[HN Gopher] StabilityAI cofounder says CEO tricked him into sell...
___________________________________________________________________
StabilityAI cofounder says CEO tricked him into selling stake for
$100
Author : bhouston
Score : 147 points
Date : 2023-07-13 19:37 UTC (3 hours ago)
(HTM) web link (www.forbes.com)
(TXT) w3m dump (www.forbes.com)
| SV_BubbleTime wrote:
| https://archive.is/Sl3XS
|
| (Also, I didn't research this author, but a reminder that for
| $500 or so, you too can become a writer for Forbes. They have a
| massive credibility issue and I suspect are cashing out what
| little name they have left)
| ada1981 wrote:
| Where do I sign up for $500?
| epolanski wrote:
| 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.
| sigstoat wrote:
| > 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
| wongarsu wrote:
| Owning a 15% stake in a company also generates paperwork. Long-
| term, getting rid of it should be less paperwork overall.
| Michelangelo11 wrote:
| Right? Like ... what happened in that transaction?
|
| My feeling is that the guy also got some favors or something
| under the table, and the $100 was purely nominal. If that's the
| case, it could be that whatever he was promised didn't actually
| pan out, and now he's suing in retaliation.
|
| In any case, "$100 for a 15% stake" simply cannot be the whole
| story.
| andrewstuart wrote:
| So many people don't do the right thing.
| kkielhofner wrote:
| One of the biggest warnings with "equity" in a startup:
|
| Even if you know what you're doing and you watch it like a hawk
| it's pretty easy for other parties to pull any number of shady
| but technically legal moves to significantly devalue yours/others
| while protecting their own.
|
| If this proves to have merit it's one of the more shocking (yet
| straightforward) instances of this kind of unfortunately routine
| behavior.
|
| That said it's a little hard to believe anyone would take $100
| instead of holding on to it to see what happens. Depending on
| personal circumstances I can see how $100k or more could be
| tempting but $100 is ridiculous.
| varelse wrote:
| [dead]
| jujube3 wrote:
| Maybe he used one of those super-persuasive AIs I keep hearing
| about.
| qiaoliang89 wrote:
| epic cover photo...
| system2 wrote:
| I ate dinner last night and cost me $100. What kind of weirdness
| is this?
| Dreako wrote:
| [flagged]
| dustingetz wrote:
| VCs don't like dead equity, they will have pressed for this.
| Nonetheless you cannot lie and this could have been resolved with
| integrity.
| andrewstuart wrote:
| >> VCs don't like dead equity
|
| Isn't a VC investment dead equity?
| bloudermilk wrote:
| How could you say that? VCs are there to go to bat for you,
| make connections that change the trajectory of your business,
| and support you however they can. /s
| zeroCalories wrote:
| Yeah, that's why they pay a lot of money to get in. Would you
| give your buddy joe that doesn't do any work 10% for fun?
| dpiers wrote:
| I had a former employer call once and ask me to sign a form
| confirming that I had opted not to exercise the stock options
| worth 0.125% of the company when I left.
|
| They were raising a new round and my old grant was a sticking
| point because the new investors weren't content with the
| company not having a record of my exercise.
|
| I signed because it helped them out, cost me nothing and seemed
| like the right thing to do. Just think it was funny that a VC
| was so averse to dead equity that they made the company make
| sure someone who wasn't on the cap table agreed that they
| weren't on the cap table.
| khazhoux wrote:
| 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?
| quadrature wrote:
| Only thing I can think of is that it might have been the
| symbolism of the cheque rather than the value.
| throw03172019 wrote:
| And it was in a few transactions? That's even more odd like the
| CEO couldn't afford $100 in a lump sum.
| sidewndr46 wrote:
| 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"
| gamblor956 wrote:
| 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.
| bartread wrote:
| My immediate thought exactly. You'd have to be absolutely flat
| broke for this to make any sense whatsoever. Why sell it at
| all? And, if it's so worthless, wouldn't you be more than a bit
| suspicious if the CEO were so keen to buy it off you? Something
| here smells off to me.
| londons_explore wrote:
| I assume the deal was for something else... Eg. "Sign this
| deal for 100 bucks and we'll have a shorter list of people to
| consult at every shareholders meeting. In return, we'll
| consider you for investment opportunities for your next
| startup "
| cabaalis wrote:
| Hanging onto stock from a company I co-founded a few years ago
| has caused me tons of stress because that company constantly
| files for tax extensions forcing me to do so as well.
