
The Forgotten Founder: A Silicon Valley Tale of Humiliation and Revenge - bgossage
http://www.inc.com/magazine/201203/burt-helm/a-silicon-valley-tale-of-humiliation-and-revenge.html
======
cperciva
It seems to me that the lesson to learn here is to be careful about agreeing
to vesting. Pre-series A, the three founders owned most [1] of a company which
had a $6M pre-money valuation and was "on track to hit $1M in revenue" for the
year. Post-series A, they each owned less than 3% of the company outright,
with the rest of their shares vesting over four years [2]. What sort of idiot
takes a deal which reduces them from owning stock valued at $1.5M to owning
stock valued at $300k and an employment contract which gives them $300k/year
of stock if they stay at the company?

Obviously if you're running out of runway, you take whatever terms you can
get, since your company is worthless if it goes bankrupt; but if your company
is profitable and your only concern is about allowing it to grow faster, why
the heck would you take a deal which is practically begging your investors to
fire you?

[1] We're not told how much Cambrian Ventures took, but for $250k it
presumably wasn't a huge amount. I'm going to arbitrarily guess 25%.

[2] Based on the way the numbers work out, I'm guessing they kept 20% of their
stock outright and gave back the remaining 80% to be four-year vested. This
fits with the fact that the company was about a year old when they took the
funding.

~~~
damoncali
I don't know... You should probably subject everyone to vesting everyone at
incorporation - to keep people from ditching early with a huge slug of equity.
Good investors know this, and will often rightfully insist on some sort of
vesting reset - depending on circumstances. It doesn't make you an idiot to
take that deal. It makes you a part of the VC machine. It's just how it works.

That said, I've seen people raise (smaller amounts) of money without any
vesting provisions at all (i.e. the founders owned their shares outright).
That, to my way of thinking, makes the investor the idiot.

EDIT: I don't mean to imply that resets are a given. Only that they make sense
in certain situations, both for founders and investors. There is no
"standard", but there are "ways things are often done" for a reason.

~~~
mmaunder
Our series A investors wanted vesting and we said no. They were cool with it.
Vesting for founders is insane. Never accept it. Vesting for execs is
mandatory and has saved me once already, ironically because our investors
demanded it.

Once again I'm surprised at how very very few founders have a thorough
knowledge of what they're signing up for and how to get what they want. It's
your company. Act like it. You don't need permission and nothing is
"standard". Also think hard before you get into bed with A level VC's and
angels and make sure you are on your A game because the worlds most skilled
investors come with a heavy premium.

If you're bringing real value, there's nothing wrong with saying no.

~~~
tptacek
Wow, disagree. Team of 3 founders, no vesting, one walks in month 6, the
others stay for 4 years, build company; in the end, all three are compensated
the same way.

That's a terrible way to allocate equity.

Resetting the vesting clock to zero at funding sounds insane, but if you need
the money, the people offering it do set the terms. I know a lot of people
who've gotten institutional VC rounds for companies; I believe all of them
vested. You're right that it probably can't hurt to push back.

~~~
cperciva
I think the point you're trying to get at here is the same as what I was
saying: Vesting should occur over the same time period as the vestees are
making a significant contribution to the company. The situation when a company
is founded (founders will be building it in the future, and vesting is
appropriate) is completely different from the situation where a profitable and
rapidly-growing company takes investment (founders have already made a large
contribution, and vesting is either inappropriate or should be limited to a
relatively small proportion of their shares).

~~~
tptacek
That is part of my point.

The other half of my point is that in some transactions, "should" and "fair"
don't matter. Either the terms make sense for them, or they don't. Terms that
make sense aren't fair? Can't reasonably accept them? Ok. No deal.

VCs are professional deal makers. They can't code, they can't round HTML
corners, they can't even write copy. Their one skillset is optimizing the
problem of allocating other people's money in small companies for optimal
return.

Parent commenter is right in that you should push back and negotiate as hard
as you can. If you're a better bet than any of the 10 other prospects they're
prepared to fund instead of you, you might win. Otherwise, nope. But there's
no sense getting angry about it; nobody can reasonably say that a venture
capitalist is _obligated_ to fund anyone, on any terms. The sole moral
obligation of a VC is to obtain the maximum return for their limited partners.
Some of them bend over backwards to try to make things better for company
"operators"; in a very reasonable way of looking at things, the VCs who do
that may be the ones who are acting unethically.

