Sean Rad Out as Tinder CEO
forbes.com
forbes.com
According to the book, the fatal flaw is board control. Even though Ev Williams was the largest shareholder (an assumption), he didn't have board control. He only had 3 out of 7 seats. And so he was forced out against his will.
Now Zuckerberg (at Facebook) never lost board control and hence was not pushed out by the VC board. The major conclusion seems to be it's imperative to maintain board control or you'll most likely be vulnerable to being replaced by professional management - even if you create a successful company.
The other interesting parallel is Benchmark. According to the book, Benchmark was one of the vcs to push out Ev Williams. It's been reported that Benchmark is now on Tinder's board.
http://www.businessweek.com/articles/2014-07-02/tinders-forg...
"""I spent a short and intense two weeks last summer reporting out a Tinder feature for Bloomberg Businessweek. What I found was a meteoric startup that wasn’t really a startup, owing to the fact that Tinder was born in an IAC incubator, and IAC owned and controlled the company. Rad and [former Chief Marketing Officer Justin] Mateen seemed to be playing make-believe in a lot of ways. They were keen to hide the IAC arrangement (“They’re sort of our partner in this”) and pretend that they were living the dream of being wined and dined by Silicon Valley moneymen (“We are being bombarded by venture capitalists … it’s very overwhelming”). When I talked to their minders at IAC and the incubator, executives were often dismissive of the two youngsters—happy to let them spin grand visions and soak up founder acclaim, while telling grownups, i.e. Wall Street analysts and investors, that Tinder was simply a lure to get millennials to pay later in life for IAC’s profitable dating service Match.com."""
Isn't this a core operating tenet of VC investment and one of the key reasons for taking a board seat? It is pretty well known that "founders" are generally not very good managers/executives and the investors know that and plan on bringing in new management ASAP.
Tinder has made 0 revenue since it's inception in 2012. That's not a company, that's a product. (a great product mind you)
> If tinder was private, its valuation would likely trump that of IAC.
IAC makes a lot of money ($3bil) and has a high market cap ($6bil). Given it's ownership of every large dating site, it's it conceivable that IAC has set the precedence for the total addressable market for online dating. Or at the very least, has an indication of such. I'm curious as to the rationale that would make Tinder worth more than IAC given that (1) Tinder hasn't made a single dime (2) the sites that do make money already have a large market share and continue to grow despite a free contender like Tinder existing and (3) a company "worth over a billion" needs to theoretically have a trajectory to not only bring in $150mil in revenue but exceed that in the foreseeable future in order for a billion dollar price tag to be realistic (on that same note - "billion dollar" valuations only make sense when their is a buyer who can foot that bill or the company has a trajectory to make those kind of profits. to my knowledge IAC would be the only company in existence to do such a thing).
Lastly, I'm genuinely curious about the history and terms setup between IAC and Tinder. If Tinder is such a darly of the tech world and is a "billion dollar business" then why did it chose to be so restricted by IAC when it's valuation "would likely trump that of IAC"? I curiously ask not because I have any sort of knowledge of their history, but rather the current arrangement suggests a story entirely different than the prescribed narrative that you suggest.
This would probably have been true in 1914. In 2014 it seems like a semantic quibble.
It's not true for everyone, but the fact remains that you can monetise people without them paying you a dime directly.
I am surprised that Tinder hasn't been monetized, as profits heavily drive management decisions. I've no idea what happened, but I wouldn't be surprised if a major target was missed.
IAC is a very rewarding company for those that deliver results as promised. I enjoyed working at a couple of IAC jobs many years ago, but it can certainly be an adjustment!
Best of luck to Sean, I bet he'll do well.
You're right. And it's funny people fight over the title "Founder" when that word doesn't mean anything on paper. Articles of Incorporation don't contain any mention of "Founder". Only CEO, Manager, etc. Founder seems to be an ego thing.
In reality Rad is not a Founder/CEO but was a General Manager or something.
Did he take risk? No. It was funded by IAC. Did he innovate with the product? Yes. He was a great employee and tool for Diller. And Diller got rewarded for his risk.
Sucks for Rad in that he didn't want to believe he was just an employee on paper. On paper he was like a General Manager of Quiznos. But look, he gets to drive his $115k mercedes around with Justin, retain equity and still cling to the notion that he was the Founder/CEO of Tinder. Whatever that means.
> The article brought up the point that he's an employee.
Wow. Are we under such a reality distortion field that the idea of being CEO & being an employee are in conflict?
Sean Rad sounds something more like a President in this scenario.
Let's think this through. The board represents the owners of the company. A President is different from a CEO how? Because there are other employees of the company who can fire them? Okay, what employees of Tinder can fire Sean Rad? None. Who can fire him? Hatch Labs, because with 100% ownership they completely control the board of Tinder...
Which all goes to show that in many, many ways, a CEO who doesn't have an ownership stake in a company is very much an employee.
That's an interesting conclusion to draw from this.
Because, as others have pointed out, he still would have had his job if he had control of enough seats on the board, like Zuckerberg did. Indeed Zuckerberg still has a job after calling FB users "dumb fucks" and offering his friend private information of anyone at Harvard (including private photos, private messages, etc. etc.) http://www.businessinsider.com/well-these-new-zuckerberg-ims...
Sure, if you still control the company, it's hard for you to be fired. That's s tautology.
This could be the worst cap table of all time.
That in and of itself may highlight part of the problem. I've known a handful of people on those lists, and it rarely ends well. I don't know if reversion to the mean, or a shift in focus, but the success hasn't lasted for them.
(Is it even possible for Rad or any other founder to cash out their shares before a liquidity event like IPO or acquisition? I know the answer used to be "no," but Airbnb seems to have changed that in recent years, and I'm quite unsure how it works now.)
- Founders can often sell shares during fundraising events, either through a pre-allocated block of shares called Series FF, or by having the company use a portion of the raised capital to buy back some of their shares at the same price.
- Any private stockholder can simply sell shares on the secondary market. However, most often, the company has the "right of first refusal." That means that the sale must be presented to the company before going through, and the company has the option to buy back those shares at the same price instead of letting the sale happen.
- Stockholders can also cash out by building derivative contracts where they "sell the upside" on their shares at a specific price. Think of it kind of like selling a stock option. ESO & Equidate are examples of companies / funds that facilitate this.
One of the biggest problems with bootstrapping startups is even after there's revenue, growth, and value, there's just no liquidity.
Obviously there's strong pressure from many directions to keep the cap table simple, keep the shares closely held, etc. But after many years of bootstrapping it can't be that uncommon to want to capture some of that value.
If there was no vesting schedule for his shares, he would already own them regardless of when he left.
In the case he did have a vesting schedule (which is a best practice), it was likely 4 years. So assuming the company was founded 2 years ago, then he'd have vested half his stock, which would mean that is his regardless of when he left. Then, when leaving he probably made an agreement with the company to accelerate the vesting of rest of the stock in exchange for any or all of the following: maintaining his board position, agreeing not to sue the company, helping future guidance for the company, or other stuff.
It is also possible that he had a previous agreement with the company that if he was fired from his job that all of his stock would automatically vest (this is a fairly common provision a founder will want when they allow outsiders onto the board).
Absolutely. Private companies buy back shares all the time. The board can authorize it, if they think it's in the best interest of the company.
"Altogether, $946.8 million, or roughly 86% of the funds raised across the three investments, was paid out to Groupon directors, officers and stockholders. Just $151.4 million was retained by the company to use as working capital and for general corporate purposes."
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