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

forbes.com

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

#61

Post by preommr »

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…

> 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.

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

#62

Post by mousetree »

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…

> You have a massive disadvantage that can't be overcome.

You hire a law firm to advise you on the deal.

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

#63

Post by ivalm »

ansk wrote: post #56

This dude very well may be better off with the 100 bucks at this point. The company is bleeding money at a ridiculous rate, so they're going to need to fundraise shortly. Given how little they have to show for their initial funding, they're going to struggle to attract any further investments. The initial investors already look like absolute clowns for giving a $1B valuation to a company whose primary selling points…

The loose association was with decent researchers, no need to bring them down. I do agree about the rest.

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

#64

Post by kristopolous »

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

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

#65

Post by scrollaway »

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.

They don’t need to own the shares, they just need the shares to vote their way.

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

#66

Post by redbell »

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…

I don’t know exactly how the CEO got kicked out but I know that Zuckerberg owns just about 13% of Meta and not only they cannot replace him but he still have superior power in decision making over the board of directors.

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

#67

Post by wmf »

piecerough wrote: post #48
i_am_jl wrote: post #43

Earlier quoted context omitted.

Lawyers have always known about this kind of stuff. Blows my mind that business owners are negotiating contracts like "I know what all these words mean, why would I need a lawyer to review this?".

This. Always get a lawyer.

Be sure to use a startup lawyer not a general small business lawyer or you might end up incorporated in Florida with no founder vesting or shotgun clause.

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

#68

Post by wongarsu »

redbell wrote: post #66
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…

I don’t know exactly how the CEO got kicked out but I know that Zuckerberg owns just about 13% of Meta and not only they cannot replace him but he still have superior power in decision making over the board of directors.

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.

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

#69

Post by Filligree »

ansk wrote: post #56

This dude very well may be better off with the 100 bucks at this point. The company is bleeding money at a ridiculous rate, so they're going to need to fundraise shortly. Given how little they have to show for their initial funding, they're going to struggle to attract any further investments. The initial investors already look like absolute clowns for giving a $1B valuation to a company whose primary selling points…

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.

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

#70

Post by wongarsu »

epolanski wrote: post #10

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.

Owning a 15% stake in a company also generates paperwork. Long-term, getting rid of it should be less paperwork overall.
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