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