Isn’t this essentially what Zuckerberg did to his cofounder?
Or some variant of the same recipe…,
StabilityAI cofounder says CEO tricked him into selling stake for $100
21–30 of 239 posts
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#22Earlier quoted context omitted.
They call it "swimming with the sharks" for a reason.
The above situation seems like swimming with goldfish. If you have less than 50% yourself, why would you bank on someone else not being able to get more than 50%?
It was misplaced trust. That's a really easy mistake to make until you've been burned by it. I'll bet that person won't make that mistake a second time.
But better is to avoid swimming with the sharks at all. I have a wonderful horror story about a business deal I made where I was cheated out of about $5 mil. I didn't trust the party I was doing the deal with, so the contract negotiations took most of a year and the contract ended up being very thick as my attorney and I tried to anticipate and block every possible way that I could get screwed.
But we missed one rather obscure method.
That's what happens when you swim with sharks.
(Don't shed tears for me, though. I did very well through that deal -- just not as well as I should have.)
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#23I 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…
There seem to be 2 problems here:
1. Giving another party 49% doesn't guarantee you will have retaining control. You having 51% shares does guarantee that. So, their strategy was flawed.
2. Not sure if regulations allow this, but to make it bullet proof they should have made a contract that the PR group will not go beyond 49%.
Without either of the above, the company just did not do good diligence.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#24VCs don't like dead equity, they will have pressed for this. Nonetheless you cannot lie and this could have been resolved with integrity.
>> VCs don't like dead equity
Isn’t a VC investment dead equity?
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#25I 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 you have less than 50% of shares, why would you make it so easy for them to get control?
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#26I 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…
What was the name of the PE firm?
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#27Earlier quoted context omitted.
The above situation seems like swimming with goldfish. If you have less than 50% yourself, why would you bank on someone else not being able to get more than 50%?
It was misplaced trust. That's a really easy mistake to make until you've been burned by it. I'll bet that person won't make that mistake a second time. But better is to avoid swimming with the sharks at all. I have a wonderful horror story about a business deal I made where I was cheated out of about $5 mil. I didn't trust the party I was doing the deal with, so the contract negotiations took most of a year and the…
I feel like the story of the scorpion and the frog applies here. My solution is to try very, very hard not to engage with people I do not trust.
My mantra is "good people do good things, bad people do bad things". If you don't want bad things to happen to you, stay away from people you know to be bad regardless of how tempting it may be to associate with them.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#28Odd 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?
My immediate thought exactly. You'd have to be absolutely flat broke for this to make any sense whatsoever. Why sell it at all? And, if it's so worthless, wouldn't you be more than a bit suspicious if the CEO were so keen to buy it off you? Something here smells off to me.
I assume the deal was for something else... Eg. "Sign this deal for 100 bucks and we'll have a shorter list of people to consult at every shareholders meeting. In return, we'll consider you for investment opportunities for your next startup "
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#29Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#30I 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…
People just don't know about this stuff. It was even worse decades ago when there wasn't so much startup content online.