Don't founders often have the ability to overrule and make their own decisions?
Chris is already financially independent from the OKCupid sale, he could have open sourced the server code and/or reduced the overall burn to pivot to paid accounts.
Though the weird Stellar wallet addition implied some vision/product issues anyway.
Of course it's easy and probably unfair for me to say these things as an outsider with limited information and no real stake, it's definitely possible I'm wrong about important details that would change my mind. It'd be interesting to hear from Chris, but the sale probably restricts public communication?
This reminds me a little about the OKC sale actually, they had a blog post about why charging for dating sites made them worse that they took down after selling to match (they used to do cool analysis and publish them as blog posts, most of the details ended up in the book a different cofounder published called Dataclysm). That's more understandable to me though since I think it was their first exit.
Reading about Zulip - didn't you get bought by Dropbox before being open source? Is your current situation a lucky outcome - or was it a condition of the sale?
[Edit] - To clarify since there are downvotes, my questions aren’t rhetorical - they’re genuinely asking.
The power depends on the board structure and the ownership. But even if a founder owns 51% of the company, and so in theory can do anything, they still have an obligation to do right by the minority shareholders. This is generally known as fiduciary duty, and is a complex area of law. Here's a short summary: https://www.nolo.com/legal-encyclopedia/fiduciary-responsibi...
In a case like this, a founder can't just give away the source code. They'd have to believe that doing so was in the best interests of the company. And unless they wanted to risk a lawsuit, they'd have to persuade the shareholders of that too.
>they still have an obligation to do right by the minority shareholders
Fiduciary duty is extremely rare to be the subject of a suit against a, let's say, CEO. It's a complex area of law because it isn't actually a law, nor specified anywhere, and not a requirement for corporate existence. So, it's a set of court decisions that future cases are built upon, but in general a house of cards in that it could be invalidated by a) legislation; and b) adverse rulings at any level of a suit.
It's a myth that the only purpose of executives is to maximize profit for the shareholders. It's a canard. PBCs are a counterfactual here, full stop.
C-level executives are appointed and removed by the board. The board is appointed and removed by the shareholders. Yes, technically, executives are not required to act in the shareholders interests by law. But they are often appointed with the specific instruction to act in the shareholders' best interests, and can be removed from office for not doing that.
From my experience being a CEO and reporting to a board, trying to act in anything other than the shareholder's best interests would be... problematic, shall we say. I would need to be very convincing that what I was doing was in the best long-term interests of the organisation. Or have a board who agreed with the "not maximising shareholder value" goal.
It's only technically a myth that the only purpose of executives is to maximise profit for shareholders. That's definitely the most common instruction from the board, often implicit rather than explicit, and not doing that will get you into trouble in most situations. That trouble may not be a law suit, more probably just being summarily dismissed.
I agree with you that maximizing profit as the sole metric is a myth, which is perhaps why I didn't mention it.
However, in practice if one has taken $10m from investors looking for a big payday, one can't just do any old thing. Doing something sufficiently contrary to the interests of minority shareholders could certainly result in a lawsuit. Could the shareholders win? Who knows! As you say, it's a murky area. But winning in that case isn't what matters. The lawsuit will tie the company up for years, forcing significant spending. And if they include the CEO in the lawsuit, it will mean personal expense and an enormous headache. So in practice, the Keybase execs couldn't just say, "Fuck it, we won't sell to Zoom, everything is open source now." Not without talking it through with the investors, anyhow.
>Doing something sufficiently contrary to the interests of minority shareholders could certainly result in a lawsuit.
I suppose, but does it? Ever? Not to be antagonistic but your entire paragraph is a hypothetical which is substituting for anything from the real world, which leads me to believe that it's either not a risk at all, or such a small risk as to be invisible and still effectively not a risk. I mean, I'm sure we would have heard some cautionary tales by now!
What sort of examples are you finding yourself unable to Google for? There are plenty of lawsuits out there for breaching the rights of minority shareholders. Mostly with public companies, but private companies too.
If you're specifically asking about VC-vs-founder lawsuits, I think we don't see many of those because everybody has strong incentives not to let it get to that stage. Founders really want to keep on good terms with VCs. VCs want to be seen as pro-founder. Their incentives are generally aligned right up until things start going south.
And once we get to the on-the-brink-of-failure stage, the VCs hold all the cards. Any continued investment requires the VCs to at least approve. If a founder ever might want to do something venture-backed again, they need to stay in their VC's good graces. If the investors don't have majority control, they at least have board seats and the ability to disrupt any deals or other actions the CEO might make against their interests, both internally and by threatening deal partners. The CEO also probably can't afford a lawsuit either with the company's funds or on their own.
So I don't think we see the cautionary tales because few who have been selected by investors and spent years dancing to their tune turn out contrary enough to set those relationships on fire when it doesn't really get them anything.
