Toptal suit against co-founder dismissed
pacermonitor.com
pacermonitor.com
Edit: we've also replaced references to that person's name with "[redacted]" below. The reason is that HN threads tend to rank highly in search results. We don't want a situation where Googling some individual's name will forever lead people to an old thread like this, where they won't find important relevant information that, e.g., the case was later dismissed.
Generally we find out about these things because individuals (or, less optimally, their lawyers) email us and ask for threads to be deleted. We tell them that we don't delete entire threads because that would be unfair to the commenters who participated, but that there are usually other things we can do to help resolve legitimate privacy concerns while preserving the rest of the thread. This case was an example of that.
It doesn't really talk about any ownership issues regarding the CEO - it's basically saying that [redacted] (an early employee) embezzled/mis-used money and when fired, started claiming he owned part of the company or was entitled to compensation.
According to the thing - [redacted] was hired a COO as an early employee with no equity, they claim he was unhappy, and that he embezzled a bunch of money by paying his girlfriend, getting bonuses, and misusing the company credit card (some of this he repaid). But once they found out, they fired him, and he started claiming he owned equity and/or was owed severance.
They want the money back, him made to shut up, and possibly drawn-and-quartered.
So it doesn't look like this is much broader than that .. again - according to the doc.
I find this sort of bonkers. Basically they all have contracts saying they'll get equity at the next round ... and the company is profitable and the CEO has no intention to every raise another round. So he currently owns 100% of the company: "As a result, even though it looks like a typical venture capital funded company, all of Toptal’s stock is in the hands of one person, co-founder and CEO Taso Du Val. Even Du Val’s co-founder and colleague for eight years, [redacted], has no shares."
That said, I do wonder whether there's some bigger story in the background (since [redacted] is referred to as co-founder in the Information article, and is getting sued in the parent)
This is probably not the most stable foundation upon which to build a company.
Most businesses have a fixed number is of equity owners, including service business like Toptal. In most businesses like that, if you get any equity at all, it'd be unusual that you could keep the equity if you leave the company.
Another true story: A team co-founded a company together. They all agreed to be co-founders and split the equity as fairly as possible.
Co-founder X was put in charge of legal, since noone else wanted to do it. Unbeknownst to the others, X allocated a small pool of shares for everyone except for X, taking the vast majority of the company for himself.
When everyone received their share agreement, they did the division against the "total shares" listed in the agreement. Everyone's percentages came out as expected, since they falsely believed the "total shares" represented the total shares in the company -- rather than in the pool.
To illustrate this, X owned over 83% of the company, while the next highest co-founder Y (the CTO) vested < 0.33%/year. Amazingly, X and Y had both agreed to take identical pay (below living) and make identical sacrifices, i.e. quitting their jobs to go full-time together.
Y left after a year, having found out months prior and given X time to resolve it in (misplaced) good faith. X managed to get VC investment only a few months later -- by not mentioning that the company's CTO had quit only a few months earlier.
When the VCs found out about Y, X then informed Y he was never the CTO but a "freelancer" -- even though Y had joined with the intention of being CTO, performed all CTO duties, and was called the CTO by everyone involved. The other co-founders were informed to write they were retroactively "Founding Members" rather than "co-founders."
Of course, if the co-founders are experienced about business it would be difficult to pull this off. For example, you should insist on seeing the cap table even if you believe you know the percentages.
However, this happened to intelligent co-founders right out of college, who even had a parent's lawyer friend look over the contracts.
That lawyer needs to be sued for malpractice. This is their job.
Why do you think that? Perhaps you parsed "parent's lawyer friend" as "parent's lawyer"?
The former is likely doing a favor and would not be paid the full sticker price when rendering such a service since the transaction is not truly at arm's length. The latter is more likely to be sued for malpractice since you would be paying the full sticker price.
Start-ups are hard. Harder if you’re marrying their risks to immigration law.
What you described is legal. If a founder can’t navigate these hallways, they might be happier in some other role.
That would support the notion that Du Val promised to convert and issue stock to other parties and never did.
What's especially interesting and radical about this is that, if it's true, the note was no-recourse for the investors. As I imagine is typical, a note I did once would convert to preferred upon raising a certain amount of money, but if we didn't, the note holder could either extend the term or elect to take common instead. The idea that you could do a note where the investor gets nothing if you don't raise more money is fucking wild.
