I know of several such cases, but it's costly, and usually a good idea to decide whether or not you want to pursue something like this involves the cost (and stress) of a lawsuit over an extended period of time, and to ensure that that is outweighed by the upside of winning the case.
Hard pressed? Ed Saverin is a very well known case. He sued Facebook after his co-founder Zuckerberg diluted him out and settled for multiple billions. But then, it was a unusually straightforward case because Zucks put his malicious intentions in writing.
Very few things in a VC-backed startup require a shareholder vote. Firing the CEO is not one of them (this is a board vote.) Electing directors to the board is not one of them (this is usually the subject of a voting agreement that ensures board representation by the VCs.)
Let's say the company raises money from VC1, who buys 20%, leaving you with 80%. The contracts add VC1 and an independent to the board, alongside you. Later the company raises money from VC2, who buys 20%, leaving VC1 with 16% and you with 64%. The contracts add VC2 to the board.
Now the board is VC1, VC2, an independent, and you. If the VCs can convince the independent director to vote with them, the board can fire you, even though you own 64% of the company.
It works by having you sign a shareholder's agreement (at the point of investment) where you commit to voting in a certain way for certain key issues, including the structure of the board. Investment is usually not only a contract between the investor and the company, but also a contract between the (new) shareholders. You would be required to support "their representative" to be on the board, no matter how many percent of shares and votes you and they had; and then the board has the rights to govern the corporation according to the corporate bylaws.
Ask Rogers, the board just tried to fire the CEO, the CEO just tried to fire the board, but those elections happen at a different time, and the CEO need the trustee of the family shares to agree.
How is that possible? Shouldn't it be the number of voting shares you hold? I thought that was the entire reason for share classes. It can't be based on the number of bored members alone, can it?
That is how it works. The board has the power to fire the CEO in all companies that I know of. (I suppose you might be able to write the bylaws so this isn't true but I'm not sure; a corporate lawyer would know.) The best you can do is to have an employment contract that regulates how the firing happens (ie. do you get severance, accelerated options, longer option exercise times, COBRA, etc. if you are fired without "cause", with cause carefully defined.)
Removing you from the board itself is a different matter. But that's usually also explicitly covered: they don't put the founder in the "Common seat" they put the founder in the "CEO seat." That way, when you're fired as CEO you automatically lose your board seat.
"The shareholders elect the Board which has the responsibility to hire and fire the CEO. The Board has the right and the responsibility to fire the CEO if they believe it is in the best interests of the company. If the shareholders don’t like the decision, they can call a special meeting of the shareholders to fire the Board and appoint new Directors. The new Board may re-hire the recently fired CEO. So the majority shareholder CEO will ultimately prevail."
That may be true in many companies, but venture capital funded companies almost always have something called a "Voting Agreement". I pulled a random one from my folder of docs, it is below. The upshot, if you are not used to reading these, is that all of the shareholders signed an agreement that says they will vote their shares to elect certain directors. In the absence of an agreement like this you are right, the board could fire the CEO but the majority shareholder could fire the board. But, again, every equity round from a VC that I have seen in the last 25 years (and, I assume, longer, but that's as far back as my personal knowledge goes) has a Voting Agreement in some shape or form.
Actual text from a Voting Agreement:
"NOW, THEREFORE, the parties agree as follows:
1. Voting Provisions Regarding Board of Directors.
1.1 Board Composition. Each Stockholder agrees to vote, or cause to be voted, all securities of the Company the holders of which are entitled to vote for members of the Board, including without limitation, all shares of Common Stock, Series A Preferred Stock, by whatever name called, now owned or subsequently acquired by a Stockholder, however acquired, whether through stock splits, stock dividends, reclassifications, recapitalizations, similar events or otherwise (“Shares”) owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, the following persons shall be elected to the Board:
(a) For so long as there remain outstanding not less than 200,000 shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock), one (1) individual designated by the holders of a majority of the shares of Series A Preferred Stock then outstanding, which individual shall initially be Jerry Neumann (such director being the director defined as the Series A Directors in the Restated Certificate); and
(b) Two (2) individuals designated by the Key Holders who are at such time providing services to the Company as an officer, director, employee, consultant or advisor holding a majority of the Shares then held by such Key Holders (each such director being one of the directors defined as a Common Director in the Restated Certificate);"
If, as a condition of taking money from a VC, you sign a piece of paper that says one board seat belongs to that VC, then you can't fire your board, regardless of your percent ownership of the company.
