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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

#201

Post by H8crilA »

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…

What you described is not illegal. Capitalism is intended to be brutal like that. Companies are not owned by the founders, they are fundamentally owned by the shareholders, whether it seems fair or not.

What the article describes is a simple case of large fraud: deceiving someone for a personal gain. That is of course if the article is truthful.

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

#202

Post by H8crilA »

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…

As I understand the article describes fraud, which has little to do with being a good or a bad player. Fraud is a crime. Assuming, of course, that the article is truthful.

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

#203

Post by saagarjha »

Mizoguchi wrote: post #179
marricks wrote: post #115

Earlier quoted context omitted.

There's also the story Richard Branson wrote about in his memoir where the co-founder of Virgin was pro unionizing and his workers were too. Branson convinced (and lied to) his partner that no one in the company actually liked him and the union attempt would fail. Caused his co-founder to quietly quit and Branson to retain sole control. I agree, I imagine shady shit like this is quite common just not discussed.

If your "partner" sides with a union to take over the company that's an all out war.

Sounds like Branson sided against the union?

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

#204

Post by kristopolous »

devjab wrote: post #197
kristopolous wrote: post #64

Earlier quoted context omitted.

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'm not convinced they are throwing money at nothing this time. If you look into my post history (don't, I'll give you a tl/dr) you can see me being fairly critical about the state of LLMs, but also that I find them incredibly useful for some things. GPT basically writes 95% of our documentation now, only the code we absolutely don't want to share with the internet is still be documented by hand. And that is just a t…

Right. It's not a discount to the science or discipline but instead to the weird used car men snake oil games we need to play to move the money around.

The royal society and other 18th century science institutions had similar problems. Carnival barkers would shock people with leyden jars, hidden wires and do Stephen Grays flying boy experiment as an amusement to raise money to do actual legitimate science.

Some of the early Copley medal winners were impoverished borderline homeless people who couldn't afford the membership dues to scientific societies. They've got like scientific theories and galaxies named after them today

In Japan, the government has a special status for accomplished people where you get a lifetime monthly stipend so that, say fine poets can write poetry without worrying money. (人間国宝: https://en.m.wikipedia.org/wiki/Living_National_Treasure_(Ja...)

It'd be nice if things that were valued could be funded without having to hustle so much

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

#205

Post by kypro »

nobrains wrote: post #23
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…

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.

How does that work?

In this case wouldn't the individual with > 50% shares need to be diluted to 50% stake?

And surely at the point of dilution the individual would realise they have I guess what I'm confuse at is if you own 51% of the shares, unless you sell some of that or dilute your holding there will only ever be 49% stake that can be purchased by another party.

Am I missing something?

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

#206

Post by whywhywhywhy »

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…

This article is really weird. Am I the only one asking who he pissed off or is a threat to for such a weird article listing off things like over half of all founders do as misdeeds.

Very low quality if not full on paid for “journalism”. Putting only loosely connected logos on a deck? Gimme a break, happens every day in every office in the world.

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

#207

Post by JumpCrisscross »

Cpoll wrote: post #60
nobrains wrote: post #23

Earlier quoted context omitted.

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.

> 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%. Can this ever work? The PR group can control the 2% without nominally owning it.

> Can this ever work? The PR group can control the 2% without nominally owning it.

Yes. In tight-control transactions, there are a number of mechanisms.

Off the top of my head: specifying Board seats in the charter and requiring a supermajority or unanimity to change that. Voting rights agreements that delegate 51% of votes to one party. Turning all shares but two into non-voting shares, the two having 51% and 49% of the votes. Making transferred shares convert to non-voting. Transfer approvals.

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

#208

Post by [deleted] »

ralph84 wrote: post #188
preommr wrote: post #61

Earlier quoted context omitted.

> while PE/VC firms do these deals every day of the week That's why you hire a lawyer that also does this stuff everyday of the week.

I was tangentially involved in a deal where a Big Tech company acquired a VC-funded startup. The startup hired an investment bank as an advisor. The same investment bank that routinely underwrites debt offerings for the Big Tech company. Somehow they advised the startup to take the deal and not play hardball, even though there were public company comps at twice the valuation offered.

[deleted]

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

#209

Post by JumpCrisscross »

johngladtj wrote: post #198
Spivak wrote: post #85

Earlier quoted context omitted.

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.

How do you expect to make money with zero control?

> How do you expect to make money with zero control?

The way most Facebook shareholders have.

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

#210

Post by ben_w »

BonoboIO wrote: post #108
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…

Well ... how could you not inform yourself with that much money at stake.

Both legitimate mistakes and arrogant hubris are common enough, as are those who feel good about finding loophole, mistakes, and blind spots, and exploiting them.

Musk, for example, seems to me from what he says to enjoy exploiting the blind spots of other businesses; but he was counter-exploited into buying Twitter for way too much.

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