~~~
cperciva
_The other half of my point is that in some transactions, "should" and "fair"
don't matter._

I'll give you "fair", but I think "should" has a very real meaning: If for
every deal X which does not have property P there is a deal X' which does have
property P such that for every participant utility(X') >= utility(X), then the
participants should negotiate a deal with which has property P. To take an
example I ran into recently: You should never simultaneously buy a life
annuity and life insurance (on average they cancel each other; but you have to
pay two risk premiums).

This may sound trivial, but it's useful for recognizing dishonest actors: If
someone wants a deal which doesn't have the properties you think it should
have, their utility function isn't what you think it is. In the above example,
if your financial advisor is trying to convince you to buy both a life annuity
and life insurance, it tells you that they're thinking about the commissions
they can earn, not about optimizing your finances.

 _Some [VCs] bend over backwards to try to make things better for company
"operators"; in a very reasonable way of looking at things, the VCs who do
that may be the ones who are acting unethically._

I agree: They're sacrificing the current fund's returns (by making deals which
are suboptimal for them) in order to improve their reputation (a personal
benefit) and allow themselves to get better deals in the future (thereby
improving future funds' returns).

An angel can spend his money to be your friend. A VC shouldn't spend his
clients' money to be your friend.

------
_sentient
Did anyone else get the impression that this guy is a major slime ball? I'm
sure YouSendIt has issues at the top, and it does sound like Kumaran may be a
little glory hungry.

But when you happily engage in vengeful DDOS attacks, shitty app spam, and
flip apparently stolen websites, it paints a pretty clear picture of your
character. I know I sure wouldn't want a guy like Shaikh working for me. Not
in a million years.

~~~
PakG1
Ditto. The guy bled for the company yeah, but the reason why I feel sympathy
for him is not because he was kicked out despite working so hard. Even though
he might have bled for the company and worked with executives with
questionable integrity and technical appreciation, he deserved to be kicked
out as soon as he stole the switches and put them up on eBay.

No, the reason why I feel sympathy for this guy is that he was so socially
inept that he couldn't figure out how to talk with other people, build
business relationships, build team relationships, and manage others without
being a two-faced jerk (don't take it personally, Mahler, I want to prove to
Koon that I care only about success and will sacrifice anyone for it?). The
guy was just too out of his element for the battles he needed to face.

He may have been technically very good, despite being socially awkward, and
some jerks may have taken advantage of that. But that in no way justifies or
accommodates the bad decisions he made. He's essentially taking the stance
that two wrongs make a right, and so I think he has a really poor sense of
right and wrong.

~~~
analyst74
This is very close to what I feel. While I sympathize with how socially inept
he was, he did make those mistakes himself, lack of skill is not excuse.

After all, there are many socially inept people who manage to live happily as
they are; there are many more people who made mistake and learned from them.

"The man of pity, must have his share of blame"

------
jacquesm
I really don't get why you'd take money off the table while at the same time
growing like crazy _and_ diluting the stock significantly.

Porsches and houses worth well over a million $US within 6 months of picking
up $250K funding in a year when revenues were _projected_ to hit 1M makes
absolutely no sense.

They should have simply matched growth to income and ridden the growth-curve
instead of diluting and splurging on luxury goods.

Lots of bad decisions here, including vesting for founders, a culture of blame
and so on.

~~~
moocow01
Totally agree but this is an unfortunately common behavior. During the dot-com
boom many people picked up hugely expensive homes based upon the the perceived
value of their shares. We all know how that turned out for most.

Even now I hear of people buying homes way out of their means because they
have some stock in the currently hot company of the week that has some assumed
paper value.