|
| I have other financial processes which rely upon timely
| processing of my completed tax filing, and every year it causes
| me trouble. So if something is thought to be worthless and
| about to fold, "just hang onto it" could cause a non-zero
| amount of headaches.
| bloudermilk wrote:
| Guessing you're a member of an LLC or shareholder of an
| S-Corp with pass-through taxation. Can't agree more what a
| pain it is to wait on your old partners to do their taxes
| every year before you can do your own.
|
| If you're just holding shares/options in a corporation that
| isn't going through ownership changes, that problem doesn't
| exist.
|
| That said, there are still valid reasons to cut ties with
| past partners/employers.
| oldtownroad wrote:
| 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 purposes, if I pay you
| $100 for the equity, it'll be better for you as you can write
| the loss off" or something along those lines, something that
| wouldn't stand up to scrutiny now but is enough to bamboozle
| someone into agreeing at the time.
|
| Edit: no theory needed. The lawsuit goes on to say the $100 is
| the price the co-founder originally paid for the shares when
| the company was formed.
| tpmoney wrote:
| 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.
| slashdev wrote:
| It's obviously not for the $100, that's just a small, round
| value to make it legal (some money has to change hands, even if
| just $1.)
|
| Likely the CEO explains that it's worth nothing, they're re-
| organizing things for such and such a purpose, and the 15%
| stake in the cap tables is an inconvenience preventing a
| possible deal. Please could you do us a favor and help us clear
| that from the cap table.
|
| I'm the kind of person that would fall for that.
| quickthrower2 wrote:
| If you want to know, watch Dr Phil interviewing people getting
| conned or Unusual Suspects where a "best friend" murders him to
| avoid getting caught in a Ponzi/fraud. Human nature is to trust
| on face value.
|
| I assume I can be fooled.
|
| I for many people including me, defence against dog eating dog
| business has to be learned.
| anotheryou wrote:
| Not that I could judge for either side here, but I feel we are
| missing part of the story.
|
| Who would sell anything like that for 100 dollars in 2
| transactions? If it really was worth nearly nothing I'd probably
| not ask my cofounder to pay me 100 bucks for it either.
| andrewstuart wrote:
| Isn't this essentially what Zuckerberg did to his cofounder?
|
| Or some variant of the same recipe...,
| rexreed wrote:
| 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 say nothing like giving up a stake for $100
| JustLurking2022 wrote:
| He had to go through a lawsuit to get them... kinda like the
| story.
| jononomo wrote:
| Saverin had to sue Zuckerberg to get the money though, which
| is what the guy in this story is also doing.
| ansk wrote:
| 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 were 1) a model which was state-of-
| the-art for maybe a month 2) a github repo with a lot of stars
| and 3) a loose association to some mediocre researchers. Unless
| they can find someone to hold the bag in the very near future,
| their equity is going to be just about worthless.
| Filligree wrote:
| 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.
| skeaker wrote:
| 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.
| ivalm wrote:
| The loose association was with decent researchers, no need to
| bring them down. I do agree about the rest.
| ansk wrote:
| 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).
| iambateman wrote:
| 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
| $$ is too small and we would be risking our own capital vs the
| company capital.
|
| The worst part...it's an LLC and the manager remains kind enough
| to send the tax statement each year, so I pay for the privilege
| of having a company stolen from me.
|
| Choose your business partners carefully. :(
| fallingknife wrote:
| You had majority voting, right. Why not just fire him.
| codethief wrote:
| I don't understand. You have majority ownership and you can't
| fire the manager of your own company?
| icedchai wrote:
| The company is yours. Why can't you use its capital? Do you no
| longer have access to the bank accounts?
| cj wrote:
| 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,
| replaced the board of directors, the whole works.
|
| The unfortunate part about these kinds of things is that 1) they
| happen all the time, and 2) founders rarely talk about it because
| doing so can so often destroy your ability to get funding for
| future endevors, etc.
|
| I really wish there were an anonymous but vetted "yelp" type of
| site for people/firms who do bad business. So much business is
| done in bad faith and the people on the losing end rarely have
| the ability to warn others of their experience without killing
| their own reputation.
| hammock wrote:
| What was the name of the PE firm?
| JohnFen wrote:
| They call it "swimming with the sharks" for a reason.
| [deleted]
| lotsofpulp wrote:
| The above situation seems like swimming with goldfish. If you
| have less than 50% yourself, why would you bank on someone
| else not being able to get more than 50%?
| [deleted]
| JohnFen wrote:
| It was misplaced trust. That's a really easy mistake to
| make until you've been burned by it. I'll bet that person
| won't make that mistake a second time.