Percent ownership matters, certainly: it's what allowed you to make that deal in the first place. At that point your ownership becomes a little bit less about control, and perhaps a little more about economic interest.
Not all shares have the same voting rights. The VC might buy 20% of the company, but 50% of the voting rights. VC2 might buy another 20%, but get a different share of the rights.
Responding solely to the 'moat' question: think railroad price wars in the late 1800s in the US.
Industries with capital expenses relatively large compared to contribution margin tend towards local monopolies. When faced with a potential new entrant the incumbent can lower prices to where the entrant's assets can't return their cost of capital. The incumbent's capital is already sunk so they can afford to bring prices close to the marginal cost of providing the service. This threat of a price war is usually enough to deter entry.
This also leads to agglomeration in local markets both to avoid duplicative assets and to add credence to the price war threat.
(Hi Jerry!)
That is a good point. A few thoughts here:
1) Bundling could help new entrants with existing platforms. E.g. if Uber comes into a local market and offers a free scooter ride for every car ride, that could really hurt a company like Bird -- even if Bird is the incumbent when it comes to scooters.
2) I view these capital expenses as being relatively small. If it's $1m-$2m to cover SF in scooters, and if scooter costs are similar across players, then I don't see why a new entrant couldn't also offer services at cost until the incumbent gets tired of running at break even.
3) The price points are so low here -- often $2-$3 for a ride. If that's the case, I wonder if consumers will care about someone shaving 30 or 50 cents off their price to provide scooters at their marginal cost, or if they will care more about scooter proximity or safety or comfort or something else.
This. Was in Venice beach this past May and the Birds were everywhere, to the point where we almost felt compelled to give them a try, even though we had no need. Both wife and myself signed up and spent 30 minutes riding to Santa Monica. Great advertisement, cool factor and high word of mouth marketing.
I tried out the Bird scooters, liked them, and then bought my own. I use it to speed up the Caltrain commute from San Mateo to FiDi in San Francisco. The trip is: 0.6 mile scoot to Caltrain -> 2.0 mile scoot to FiDi -> 2.0 mile scoot to Caltrain -> 0.6 mile scoot home. If I were to use Bird, and Bird were available in San Mateo, it would cost about $12 a day for Bird, plus I would have to fire up the app and hunt down a scooter four times a day. The scooter cost $300, folds up in seconds, is easy to take on the Caltrain, and takes up very little space at home or at work.
I got the Ninebot/Segway ES1. Frys had them on sale for $300 about a month ago. Bird uses the Xiaomi/Ninebot m365, which is similar in many ways. The Xiaomi is faster, but if you want the faster speed, you can get the ES2, which Bird is also starting to use. The fold on the ES1/ES2 is superior -- it's simpler and faster, and the scooter folds up smaller, so it's more practical to put on the luggage rack on the train. It's a single lever and literally 3 seconds to fold or unfold. The ES1/ES2 also has an optional second battery pack which doubles the range and increases the speed. The ES2 has rear suspension, is 3 mph faster, and has rear and underside lighting. The extra speed and lights are nice, but the rear suspension adds weight and people say it rattles.
Overall, it's a really well designed product. I'm pretty concerned about the durability though. I've ridden it about 100 miles, and so far so good, but there have been several small issues with rubber coming unglued, it's starting to creak a bit, the caps on the handlebars pop out. The advertised range is also wildly overstated. It's rated at 15 miles but I had mine run out of juice at about 8.5 miles.
My hope is that the big rental companies will push Ninebot to make durability improvements, and the next version will last longer. Based on my experience so far, and what I've read online, I'm expecting maybe a 3-400 mile lifetime for this one.