That said, I guess it's not totally beyond the realm of possibility that even investors like A16Z would consider doing a no-recourse deal, provided the round was really hot and the investor was super confident that the company would raise more money.
If it's true that the note is no-recourse, then I say more power to him. Ask for the terms you want! You'll never know how much leverage you really have unless you try. The worst thing that can happen is they say no.
(these links are all empty apart from a logo and a date ranging from 2013 to 2016)
Du Val has hoarded all this stock, apparently it has worked, you can argue the ethics of it, but he seems to have pulled it off. Why not just write off this relatively small amount for a company with $200m revenue? Why draw attention to yourself and your company?
Is it an ego thing?
"[redacted]'s at-will employment was terminated for the reasons herein explained, and [redacted] left Toptal’s employ unjustly enriched, and with amounts owed by him to Toptal in the form of unpaid loan amounts, unreimbursed credit card charges of a purely personal nature, and restitution for amounts caused to be embezzled and diverted to his girlfriend and for an unapproved, self-awarded bonus, totaling at least $629,850.46."
If the COO just kept quiet, I think it would have been worth it to forget even $630k, but I guess could say it also sends a message.
I don't think most people on HN knew about the interesting events related to ownership of Toptal, so good for us the suit happened.
"47. On July 3, 2019, [redacted] wired $466,373.67 to Toptal."
so, this whole lawsuit seems to be about: $163,476.79
Since our industry has become the 1980s Wall Street of ethics, not much behavior surprises me anymore, but a successful startup allegedly backstabbing a prominent VC does.
+1
Did they have a contract that promises them stock? If yes, then they should demand that in court; if not, then they shouldn't have been "expecting" it - especially if we're talking about seasoned investors, which shouldn't be "expecting" anything other than what they themselves explicitly wrote in the investment paperwork. If they have a contract that promises them stock when pigs fly, then they shouldn't have been expecting that stock - they probably shouldn't have also accepted the disadvantageous contract, but that's a different issue.
Here's the pdf: https://uploadfiles.io/791hz3tg
If the link doesn't work, you can access it:
Go to https://cms.collierclerk.com/cmsweb Click Case Search In "Case Number" input "11-2019-CA-002689-0001-XX" (no quotes) Click Search Click Dockets Click the paperclip next to Docket Num 2
My other post was shadowbanned, here's the pdf: https://uploadfiles.io/791hz3tg
The company seems to be wholly owned by one of the co-founders. The other co-founder, who was in college when the company started, doesn't have an equity stake at all. Presumably he had a salary from day 1. There seems to be some sort of agreement that if the company restructures, he might get equity at some point, but this isn't necessarily going to happen.
Founder 2 (no equity) is accused of defrauding the company by misusing funds and hiring his girlfriend at an above market rate. The language of the complaint indicates that he's upset about not having an equity stake.
What kind of accommodations would suit these individuals?
I know there's different types of ADHD but the type I'm most familiar with is the one with a relationship between attention/focus & stimulation.
High stimulation = high attention/focus. So interviews wouldn't be a disadvantage at all, unless they were incredibly boring.
Dude was getting paid $!,000,000 a month? Damn.
It's $2MM + 2mo + 40k
https://www.filebin.ca/4rhKFRhk9bk9/11-2019-CA-002689-0001-X...
Seriously people need to stop accepting anything other than actual, real shares, that aren’t any kind of lesser grade/b class shares. Guaranteeing investor payback over employee payback.
Employee’s, especially early ones, are taking more risk than the VCs and should be compensated at a higher rate. If investor repayment is higher priority in funding rounds/buyout employee investment should be paid back before purely cash investors.
The end.
Between all the preferred share terms, warrants, options, contingent earn-outs, etc, there's a million ways to engineer the divvying-up of proceeds in a sale.
Ultimately, it comes down to whether you trust your leaders to hold to the spirit of their agreement with you.
All that said... it would be really interesting to see a corporation with bylaws and governance/voting structured in such a way that employee ownership and payout %s could be maintained within certain guaranteed bands. It would severely limit that corporation's flexibility, and might lead it to have a higher risk of failure in bad funding market environments... but it could become a big draw for high-value employees who strongly prefer equity certainty over cash comp and company autonomy.
Even with both there's risk beyond just market risk, but at least you've done what you can to minimize it.