|
| But better is to avoid swimming with the sharks at all. I
| have a wonderful horror story about a business deal I made
| where I was cheated out of about $5 mil. I didn't trust the
| party I was doing the deal with, so the contract
| negotiations took most of a year and the contract ended up
| being very thick as my attorney and I tried to anticipate
| and block every possible way that I could get screwed.
|
| But we missed one rather obscure method.
|
| That's what happens when you swim with sharks.
|
| (Don't shed tears for me, though. I did very well through
| that deal -- just not as well as I should have.)
| takinola wrote:
| I feel like the story of the scorpion and the frog
| applies here. My solution is to try very, very hard not
| to engage with people I do not trust.
|
| My mantra is "good people do good things, bad people do
| bad things". If you don't want bad things to happen to
| you, stay away from people you know to be bad regardless
| of how tempting it may be to associate with them.
| JohnFen wrote:
| Indeed. It was poor decisionmaking on my part. I was
| blinded by the $$. My attorney tried to warn me off of
| doing the deal at all. He had done his due diligence and
| looked into the company, and told me outright that the
| company was shady.
|
| That was another thing I learned: if you respect
| someone's expertise enough to pay them for it, you should
| probably take what they have to say very seriously.
| nickfromseattle wrote:
| > But we missed one rather obscure method.
|
| Please share.
| JohnFen wrote:
| It was related to international distribution. I had
| negotiated royalties for international sales, but had
| neglected to cover the sale of the _rights_ to sell
| internationally. So the company just sold the rights, of
| which I didn 't get a piece, and the companies that
| bought the rights had no obligation to pay me anything.
| supportengineer wrote:
| In the 1980s I had a babysitter who watched the TV show
| _Guiding Light_ and I am pretty sure this exact scenario
| happened to one of the characters.
| ttymck wrote:
| I'm not trying to be harsh but this seems like business 101? Is
| this really that common? If you can't retain control of your
| company are you truly fit to run it?
|
| > with the explicit purpose of retaining control
|
| Why wasn't the other party contractually prohibited from
| obtaining control?
| DANmode wrote:
| Meanwhile, the inbound investors I've taken calls from aren't
| interested at less than 51%.
|
| Where's the disconnect?
| redbell wrote:
| 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.
| wongarsu wrote:
| 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 has similar
| structures, but overall this is very unusual.
| Spivak wrote:
| 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.
| [deleted]
| TrackerFF wrote:
| 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 100 owners,
| many whom probably don't even remember that they own the stock
| (but you can easily find them, as we have pretty transparent
| laws when it comes to company ownership).
|
| But here comes the fun part: A couple of years ago some of the
| leading media companies in our country (Norway) started
| consolidating "power" by acquiring small local newspapers all
| over the country. Eventually they came to our local newspaper,
| and they started cold-calling all the listed owners, asking if
| they could purchase their stocks - warning that the newspaper
| was on the brink of bankruptcy, and that they would buy it and
| restructure it into a profitable paper. Some owners, thinking
| the stock was going to be worthless anyway, sold them their
| shares.
|
| They, of course, never told the majority owners any of this.
| The majority owner (the workers of the newspaper) started
| getting worried calls from senior/old readers if the newspaper
| was going to close, because some investors had been calling
| them with bad news about an impeding bankruptcy?
|
| The paper printed a story about this attempted takeover and the
| fake news regarding any potential bankruptcy, and people
| stopped selling their stocks.
| anyoneamous wrote:
| > 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.
| woleium wrote:
| never pick a fight with someone who buys ink by the barrel
| quickthrower2 wrote:
| 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.
| Simon_O_Rourke wrote:
| From a control point of view, and maybe a salary or job
| viewpoint, this isn't too good.
|
| But enlighten me how a 40% odd share distribution of a now PE-
| owned and operated company would be a bad thing? Surely they're
| going to try and increase the company's value for their own
| self interest?
| cj wrote:
| PE and Founder interests are not as aligned as many would
| assume at face value.
|
| Founders often care about doing good by their customers,
| vendors, employees... while the average PE firm will happily
| screw everyone over the moment there's a monetary incentive
| to do so.
|
| If a founder has the same time horizon for an exit as the
| PE/VC and if the founder is emotionally detached from the
| business/product/customers/employees, then all incentives are
| aligned. But that's usually not the case which is why you
| often see CEO's ousted and replaced by a "professional CEO"
| to "take the company to the next level". In reality founder-
| CEOs are ousted most often because their passion for the
| business gets in the way of maximizing profit.
| nobrains wrote:
| 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.