If you get one, do your best not to go over any significant bumps at speed. The wheels are small, the tires are solid rubber, and the suspension has very little travel. The motor is in the front wheel. If you bottom out the suspension, the motor is going to take the hit, and it's small, high performance, and built to a low price point in China.
At some income level, there isn’t any difference between 1 penny and $3. It’s like getting a coffee, people can spend a lot of money on them thoughtlessly. And many people wouldn’t want to own their own scooter. I would rather not have to carry it or store it anywhere. Ride it to a store and just ditch it. If it breaks just get off and find another one.
I'll skip the humility. I'm smart. Always have been. My parents realized it early on and praised me for it. I pretty much slept through high school because after a couple of minutes of explanation of any math, science or computer science concept I grasped it. I never did any work, although I read a lot about the subjects I enjoyed, because I enjoyed them.
The non-STEM stuff was confusingly ill-defined and in those subjects I was average, at best. And because I wasn't good at them, I avoided them: I didn't do anything to be smart, I always had been, so what could I do to become smart at reading Shakespeare? I had no idea how I could learn to understand something I didn't understand because understanding seemed to have been something I was just born with.
I did well enough on the SATs to get into a top college and decided to major in electrical engineering. I skated through freshman year, earning a low B average.
Towards the end of the year I met with my advisor, the head of the department for the first time. Without preamble he said "We made a mistake. You're not really the person you looked like you'd be in your application." I didn't really grasp what he was saying. "You're not getting the grades your record indicates you could get. You're not working hard enough. You should think about transferring to a less demanding school. In any case, EE requires a commitment and I think you should pick a different major."
I was stunned. This was the first time in my life that anyone had ever done anything but praise my academics. I was angry. How could this adult, who claimed to be some sort of mentor, talk to me like that? In fact, writing this years and years later, I'm still a little pissed off.
But looking around, all my friends and classmates were working their asses off, getting ready for finals. The guy may have been a jerk, but he was right: I wasn't working hard and I wasn't learning very much. Much as I dislike the guy, I have to admit he did me an enormous service. He recognized that I needed a kick in the teeth to take his advice seriously. The next three years I made sure I worked harder than everyone else around me, if only to prove that he was wrong, that I hadn't been a mistake. I stayed in EE and would have graduated near the top of my class if I hadn't had to factor in my freshman year grades.
So what does that prove? That you can make a kid neurotic if you push him hard enough? Maybe. But I know that if I had tried to skate through my post-college life being smart and not working, I would have got nowhere and done nothing interesting. Being super intelligent is like having giant biceps: impressive, but rarely useful. People admire intelligence, but they reward getting things done. Getting things done requires some intelligence, but much more it requires hard work and stick-to-itiveness. I'm not faulting my parents one bit: they manifestly loved me, found me good schools and interesting activities and fed my eagerness to do useful things. But I'm careful with my kids to praise the things they control and can change--like hard work and not being deterred when things are hard--and let the being smart thing take care of itself.
Sometimes firms can't follow-on from a different fund even if they're following, up-round or down-round. That's why funds usually reserve money for follow-on investments.
Firms often have to go back to their LPs if they want to invest in the same company across funds.
Meh, every single startup I've seen in the past 25 years has claimed that they are tackling their problem differently than their competitors in some way. If this is what disruption means, then it's the quintessential distinction without a difference. It's the entrepreneurs' equivalent of a VC saying "we add value." A waste of pixels. And if that's the entire content of your strategy--you think being different is all the strategy you need because, "disruptive"--then chances are you're cooked.
There's a huge difference between "tackling the problem differently than their competitors" and "tackling the problem differently in a way that their competitors can't imitate easily without sacrificing their assets". The latter is disruptive, the former is just what doing business means. I think Uber does fit into the latter.
Just to be clear, I do agree with your general tone of the article, it's just that your Uber part made me cringe.
Sure, but tackling a problem in a way that your competition can't respond well to is called a strategy. I mean, you can define disruption any way you want, but keep in mind that the reason people use the word disruption when they mean strategy is because they imbue the word with magic power, not because it communicates anything meaningful.
