VCs Pay Off Epinions Shareholders, Open Door For New Lawsuits
from the start-of-a-trend dept
This story may not get too much attention, as it seems like a fairly quiet settlement to a lawsuit that wasn't that interesting in the first place, but hearing that the investors in Epinions have agreed to pay out some money to fifty-one former employees could shake up some of the folks in their comfy offices up on Sand Hill Road. The story, which we've followed, involves a startup that was created at the height of the hype during bubble 1.0 and was supposed to be a Silicon Valley fantasy story about the perfect startup -- that turned into something less than ideal. The company had big names, big ideas and big backers -- but the product was only marginally successful, and after lots of struggles most of the original big name employees had bailed out. At one point, in order to secure a round of funding, the existing investors convinced old employees to give up their shares. This happens. However, depending on who you talk to, when the company did this, they kept secret the knowledge that they were about to sign a deal with Google that would eventually boost their revenue and let them get bought out by Dealtime to become Shopping.com -- itself eventually acquired by eBay. The shareholders who sold out turned around and sued their investors, claiming that they were tricked into giving up their shares. Of course, what was most amusing was that for all the stories about how "experienced" the founders of this startup were, none were apparently so experienced to understand that such deals are a part of Valley life. If they didn't give up their shares, then the financing might not have occurred, and the deal with Google (at the time) certainly wasn't obviously as big a deal then as it was now in retrospect. They agreed to give up their shares -- which, in part, helped the company get to the stage where it could be acquired. By suing, and now getting money out of it, they're opening up the doors to more lawsuits of this nature, where investors who sell out get to come back later for their "share" if a company turns itself around. Update: As is pointed out in the comments, it wasn't a "round of funding" that caused the shareholders to give up the funds, but the merger with Dealtime. However, the rest of the point still stands. The merger might never have happened without these people giving up their shares.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
No Subject Given
The VC(s) witheld material information in a manner that borders on fraud. The employee optionholders were clearly mislead and material information was witheld. What is legitimate about that? If anyone else has been in that situation too, I think they are warranted in pusuing the same remedy. This isn't trying to jump on the gravy train afterwards...
[ link to this | view in thread ]
I hope that they got enough money...
I agree, they should have known about impending deals and VC's are usually pretty cagy about things, that's their style. But still, the startup game in the valley is all about snowing people for a better valuation, and many people just don't seem to get that with the sums involved, a lot of basic principles often go out the window....
BTW, here's a great article about how engineers and founders get screwed over. It used to be on IEEE Spectrum, but they've since deleted it, so it's been archived by someone here.
It may not be right, moral or nice, but that's pretty much the way things work in the startup world, whatever the popular image might be. The fact that this was settled says more about how expensive lawyers are than anything else.
[ link to this | view in thread ]
in the end everybody wins
[ link to this | view in thread ]
Wrong. In the end the lawyers win
--
Texas Certified Concealed Handgun License Instructor
[ link to this | view in thread ]
get the facts straight...
[ link to this | view in thread ]
Hiding this sort of information is not just wrong,
Which is an option that should have been presented to them, but hiding the information of the pending deal was just sleazy. If it was not relevant then why not disclose it and if it was relevant some people on sand hill road should have had the SEC knocking on the door... It does not surprise me that benchmark was getting sued here, but from my dealing with august capital I was rather surprised to find out that they went along with the play benchmark tried to make.
[ link to this | view in thread ]
Be Fair
[ link to this | view in thread ]
tech dirt has the facts wrong...
This is good not only for the employees of Epinions, but for all future startup employees and for the system in general.
[ link to this | view in thread ]
No Subject Given
So you correct the factual misstatement, but then stand by the point that misstatement led you to? Great journalism.
For a company [Epinions] with around $8 million in cash and which was already profitable BEFORE a $12 million dollar deal with Google, would not doing a merger have been such a bad thing for the shareholders? Can you explain that to your readers?
Read the comments related to this story on your blog, the stories by the New York Times, the Wall Street Journal, Dow Jones, and the AP � it is clear that you are biased for some reason. Do you have a relationship with the VCs? With Nirav Tolia? Why are you so biased that you are willing to create facts and then defend your point even after you acknowledge that your facts are wrong? Can you state for all of your readers that you do not know and have no affiliation to any of the defendants in this case? Based on your postings, I would be willing to bet that you do�
[ link to this | view in thread ]
Re: No Subject Given
Wow. Talk about an accusation. I can state for the record that I have no affiliation with anyone on either side of the case. The only person I've met (and only once), actually, is one of the shareholders who is suing. I've never met Nirav Tolia, though he did email me once many years ago thinking I was someone else. However, if you've read any of my past stories about Epinions, I've been quite negative on them from the beginning. My guess is that Tolia, if he even knows who I am, doesn't particularly like me.
My position has nothing to do with a "bias" about one side or the other. I just don't find the shareholders' case particularly convincing, and I find the story amusing, because the whole deal with Epinions was that these guys were all supposed to be so "experienced" that they knew how the startup game was played -- which, in retrospect, is being shown to be as ludicrous as the stories about them in the beginning.
[ link to this | view in thread ]
Thank you
[ link to this | view in thread ]