| Cpoll wrote:
| > 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.
| RandomBK wrote:
| The extreme case of this would be Poison Pills, so if _that
| 's_ allowed then I suspect you can contract for this as
| well.
|
| Having said that this is the type of thing that is likely
| to get dragged in front of a judge, so the more foolproof
| way would be to retain 51% control or dual-class shares.
| Once you give up majority control to third parties, you
| can't really prevent everyone else ganging up on you and
| outvoting you.
| scrollaway wrote:
| They don't need to own the shares, they just need the
| shares to vote their way.
| arcticbull wrote:
| 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.
| mlyle wrote:
| > I really wish there were an anonymous but vetted "yelp" type
| of site for people/firms who do bad business. So much business
| is done in bad faith and the people on the losing end rarely
| have the ability to warn others of their experience without
| killing their own reputation.
|
| If you credibly report your experience, they will know who did
| it, anonymous or not.
|
| "The Funded" was an attempt to do this for VCs a decade ago.
| But it was astroturfed in practice.
| mediaman wrote:
| 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 you have less than 50% of shares, why
| would you make it so easy for them to get control?
| wmf wrote:
| People just don't know about this stuff. It was even worse
| decades ago when there wasn't so much startup content online.
| i_am_jl wrote:
| 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?".
| [deleted]
| piecerough wrote:
| This. Always get a lawyer.
| jrumbut wrote:
| 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 hard to know which is which
| before it's too late.
| code_biologist wrote:
| 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.
| wmf wrote:
| 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.
| talldatethrow wrote:
| You don't need to "know" anything to understand it was
| potentially possibly. And if you didn't, imo you're sorta
| braindead and that might explain why they wanted to out you
| in the first place.
| ada1981 wrote:
| Exactly. If you do a deal like this, it seems ideal someone
| more savvy come in and run your company for you.
| cj wrote:
| 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 really
| wants to screw you over. Unfortunately this happens all the
| time in VC, and especially in PE.
|
| As an example, when you sign a term sheet to sell a company,
| most founders assume the deal will go through at the price
| that was agreed. In reality, deals almost never close at the
| originally agreed upon price. The buyer usually waits until
| the very last minute, then drops the bomb on the seller "Btw,
| we can't do the deal anymore at this price, but we can sign
| tomorrow for 30% less". The sad part is it's such a common
| tactic and PE firms will do things like encourage founders to
| get their whole team excited about the transaction -before-
| dropping the bomb / new deal terms. At which point the
| founder is basically trapped with their whole team excited
| about an exit, which PE then exploits.
|
| All of the lawyers in the world won't help if the PE/VC firm
| has the ability to spread the word "Don't do business with
| John Appleseed" effectively shadow-banning you from future
| funding from anyone. PE/VC world is very small and they have
| a lot of political leverage, which almost always trumps any
| legal leverage a founder might have.
|
| The best defense is to have another VC/PE on your side.
|
| That also puts bootsrapped companies at a severe disadvantage
| (no VC fighting on their side for the best outcome). There
| literally are PE firms who specialize in buying "family run
| bootstrapped businesses". Why? Because they're the easiest to
| screw over and exploit.
| preommr wrote:
| > 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.
| cj wrote:
| Absolutely, but still not bullet proof.
|
| It's not all that rare for a large law firm to be
| "auditioning" for a VC/PE's business, while also
| representing clients who are selling or receiving
| investments from said VC/PE firms on the other end of the
| transaction. That can create perverse incentives that you
| the founder may never become aware of. Lawyers are smart
| enough to know how to walk the line without creating
| blatant conflict of interest.
|
| Good lawyers care more about their own reputation than
| they do any 1 transaction. Each transaction is an
| opportunity for the lawyer to gain or spend political
| capital with the opposing counsel. This is less of an
| issue with smaller/boutique firms, more of an issue at
| large well known firms. Counter-intuitively, it can be
| better to work with a 2nd tier law firm than the #1 top
| rated law firm.
| kmeisthax wrote:
| 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?
| Infernal wrote:
| Links? I'd love to read more.
| mousetree wrote:
| > You have a massive disadvantage that can't be overcome.
|
| You hire a law firm to advise you on the deal.
| dpiers wrote:
| 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 process, and now it seems like his cofounder as well. What
| value is there in a company that's only famous because they spent
| $600k in VC money training an open source model on AWS?
|
| 1: https://www.forbes.com/sites/kenrickcai/2023/06/04/stable-
| di...
| kristopolous wrote:
| 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
___________________________________________________________________
(page generated 2023-07-13 23:00 UTC)