~~~
capkutay
How do you avoid these pitfalls? Just assume and act like you're still poor
(or not rich) until you sell your stock?

~~~
mattdeboard
Uh, yes? Spending money you don't have -- I'm not talking about lines of
credit here -- is stupid. There's no way to soften it up, it's just a stupid
thing to do.

------
ChrisNorstrom
Wow. Who would have known this would all happen at a file sharing site like
YouSendIt. It makes you wonder about all the stories out there that you'll
hear or know about.

A really nice read. Worth every word. I wish everything were written like
this. Straight and to the point. Constantly progressing, no BS, no filler. The
writing was transparent and didn't get in the way.

------
jpdoctor
> _He says his termination agreement prohibited him from contacting them
> [other employees]_

That pretty much tells you everything you need to know about the management
and board. The clowns probably included a one-way non-disparagement clause as
well, which is quite humorous in light of this article.

BTW: Standard etiquette in the valley is for the employees to contact anyone
who has just left the company, usually in email from the company, so there is
a written record of who initiated contact.

~~~
samstave
The worst company I have ever worked for, Device Anywhere, tried to get me to
sign a one-way non-disparaging agreement as a condition on my receiving a 4K
severance. I refused.

The CEO was an asshole and was having the company pay for his candy red
porsche as well as taking a hefty portion of the sales commissions whilst
laying people off due to lack of funds.

I hated that company. Never sign one of these agreements.

------
rdl
1) Who the fuck were their lawyers?

2) This seems to be the inevitable consequence of third-tier investors, weird
family politics, and founders with less than fully developed ethical sense
(which is fine; I would expect young founders and first time founders
especially to learn somewhat what things are considered ethical, starting from
a personal moral framework -- that's what advisors, lawyers, investors, etc.
are for).

3) The Mahler character's first instinct (this will end in tears and disaster)
perhaps was right; gut instinct is a good check on decisions like that.
Necessary but not sufficient.

4) Wow, now I remember what it was like when people still built stuff on
windows. Using linux (or bsd) was a huge competitive advantage 1998-2005 or
so; I guess like having the Internet was in the early 1990s. Macs for
desktop/laptop use became this in the mid-2000s; what is the current unfair
advantage held by anyone competent? Maybe the cloud, and devops vs. individual
system sysadmin? Single-command deployment?

~~~
temphn
> what is the current unfair advantage held by anyone competent

I hate to say it given how much time we waste here, but it's probably reading
Hacker News. People here know about node.js, about client-side MVC frameworks,
about MongoDB/NoSQL, and the like. Some of those things we even think of as
old hat, from way back in 2010 or 2011. Some of them we think of as trendy and
without staying power.

But we actually did take the time to look at these technologies, evaluate
them, and reject them -- or sometimes, accept them.

Now think about the guys who still think Java is the standard, who might just
now be getting around to learning Ruby...all when Ruby is itself fast becoming
Blub and the new hotness is actually node + coffeescript (or a more FP
language like Haskell/Clojure/Scala).

That's exactly the equivalent of the guys who ran Windows because they just
didn't know any better. For better or for worse, competent hackers read Hacker
News.

------
mirsadm
I can't help at being annoyed at the part where he has a group of programmers
churning out 5 iPhone apps a day.

~~~
ilamont
Background:

[http://techcrunch.com/2009/08/03/apple-bans-app-
stores-3rd-m...](http://techcrunch.com/2009/08/03/apple-bans-app-stores-3rd-
most-prolific-developer/)

------
jwr
Oh, how I wish it were mandatory for everyone to include a "view as single
page" button, instead of planting a bunch of tiny clickable digits at the
bottom.

These days it happens more and more often that I will not read an article if I
can't get it into Instapaper.

~~~
bryanlarsen
In this case I think that Inc paginated correctly, there are 5 pages, but each
page is a decent size (15-20 paragraphs), so it's a good compromise between
maximizing ad revenue and annoying readers.

But yes, the next page buttons should be bigger for touchscreen users.

------
api
Honestly, this whole thing looks like a big clusterfark. Lots of mistakes.

Fundamental to them all is the idea that being "funded" equals "arrival." It
doesn't. Revenue and customers equals arrival. Ideally it would be best not to
be "funded" at all, since OPM == debt.