They recognized that the local licensing laws were causing horrible market distortions or outright market dysfunctions. The salient points are the market dysfunctions. Where is the market failing and causing misery? What businesses/organizations have captive customer bases, really don't care about bad user experiences, and have outdated equipment?
20th century cabs were miserable, and even faced with competition, taxis are slow to adapt, have outdated technology, and persist in poor user experiences.
most small businesses do it they pay fines and penalties of 100% or more. They were able to play politics and won, congrats to them. didn't work so well for theranos, lending club, zenefits.
You seem to think being disruptive means it has to be always super successful and always ethical. Being disruptive has nothing to do with how successful they are. There are tons of disruptive approaches that failed. Also being disruptive has nothing to do with whether they're ethical or not. Maybe you have your own little definition, but that's not the definition the rest of the world uses.
Exactly, that's why the incumbents couldn't replicate them, because they had to stay legal. Let's not go into whether this is ethical or not. I'm simply pointing out what disruptive means.
usually the definition is around some technology coming out that the incumbents were so heavily invested in earlier technology that they couldn't embrace the new technology until it was too late. It's not that taxis companies couldn't have developed tech, it's because they followed the law which caused them not to be able compete. so, unless you call "law" a technology I don't include it in my definition. And since most of the other on demand companies are failing it leads me to believe it's not about technology or even strategy(unless you call breaking the law a strategy). Is my way the only way to look at it obviously not. Just like facebook didn't disrupt anything. they just executed better.
What you described is a "symptom", not a "definition". However let's say that you're correct and think for a second. Where do you pull out this notion that something has to be a technology to be disruptive? Here's the real definition of disruptive: http://www.merriam-webster.com/dictionary/disrupt There were many cases in history where people came up with disruptive invention, philosophy, business model, or any idea. Anything is disruptive if it renders the previous approach obsolete. Napster was disruptive, but both illegal and a failure. Based on your definition Napster is not at all disruptive. What else would you call it then? Being disruptive is not just about a small number of successful case studies mentioned in Christensen books.
> tackling the problem differently in a way that their competitors can't imitate easily without sacrificing their assets
That isn't enough. You have to tackle the problem differently in a way that matters to the market. It has to show up somewhere, in terms of price, features, or quality.
Like I say, I'm not disagreeing with the idea that "we will disrupt" on its own is no more use as a business case than "we will make wads of cash".
What I am questioning is the idea that there's only one way to disrupt an industry - to be cheaper and in some way subpar compared to the incumbent. You seem to be suggesting that the taxi industry hasn't been disrupted by Uber, because it doesn't align with one person's definition of what disruption looks like. And I don't really understand that. There's clearly been huge disruption there.
Re the options, the S-1 says: "As of March 31, 2016, we had outstanding options to purchase an aggregate of 16,704,752 shares of our Class B common stock, with a weighted-average exercise price of approximately $5.57 per share, under our equity compensation plans. After March 31, 2016, we issued options to purchase an aggregate of 671,550 shares of our Class B common stock, with a weighted-average exercise price of $10.30 per share, under our 2008 Plan."
Assuming they're going to IPO at more than $10 per share (which is usual) and that the option strike price has not gone down (so all the options issued prior to 3/31/16 were at a strike less than $10.30 per share) it looks like almost all the options would be in the money to some extent.
It matters mainly because we have come to the point where you need to be very rich to pursue justice. If Gawker wronged you, as a hundredaire, you're just SOL.
I think much of the anger at Thiel is really misplaced anger at a justice system seemingly built with the goal of enriching lawyers. Government's one job is to provide justice: why should people have to rely on private funding for it?
Agree with the first part. I was mainly referring to why is it ok to out him because he's a billionaire - doesn't seem to be in the public's best interest, regardless of one's status.
Similar to the argument Gawker made about the tape - I don't want (or need) to see a HH sex tape any more than one of my neighbor.
Nothing I wrote indicated that it was, "ok to out him because he's a billionaire". TFA doesn't explicitly advance that proposition, but that's the subtext. Meanwhile, reasonable people would like to see some media entity that is not deferential to billionaires, with respect to important topics. So long as its only focus is the sexuality of semi-famous dudes, Gawker is not that entity.