Can you clarify your statement about the PBCs? I can't figure out if you're saying they are a good thing, or just a theatrical performance.
I am curious because B-corps have been popularized in the recent years, but when I looked into what B-corps are, it seems to me those are just bogus certificates that aren't doing any good, except enriching the people who print certificates for these types of corporations.
I don't really know whether I am right or wrong here, but I weren't able to find anything that actually makes a B corp different than any other. Would love to hear your thoughts.
I think they're a good thing that disproves the conventional wisdom that corporations are "required" to act only in the profit interests of shareholders, that share price is the only measure of executive performance.
Going further, I believe this canard is promoted by greedy assholes as justification for their bullying of "nicer" people who might have a more holistic view of corporate behavior, something which bullies are psychologically incapable. These people would call PBCs theatrical, "hey bro, good for you!" on par with starting a nonprofit.
I don't know a lot about B-corps so I'm generally talking out of my ass, but it seems like a "hey we tried" get out of jail card if they decide to shed it, which they can always do. If they don't wind up shedding it, do they go for PBC? Overall, maybe it's good for setting expectations, but since there's no legal committment involved I don't see much more to think about it.
I think it's less about the power relationship, exactly, and more about the way VC-funded companies are setup to be run. As part of raising a round, you prepare a business plan that involves aggressively spending the money over a couple years. You're committed both internally and to your board to execute that plan, and it's cognitively difficult to do something different as there's social pressure to do so (and one of your VC's greatest sources of power over you is they're the reference for your next fundraising round).
The result is that your company has planned to run out of money with potentially a multi-million dollar annual burn rate in two years. If as those two years are approaching, the company and/or market situation don't support raising more capital and the company isn't close to profitable, the momentum of that burn rate applies a great deal of pressure for a sale, destructive layoff, or total change in goals to "anything that improves the bottom line".
Also, the search for a story to help raise your next round can have a big effect on companies -- my view is most of Dropbox's problems when I was there (2012-2014) resulted from the search for a totally new business bigger than Dropbox Business that could justify a bigger valuation than $10B starving more obvious investments (Carousel, the now-dead photo sharing app, at one point had ~10x the engineering resources of Dropbox Business).
> Reading about Zulip - didn't you get bought by Dropbox before being open source? Is your current situation a lucky outcome - or was it a condition of the sale?
It's an extremely lucky outcome. There's a combination of factor that made this possible:
* Dropbox leadership prioritized doing the right thing by their users, and so we were able to get permission from both leadership and legal. I'm sure my personal position as a leader at the company who had a personal relationship with the people who had approve it made a difference (Though Luke Faraone made a big difference by asking legal if we could and inviting me to the meeting!). But I think Dropbox deserves a lot of credit, because they spend significant time from expensive resources (legal, etc.) making this happen, and I don't know of many companies that would ever do that.
* Our users were big fans, enough so that 10 of them flew to Dropbox HQ for a week to help us do the technical work required to do an open source release with all 10,000 commits of history intact and with a scripted installation process. This was essential to Zulip being usable after that release.
Thank you - I really appreciate the detailed answer.
I think I have a better understanding of how the incentives to cooperate would be hard to overcome even if you technically have the power as a founder (and even if you’re already financially independent).
The personal experience was also interesting - thanks!
> Though the weird Stellar wallet addition implied some vision/product issues anyway.
Stellar integration was weird indeed, but it blended really nicely into the chat, and it would totally work for Keybase if there was an easier way to cash in / cash out. That said, any cryptocurrency would do the job, but if this particular one helps monetize the product, why not?
I wanna say we don't know. Has there ever been an instance of any company getting their tranche(s) and saying FU to the VC, and there being any repercussions? It's a two- or three-level hypothetical, but I think it's worth exploring to give you a complete answer.
Don't founders often have the ability to overrule and make their own decisions?
Chris is already financially independent from the OKCupid sale, he could have open sourced the server code and/or reduced the overall burn to pivot to paid accounts.
Though the weird Stellar wallet addition implied some vision/product issues anyway.
Of course it's easy and probably unfair for me to say these things as an outsider with limited information and no real stake, it's definitely possible I'm wrong about important details that would change my mind. It'd be interesting to hear from Chris, but the sale probably restricts public communication?
This reminds me a little about the OKC sale actually, they had a blog post about why charging for dating sites made them worse that they took down after selling to match (they used to do cool analysis and publish them as blog posts, most of the details ended up in the book a different cofounder published called Dataclysm). That's more understandable to me though since I think it was their first exit.
Reading about Zulip - didn't you get bought by Dropbox before being open source? Is your current situation a lucky outcome - or was it a condition of the sale?
[Edit] - To clarify since there are downvotes, my questions aren’t rhetorical - they’re genuinely asking.