Man, he should've at least held out for a sack of magic beans!
...or a couple of BTC?
StabilityAI cofounder says CEO tricked him into selling stake for $100
211–220 of 239 posts
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#212I assume this guy has a decent income and is not desperate for money. Why would he sell anything for $100??? Time, effort, legal fees and whatnot are much higher than $100.
Even if the company would be indeed worthless, I would not bother selling my shares for $100. I would just watch them go to 0.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#213May 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.
> May I just say, that the most ridiculous thing in this news really is selling a 15% stake in a company for $100? no kidding. i wouldn’t sell a 15% stake in a lemonade stand for $100. that doesn’t even cover the hassle of reviewing the contract and signing a bunch of notarized paperwork
I can think of a scenario where someone might.
Suppose you made it very easy for them to sign it over, with the contracts ready and someone in person ready to guide you through signing them. You could apply guilt and some made up scenario about needing those shares back so that the company can move forwards. Enough spin and pressure could do it.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#214Earlier quoted context omitted.
I believe the usual path in this type of situation is to dual-class shares, so you can retain voting control while selling beneficial ownership to others. I suspect the PE group would have, you know, rejected this arrangement given their plan.
> 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
I don't know if you can still do it, but it's how Zuckerberg has retained control over Meta/Facebook. Zuckerberg and friends has 90% of the voting power, because the special class of shares has 10x voting power compared to regular shares.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#215Earlier 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.
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?
> if you own 51% of the shares
Your understanding is correct there.
> Am I missing something?
I think you are missing that there may be one or more third parties who also own a stake. A quick example (figures plucked from the air, not a real world case) might make it clear:
Starting point:
Founder 75%, Other(s) 25%
--
New investor buys 49% from founder:
Founder 26%, Other(s) 25%, New Investor 49%
Founder no longer has overall control, but nor does the new investor
Founder+Others can block the new investor if they all agree
--
New investor buys 2% from elsewhere:
Founder 26%, Other(s) 23%, New Investor 51%
New investor now has overall control and can do pretty much what they like
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#216Earlier 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.
You can write all kinds of things in the articles of association/incorporation of a company. There's certain legal requirements but you can set up how the control of it works in many different ways to suit the purposes of the company or the desires of the founder/board. It's just a case of whether any investors will be happy to go along with what you're offering them inside those rules, since usually some degree of formal influence is expected (but not always, see how the tech giants are all generally quite immune from hostile takeover).
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#217Earlier quoted context omitted.
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…
> You have a massive disadvantage that can't be overcome. You hire a law firm to advise you on the deal.
I wonder how one would select a competent law firm that won't charge exorbitant fees, knows what they're doing and actually has your best interests at heart. It seems like a similar problem to the one you're trying to solve by finding a law firm, namely not having any experience in the area to make a good decision.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#218Earlier quoted context omitted.
This. Always get a lawyer.
As the sibling comment points out, it's not like you can hire any lawyer off Craigslist and expect to be bulletproof. Lawyers can be an expensive rubber stamp on a deal that is absolutely not in your interest or be a chaos agent that makes you impossible to do business with. They can also make executing complex deals very simple (for you) or ward off sophisticated scammers. At least in my experience, it can be very h…
There are lots of counterfeit motorcycle helmets. Sometimes it's hard to figure out what's a good helmet and a bad helmet.
Despite this, throwing up your hands and saying "I don't know how to find a good helmet, I don't want to waste my money on a bad one, I'm just gonna ride my motorcycle without one" is ill advised.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#219Earlier quoted context omitted.
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.
It’s not a free market. Your options are buy the class of stocks that the company wishes to sell, or not participate at all. Therefore it can be aggressively abused to disenfranchise public shareholders who have no say in the creation of share classes in the first place. 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…
> It’s not a free market.
>Your options are buy the class of stocks that the company wishes to sell, or not participate at all.
Respectfully, I think you're confused about what a "free market" is. What you're describing, where market participants can compel the sale of a firm's assets, is antithetical to a free market.
Re: StabilityAI cofounder says CEO tricked him into selling stake for $100
#220May 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.
I was once really broke and sold my 50% share in a startup I'd built for, IIRC, £500. 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...
The box was my favorite torrent site back in the day but the seeding requirements were a little insane especially when there was no one that wanted the same content.