Twilio Sued by Authy (YC W12) Founder Over Merger Compensation | Hacker News Reader

Twilio Sued by Authy (YC W12) Founder Over Merger Compensation

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Complaint: https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/do...

TL;DR: earnout disagreement, with the key earnout definitions completely redacted.

This is why earnouts are SO hard: too many external factors.

Actual complaint (PDF): https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/do...

Am I reading that document correctly? He had a clause for accelerated vesting upon termination and so vested 507885 shares immediately when they fired him in December (par. 36), and this suit is about the remaining 127386 "earn-out" shares that were dependent on hitting revenue targets? On the one hand that sucks and it sounds like he had a terrible time at Twilio; on the other hand he just got an extra 2.5 years' worth of stock without having to stick it out and is basically set up for life if he wants to be. Puts this in a slightly different light. (I have no connection to any of these people or companies, just interested in the story.)

He got a very good deal, he is lucky that Twilio acquired his company that I've never heard of.

I think I've heard of them once, but what does Twilio bring to the table to enrich Authy? Plus, Authy is literally competing against Google Authenticator, which despite the name is open source and free to use. Authy is asking nearly 10 cents per auth: https://www.twilio.com/two-factor-authentication/pricing

Other way around, Authy gets Twilio another channel to upsell telco services. $0.09/auth is fine if you cache it for 30 days/ever.

And why not Google Authenticator? Some people either want to avoid Google products or be more appealing to customers who want to avoid Google. I know of Authy since itch.io use them.

Damn, that is over $1 a year per user. Gotta have a high value customer demographic to justify that...

Yeah, that's a great succinct analysis. Use this to auth your mult-dollar purchases, not your SSH logins.

Google authenticator only stores its data locally. If you lose your phone you're screwed.

Authy replicates data so you can have your 2FA on multiple devices and easily restore them if your phone dies.

The funny thing is that as and end user, I can use authy to replace my Google authenticator, since it also implements the same protocol. So I use it for all my 2fa codes, mainly so I can access it from places other than my phone if needs be. I wonder if authy has monetized my use case somehow (adverts most likely).

Yes it stores locally, but on iOS the data will be kept in backups if they're encrypyted.

The price per auth was incredible when I priced it out once. It was going to be several hundred K per year just to support normal 2FA with it.

The other thing they advertise us 2FA for actions. So not just on login, but on actions. Imagine getting a 2F push notification that someone is transferring 5k out of your bank account, accept?

That also means the price isn't just logins, but could also be sensitive actions!

Just FYI, Google Authenticator is no longer open source. The last open source version was released 5 years ago.[0] TOTP is an open standard though, and can be implemented by anyone, such as Authy has done.

[0] https://github.com/google/google-authenticator-android

It's common to have this sentiment, but it doesn't actually put anything in a different light, anymore than the fact that you're getting a salary of (say) $150,000/year makes your landord stealing your $5,000 deposit "in a different light". (If it looks completely unrelated to you, think about the deposit story from the point of view of someone who lives on $20/day).

I have not read the complaint, and have no knowledge of this case. But when you've been treated unfairly (in the legal sense), it is your right to seek compensation for that through the courts, and the fact that other agreements were honored (and put him in a good financial position) should not put anything in "a different light".

Absolutely - I'm not saying he shouldn't take action if he thinks he's entitled to that compensation. But I think most people coming to this thread with just the news article will be reading it more as "twilio acquired and fired so they could claw back promised equity" rather than "head of acquired company thinks twilio made it hard for him to hit revenue goals, affecting 1/6 of his equity compensation."

i wonder how often this happens in the valley.

I wonder how often this happens outside of The Valley too.

A friend of mine works for a large M&A advisory firm. Apparently it happens all the time and the acquiring companies often make it deliberately hard for an acquired company to meet their earn-out targets, e.g. by hitting them with a lot of bureaucracy.

I've been bought twice. Each time the acquiring firm's bureaucracy was massively impactful. It's not done intentionally- larger companies need the structure. I have always thought of it as "gearing" - as in a large gear can make a small gear turn very fast simply by barely moving. Or put another way what happens when everyone in the larger company just needs 10 minutes of your time? You are booked for six months.

Not part of The Valley and not in the sexy start-up space but it happened to me when I sold my company.

They wanted us to meet minimum revenue numbers for 2 years but month after month they (A) wanted to take the bulk of our available time to do their needs and (B) certainly weren't going to PAY for any of that work. Pointing out the incongruent mandates were met with ignorance or "we'll figure it out later" with no later actually happening.

My co-founder and I left as soon as we could and never looked back. Fortunately our earn out wasn't an all or nothing, so we hit a bunch of the milestones and got the bulk of our money. Still a little bitter over the whole thing.

Whenever there is an earnout in the M&A context, the acquiring company will attempt to insert language in the transaction agreements relieving the acquiror from any liability if it does not help (or even hinders) the target (or the relevant employees from the target) in meeting the earnout thresholds.

If your company receives an acquisition offer and it includes an earnout, do not sign a term sheet that lacks protections in terms of your ability to meet earnout thresholds. Your leverage decreases once the term sheet is signed. So, if there's any chance to get protections, it's at the term sheet phase.

Anecdotal, but I lost 1/24th of a 2 year vesting on a all-cash acquisition, despite a clause that seemed to say that event would vest everything. The amount was small enough that I didn't make a fuss.

From my own experience and people I've talked to over the years, the 'transition' in a merger or acquisition, especially for the high level employees, is always more complex than you might think. Further the complexity rises depending on the leverage (so if the acquired company is in a strong position or a weak position).

That is especially true in 'feature' acquisitions where the company being acquired is going to be a new feature of the acquiring company's existing product. In those types of situations the acquiring company is probably already evaluating the feature and in a 'make' vs 'buy' sort of analysis mode, and even if they 'buy' a company that has built the feature, they really just want the technology and maybe the customer traction, rather than much more than that.

It will be interesting to hear how the Delaware Chancery court sees it but my guess is that they will hold for Twilio unless those redactions obscure some really bad contract work on Twilio's legal team.

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