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Fundable comes to an ugly end (fundable.com)
115 points by daremon on Oct 2, 2009 | hide | past | favorite | 82 comments

Pretty one-sided, but I suppose a domain name can only belong to one side of any argument.

For the uninitiated, Fundable was a site where you could input a dollar amount and accept donations towards that 'goal'. If the goal wasn't reached within a certain time period, the money was returned to the individual donors. If the goal was reached, the money was released to whoever initiated the campaign, minus a hefty 7% commission fee.

As far as I could tell (I used it back in 2007 but quickly jumped ship when I realized how rickety it was) it was pretty much a giant Paypal API with bad UX and even worse customer service.

Do I understand correctly that https://tipit.to/ might be a (cheaper) alternative?

(Disclaimer: I am in no way affiliated to this site, apart from liking a Java project the owner works on)

I don't think so -- Fundable was targeted toward much larger transactions ($5k+ campaigns weren't rare, iirc) and specifically set up to 'self destruct' if the goal wasn't met.

So for example, if you had a small neighborhood looking to fund the purchase of a $5,000 water well and they only raised $4,000, everyone who donated was supposed to get their money back.

(Also, TipIT doesn't seem to suck.)

As my cofounder and I are currently finalizing our own incorporation, I look at Fundable's sad situation and think, "Wow. What if that were us? Is there any way we can avoid ever having that kind of situation with a clever bit of legalese?"

Unfortunately, I suspect the answer is "no". As soon as you give one partner the ability to eject the other (for whatever reason), you open the door for all sorts of abuse. Besides which, if a partner wants to cause chaos and destruction, you're in for supreme nastiness, regardless of the legal situation.

So, at the end of the day, I think the best you can do is choose your business partners carefully, keep things above board, and do the best you can to behave morally and ethically. That way, even if things go to shit, hopefully you'll still be able to walk out with your head held high.

I'm sorry Fundable went out this way. Sounds ugly as hell.

A shotgun clause is probably the best method out of a bad lot, but it still has the potential for abuse.

If a partner is going through financial difficulty (outside of the company), then the partner with a better financial position can force a sale at a depressed valuation.

Say my mother has a massive stroke and requires expensive ongoing medical care. After a while, I'm financially drained. At that point, my partner can trigger the shotgun clause at an amount larger than my ability to scrape up cash, and wham I'm out. Out with a small payout, but out regardless.

There isn't a silver bullet to these kinds of issues. At the end of the day, people are involved, and people are complicated and difficult.

I agree with your premise, reasoning, and conclusion. However, I'd disagree about what your biggest fear should be.

A horrible, Fundable.com meltdown should be, by far, a bigger fear than getting abused by a shotgun clause.

Even in the land of the do-over, I can't see how this won't destroy the confidence that investors would have in either party going forward. Your future is so very much more important than your ownership in a startup with a co-founder who has no qualms about ripping you off.

As you say, there is no legal solution to the problem of bad humans. But there's no legal solution to death or car accidents, either; what we have are legal measures to manage those risks, in the form of contracts of some kind.

A shotgun clause is a last-resort clause, and from its very nature, it appears to me that it would only be invoked when you would most want it to be invoked.

( disclaimer: mr_luc has no personal experience with shotgun clauses and may very well be talking out of a suboptimal orifice. )

See http://en.wikipedia.org/wiki/Shotgun_clause#Economics for a potential solution. (Though they do not tell how it would solve the problem. You'd have to think of it on your own.)

In theory given enough time you could go to investors and raise cash (binding in the event that your bid wins) backing a bid. It's the job of investors to allocate capital, after all.

Of course, I realize that theory does not always match reality.

Thank you for that link. I'd never heard of that term before, but that's a pretty fascinating mechanism.

Brilliant, but looks open to potential abuse, particularly when cash reserves are low.

I think you have two ways of dealing with it:

51/49 split, or have 3 partners.

Both methods ensure you never end up with a stalemate.

You can always fall back on a shotgun clause for a cleaner ultimate solution. http://en.wikipedia.org/wiki/Shotgun_clause

With 3 partners, the typical nightmare scenario is that one partner is marginalized or kicked out by the 2 others. I've seen that happen and it's ugly.

I agree. Seeing stuff like this is scary. My heart goes out to both parties, as I'm sure it's not pleasant for either of them. Even if the story is 100% accurate, and Helm is just a bad guy, no one who's that rotten is happy. It's a shame.

Money has a funny way of ruining even the best of friendships.

Be careful. Do the right thing. Cover your bases to protect against either of you going crazy.

Yeah, it's why you find a good third party mediator and ask them to be a non-exec or mediator/advisor. It also helps to have the arguments and tantrums early- at least you'll know if you can get over them or not before it's too late :)

In spite of all the issues this case raises, only one popped out at me...

Team of 2: 1 programmer + 1 non-programmer = bad combination.

Maybe I'm a little old fashioned, but in a 2 person web startup, both should be programmers. I'm certainly not suggesting that this is what caused this situation, but it sure didn't help...

