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

Post by Infernal » Thu, Jul 13, 2023, 10:56 PM UTC

kmeisthax wrote: post #83

cj wrote: post #42

Earlier 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…

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?

Post by icedchai » Thu, Jul 13, 2023, 10:58 PM UTC

iambateman wrote: post #39

I was part of a group which ceded managerial control of a small business (think 100-500k/year) to a minority shareholder. This person was paid a professional salary to maintain the business, while we kept majority voting rights. We still had majority ownership until he decided he didn’t give a ** about our ownership claims and openly did his own thing. The problem is, no lawyer is going to take the case because the $…

Post by bonestamp2 » Thu, Jul 13, 2023, 11:06 PM UTC

arcticbull wrote: post #38

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.

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.

Post by HWR_14 » Thu, Jul 13, 2023, 11:09 PM UTC

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.

Post by worik » Thu, Jul 13, 2023, 11:16 PM UTC

arcticbull wrote: post #38

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.

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.