~~~
jpdoctor
Yes. The fact that people "celebrate" a funding event is really bass-ackwards
when you think about it.

It says that the company couldn't figure out how to grow without bringing in a
bunch of financiers, who have a low hit rate (3 go north, 3 go south, 4 turn
into the living dead), who provided negative 10 yr returns even with Google in
the portfolio, and who take 2-3% + 20% of exit from their own investors.

Definitely an excuse to drink, but not for reasons of celebration.

~~~
api
Yay! I'm an indentured servant to a bunch of overstuffed douchenozzles! Umm...
wait... (scratches head)

------
kenrikm
Wow what a great example of "the law of attraction" E.G. negative people bring
negative things, positive people bring positive things. It was clear from the
story that he had serious integrity issues and was not great at dealing with
people. When I got to the part where they started buying Porches and 700k
houses I was like oh great this is going to go downhill FAST. I think that if
you're only in it for the Money/Ego I think you might as well become a Lawyer
at least then you're just doing what's expected of you.

------
uzair88
Ecellent read because it provides an alternate (and ugly) perspective of the
often glorified (read techcrunch-ified) world of startups in the Valley.

Shaikh has obviously made some big mistakes but take a minute to feel for the
guy. He literally bled for the company to save some money so I can imagine the
emotional rollercoaster he must have been on.

Well written piece Inc.

~~~
drumdance
I thought the bleeding part was gratuitous pseudo-symbolism. I cut myself
fixing the washing machine the other day, but I would never say "I literally
bled for the cause of clean clothes."

~~~
uzair88
Symbolism or not, I think there's no denying the fact that he worked very hard
during the early stages. My point is to highlight the fact that in light of
his struggles, I can appreciate his frustrations. While the attacks are not
justified, I can at least see the path of events that led to this act.

------
jccodez
Great read. I feel for the guy. It was a foolish decision, but I sympathize
with his continued struggles and wish he and his family all the best.

~~~
motoford
Can't help but feel some sympathy for him, but it's tempered by the fact that
he doesn't see the big deal with attacking servers to bring down a company.
Not even going into the whole part of flipping stolen websites and the app
spam.

Ethics seems to be more of a problem for him than the social awkwardness.

------
lkrubner
So, in theory, he is fired for stealing from the company. But then this
happens:

"Eventually, after months of negotiation, Shaikh says, he got a $50,000
severance payment. He agreed to sell his 317,000 shares in the company for
$73,000, less than a fourth of what they had been worth in the Series A
round."

Does this mean the company was uncertain about whether he was really stealing?
I don't think it is normal to pay someone a severance payment when they've
been fired for good cause. I think one would have to conclude that the company
was unsure of how much it could make stick, and therefore paid some small
amount simply to make him go away. Or possibly the severance was in exchange
for his agreement to sell his shares at a discount? That would make more sense
to me.

The FBI was not involved over this incident. Instead the FBI was involved over
this:

"So, on a chilly Tuesday morning in December, Shaikh ran a piece of testing
software, called ApacheBench, that flooded YouSendIt's servers with traffic.
The servers keeled over immediately. Later that day, a sentence appeared on
YouSendIt's Wikipedia page: "Looks like the company may be out of business,
their site is down." (Shaikh says he didn't write it.)"

The FBI took this very seriously, and got a friend of Shaikh's to wear a wire
and get him talking.

I appreciate that the FBI needs to look into any incident where there has been
hacking, but it strikes me this cooperation between the FBI and the various
corporations is open to abuse.

I once had a bad breakup with a company, and the ending was frightening to me.
This was in 2009.

There was a fellow acting as impresario for a startup. He called himself the
CEO, though he also ran a small investment firm, and he had multiple
investments that he had to keep an eye on.

The goal of the startup was to build something like Quora, but find a way to
get people pay for information (they would pay to ask questions).

The CEO lined up 4 investors who put in a total of $100,000 to get the
operation going. 4 programmers were hired, including me. 3 of the programmers
were remote, and I was in the New York, where the CEO and project manager
were. The other 3 programmers were in the USA and Europe.

