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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

#81

Post by gamblor956 »

sidewndr46 wrote: post #11
khazhoux wrote: post #6

Odd 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?

Yeah, I had a similar conversation with a founder a while back. Company he had founded was getting acquired. He was a minority stakeholder at this point. No ability to oppose the acquisition. Acquiring company wanted him to sign docs saying "I relinquish all my interest for no compensation". His answer was basically something like "I think you can spare $10000 if this is that important"

Doesn't make sense without additional facts.

Such an agreement would not be valid in court as there wouldn't be an exchange of consideration.

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

#82

Post by code_biologist »

jrumbut wrote: post #73
piecerough wrote: post #48

Earlier 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…

My company has spent six figures with two different blue chip startup law firms. Our board specified the firms. Those in the VC scene would recognize them. The quality of the work has varied from "decent if eye wateringly expensive" to "subpar", seemingly dependent on the associate that worked on it and if there was any other industry-wide phenomena occupying the firm's attention.

I'd still suggest a lawyer for sure, but I wish I had counsel I liked.

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

#83

Post by kmeisthax »

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…

One other advantage of buying family run bootstrapped businesses is that they're too small to trip antitrust scrutiny. There are entire industries whose driving consolidation force is a handful of PE firms buying up old family businesses and running them into the ground. Things like funeral homes, dental offices, and the like.

Yes, I did learn about this from Cory Doctorow, why do you ask?

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

#84

Post by skeaker »

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…

Maybe this is callous, but this kind of sounds like a win win. Investors who are responsible for enshittifying all my favorite stuff finally get screwed for once, AI gets democratized instead of being solely in the hands of OpenAI/Google/etc in the process. Nice.

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

#85

Post by Spivak »

wongarsu wrote: post #68
redbell wrote: post #66

Earlier quoted context omitted.

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.

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.

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

#86

Post by ansk »

ivalm wrote: post #63
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.

Mediocre in regard to the standard set by other research teams pulling $1B+ valuations. The OpenAI founding team and the recently announced team at xAI are what I would consider to be exceptionally strong groups. Adept, Anthropic, Inflection, and character.ai are also strong. Look at the track records and accolades of researchers at these groups. Ilya Sutskever alone has more research experience than the combined team of phd students Emad was working with (and eventually hired).

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

#87

Post by JustLurking2022 »

rexreed wrote: post #55
andrewstuart wrote: post #21

Isn’t this essentially what Zuckerberg did to his cofounder? Or some variant of the same recipe…,

Not quite -- Eduardo Saverin has had a pretty good life after he was diluted out. "Eduardo Luiz Saverin is a Brazilian billionaire entrepreneur and angel investor based in Singapore. Saverin is one of the co-founders of Facebook. In 2012, he owned 53 million Facebook shares (approximately 2% of all outstanding shares), valued at approximately $2 billion at the time" https://en.wikipedia.org/wiki/Eduardo_Saverin I'd s…

He had to go through a lawsuit to get them... kinda like the story.

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

#88

Post by tpmoney »

oldtownroad wrote: post #36
khazhoux wrote: post #6

Odd 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?

The lawsuit accuses the CEO of being a shady person in general. I think it’s plausible that the co-founder was surrendering equity he thought worthless (to move on from working with the shady person) and perhaps the CEO was advised by someone that a transaction without consideration can be challenging to defend (since he allegedly knew he was lying to the co-founder) so he convinced the co-founder that “for tax purpo…

The CEO might have been shady as all heck but the lawsuit really feels like it's all over the place in terms of claims. It starts by going on about how important the co-founder was to the company and to teaching the CEO almost everything about AI and like the co-founder was the brains behind the technical achievements, but then pivots into talking about how the CEO was responsible for all the code and the actual implementation and the co-founder was just a public face and deals maker who had no involvement in the actual development, and then pivots back to complaints about the CEO fraudulently claiming credit for "being instrumental" or "leading" the efforts to build the stuff.

The complaint simultaneously tries to paint the co-founder as absolutely vital to the success and creation of everything the company did, while at the same time only taking 15% of the company (the CEO started with 70%) and completely unaware of anything regarding the company's assets, income, or valuation, despite apparently negotiating multiple hundred thousand dollar funding campaigns and contributing $15k of his own money. Is it common when you're in the "getting grants from NGO's, before even seed VC funding" part of starting a company for one of three founders to be negotiating these $100k+ funding deals without any access to the company finances?

Didn't follow any public statement of the CEO, didn't have an insight or access to the books despite apparently multiple times running into funders complaining that the company appeared to be mis-managing funds, and apparently didn't even blink an eye (other than to note it I guess) that the deal that he thought was selling his shares back to the company was instead written to sell it to the CEO personally.

CEO may have been crooked as any man could be, but the co-founders own complaint really makes it seem like he walked through his entire run there with his eyes tightly shut.

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

#89

Post by anyoneamous »

TrackerFF wrote: post #74
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…

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.

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

#90

Post by quickthrower2 »

woleium wrote: post #77
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…

never pick a fight with someone who buys ink by the barrel

In this case, the fight picker buys ink by the FCL though.

I think in this case: don’t pick a fight in the back yard of a small town where community still exists and everyone sticks up for each other.

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