We worked hard during the spring and early summer of 2009 to get to the point
where we could launch.

Half way through the summer, the decision was made to hire an Indian firm to
do the development. They were much cheaper. I would be the technical point of
contact. We relied less on the programmers in the USA and Europe and more on
the team in India. However, we had very serious problems with the quality of
the code coming from India. Almost every time something got checked into
Subversion, something broke. I raised my concerns to the project manager, and
I cc'ed the project manager on several emails to the team in India, where I
tried to educate them on the mistakes they were making. I was inclined to get
rid of the team in India, although the CEO and the project manager liked how
cheap they were. I suggested we find a different company in India. We all knew
that firms in India were of uneven quality -- some good and some bad. If you
want to hire a team in India, one often has to do a lot of digging to find a
good team.

I tried selling the project manager on implementing unit tests and functional
tests, and he suggested that we wait till the site was launched. There was an
attitude that we could clean things up once we launched.

There was some funny business with the money that I never fully understood. I
was working as a contractor. I was billing at the end of each month, and the
company had 30 days to pay, so it was a 60 day cycle from start to finish
(from the 1st of one month to the end of the next month).

They only paid me for June at the very end of July, which made me wonder about
their money. However, the project manager and his wife invited me to their
house upstate, and we spent a week working together, and the project manager
assured that there was enough money to pay me. They cooked some wonderful
meals and it was a pleasant week and we got a lot of work done. At that
moment, I thought of the project manager as a friend, and our work
relationship seemed very positive. I was single at the time, and his wife said
she had a friend that she wanted to set me up on a date with.

Still, I was suspicious about the money, so half way through August I stopped
putting in billable hours. I trusted the project manager, but I did not trust
the CEO.

As of September 1st and they had not yet paid me for the work I did during
July. This was in violation of the work agreements that we had signed.

I demanded to know whether they had the money to pay me. I wrote to the other
contractors and asked if they'd been paid. None of them had. Most of them were
only owed small amounts. At this point, the company owed me $10,000. I had
been the main programmer for most of the summer.

September gave way to October. For awhile they made vague declarations about
paying me part of the money. I began to suspect that they had no intention of
paying. I found out that they were still using the team in India, and
apparently the team in India was being paid.

In November I had my lawyer send them a letter, urging them to send me the
money. I notified the other contracts in Europe and the USA of what I was
doing.

After that, everything changed. They had their lawyer write up a counter
letter that basically said that all of the bugs on the site were my fault.
There was a suggestion that I had maliciously tried to undermine the site, and
that I had interfered with the team in India and damaged their ability to move
the site forward. The CEO was apparently especially angry about the fact that
I'd contacted the other contractors in the USA and Europe, and their lawyer's
letter referred to this as tortious interference with their contractors.

The purpose of that counter letter was to frighten me, and to some extent it
worked. I realized that if I wanted to get my money, it would involve an ugly
fight, with a lot of ugly accusations. I gave up the fight.

I never got paid.

After reading this article at Inc, I have to wonder how far the company could
have gone, if they had wanted to take a very aggressive approach with me. On
the personal level, I could wonder: If they had made accusations to the FBI,
would the FBI have investigated me? What would that entail, and would I have
the prove the bugs in the code were not my fault? But aside from the personal
level, there is the general issue: companies with aggressive lawyers could
potentially use these aggressive tactics to get out of paying contractors. I
wish that I could have faith that the folks at the FBI are smart enough to
avoid being suckered by these companies, but I don't really have such faith.

~~~
sachingulaya
It's not an ugly fight. You file with your labor board. They hold a hearing.
There's no lawyers involved. The state will collect a penalty for every day
late they were in paying you.

~~~
crescentfresh
> _You file with your labor board._

Excuse my ignorance, but there was no union involved far as I can tell. What
does this comment mean?

~~~
colorado_hacker
Nothing to do with unions, that's a reference to the state labor board that
oversees the labor laws. Basically, if you are someone's employee with an
agreement that you will do work for compensated, but then do not receive the
compensation, the state can help get your wages.

Here's Colorado's, the states are all similar:

[http://www.colorado.gov/cs/Satellite?c=Page&cid=12493913...](http://www.colorado.gov/cs/Satellite?c=Page&cid=1249391304206&pagename=CDLE-
LaborLaws%2FCDLELayout)

~~~
WalterBright
Since he was a contractor, not an employee, labor laws may not apply.

~~~
shareme
PLus the aspect that he doesn't have citizenship

~~~
lkrubner
I think WalterBright was responding to what I wrote about my own experience. I
think you are talking about the Inc article, where Shaikh lacked citizenship.

------
chrisacky
The takeaway from this for me was:

"The three co-founders would each be left with less than 3 percent of the
company."

Yet they hired an advisor to guide them through the raising stage? Is this
normal?

------
tnuc
Single page version.

[http://www.inc.com/magazine/201203/burt-helm/a-silicon-
valle...](http://www.inc.com/magazine/201203/burt-helm/a-silicon-valley-tale-
of-humiliation-and-revenge_Printer_Friendly.html)

------
yaliceme
This was a good read. I try to read one or two startup horror stories for each
startup fairy tale I hear. Though I've not yet considered simply abandoning
startup life, so perhaps I should up the ratio? :-p

------
ohashi
>"Once you break even, to me, that's the best point," he says, "because at
that point, you have complete control over your own life."

My favorite line.

------
jamescarr
The real joke is YouSendIt's servers were brought to their knees by running
apache benchmark off of one machine.

------
rjohnson008
A mixed bag of lessons including hiring, funding and wrestling with inner
demons. Enjoyed it.

------
djangonian
One of the very few looong HN stories i read completely. :) Nice read,feel for
that guy.

------
jccodez
It would make a great screenplay for a tragic comedy (with a happy ending of
course).

------
justjimmy
Thanks for the read and ditto on the 5 pages needing to be viewable in just 1
page.

~~~
bryanlarsen
The full article is close to 100 paragraphs. Putting that all on one page
would intimidate and lose a bunch of readers. Even choosing to put 15-20
paragraphs on a single page makes it a "wall of text" that will put off many
readers.

Of course, the real problem is the short attention span of the Internet age
but it's hard to fault them for trying to avoid scaring off users.

~~~
justjimmy
Someone should split test this :D

Half view the pagination version, half view the 1 page version – and see % of
the users that actually finish the article.

~~~
adaml_623
Wrong metric. They should care about the number of ads viewed and the click
through rate. And the amount of viral sharing and facebook likes and that kind
of stuff. They aren't a charity remember.

------
np1782
Nice read.

------
andyl
It would have been valuable to Shaikh if he had someone he trusted who could
counsel him to just chill and not shoot himself in the foot. What happened to
him at YouSendIt doesn't seem fair to me, but sometimes life is that way. Now
he could learn from his experience and give it another go. Good luck to Shaikh
and his family.

~~~
rwallace
I get the impression from the story that his second wife was trying to give
him exactly that sort of counsel, but he didn't listen. If so, the moral of
that story is, when someone you trust advises you to just chill and not shoot
yourself in the foot, listen to her.

------
CamperBob
_(Kumaran recalls telling the investor he couldn't speak because of
confidentiality and antidisparagement agreements.)_

Memo: when writing an antidisparagement agreement, the first rule of
antidisparagement agreements is that you agree not to disclose the existence
of the antidisparagement agreement.

~~~
swang
In fact couldn't it be argued that admitting that there is an
antidisparagement agreement is in fact disparagement because you acknowledge
that something happened to cause said agreement to be entered into?

IANAL.

~~~
faboo
I don't think you'd easily win the argument, unless the parties involved
generally didn't sign non-disparagement agreements.

I was once laid off from a company that gave me a small (but significant to
me) severance check in exchange for signing a non-disparagement agreement. I
did jokingly refer to that check as my "hush money", but I had no actual issue
with the company or any of my former coworkers. That company did it simply as
a matter of course, I imagine to make the laying off process more predictable.

(And I was pretty appreciative of the check itself; between it and my left
over vacation days, I made it pretty comfortably to my next position.)