Since only one programmed, the probability of future difficulties increased dramatically, and once they did occur, he was the only one who could have dealt with them. A team approach probably would have been much better for technical problems, both preventing them and handling them.

This depends entirely on the business you are trying to build. Trying to generalize this into 2 people == 2 programmers == success isn't going to work in a vast majority of situations. Who's going to do business development if you have corporate clients? Who's going to do visual design?(programmers? Yikes!) Who's going to deal with investors and press?

This product didn't fail because there was only one programmer (heck I'm pretty sure digg started with obyrne and Kevin Rose). Fundable failed because it poorly managed itself.

Agreed, in general only one programmer is a mistake anyway. You need someone to keep you sharp and to bounce stuff of when you're stuck, or to work together on the tough bits to make sure they come out right (APIs and things like that).

I wouldn't endorse that.

A lot of successful partnerships had clear division of responsibility - often an "inside man" and an "outside man".

The inside man handles the employees, bookkeeping and systems. The outside man handles sales.

When two cooks are responsible for the same pot, there's trouble. And unwatched pots.

There are many variations on the good pattern - take McDonald's. Ray Kroc handled the franchisees and systems, while CEO Harry Sonneborn handled the money, real estata and investors.

   Louis Helm programmed the the payment system.
if this is an indication of their attention to detail, it's probably a good thing they had to close before they lost their user data to some hackers.

Based on what was written, I'd be surprised if both "founders" aren't 18.

edit: googled, and found some photos(Pratt looks to be ~26, while the coder guy does indeed appear to be ~16: http://emilychang.com/e/go/ehub/interview/fundable

> found some photos

You could also skim the article on the page with the photos and look for any biographical information...

The Fundable team is made up of Louis Helm and John Pratt.

Louis, Fundable’s software architect, studied Computer Science Engineering at the University of Michigan. He is co-author of the Seventeen or Bust distributed computing project (seventeenorbust.com), which recently discovered the largest known non-mersenne prime number with the help of 5000+ users. He worked as a software engineer at Jabil Circuits before leaving to work on Fundable full-time.

John graduated in Political Science at the University of Michigan last December, where he worked for the university’s paper as a photographer. He also studied at the University of Havana, Cuba in 2003. John programs, designs and writes documentation for Fundable’s pages.

> After John Pratt contacted Louis Helm's father, Louis Helm called John Pratt and agreed that his actions were immature.

16 sounds more likely.

Did either of you read the interview? They both graduated from the University of Michigan...

And it's this Buckeye's opinion that THAT explains a lot :D

The first two times I read this comment I didn't notice the the extra "the".

I'm torn between 'sad' and 'pathetic'. The word 'immaturity' applies, without question or hesitation.

No need to be torn, it's both (and more). Obviously, it's sad when your venture fails; writing a long rambling missive (in the third person) about how you called your partner's parents and how everyone should sue your partner, though, is pathetic. Could have simply said the company is shutting down, that one of the founders is no longer able to work on it and provided a contact address for people who need to recover their money.

While this is a particularly nasty situation, absolutely off-the-wall meltdown behaviour like this is actually pretty common in startups when things start going bad. Anyone remember the meltdown between the partners in the documentary Startup.com (http://www.imdb.com/title/tt0256408/)? I think most people at least have the wherewithal not to air the dirty laundry out in public.

It's just another risk and potential downside to partnering with someone in business. Everybody's done something at least a little bit crazy and out-of-character when a romantic relationship has hit the rocks. Maybe you did something innocent but pathetic like burning compilation CDs (i.e. Nick and Norah's Infinite Playlist). But we've all heard of the crazy girlfriend who dumps her (now ex-) boyfriend's stuff in front of the house after catching him cheating. Business partnerships aren't all that different. Really they involve the same levels of emotional attachment and passion.

It's important to try to assess the behaviours that a potential partner reverts to when under stress. For programmers, that might be shutting the world out and ignoring calls/emails rather than facing the music when there's a disagreement over deliverables. For non-programmer business-types, that might be writing and re-writing business plans and coming up with rather dreamy fantasy plans rather than actually getting deals done. These particular cases I think are the more common revertive behaviours (for lack of a known proper term) for programmers and business types. They're also behaviours that tend to drive the other party in such a partnership absolutely bonkers.

You definitely don't want someone who reverts to a temper tantrum like this guy from fundable. To be fair to him, this is most likely a sad case of both partners having individual meltdowns simultaneously.

> But we've all heard of the crazy girlfriend who dumps her (now ex-) boyfriend's stuff in front of the house after catching him cheating.

Why does that make her crazy ?

Whatever happens, you don't air your dirty laundry in public. That makes all of you 'untouchable' for any future ventures.

I understand that this guy needed to blow off steam, but this is basically a trial-by-media attempt and a way to get back at someone. If you can't part well when things don't work you are not made for the startup scene.

  seek legal action against Louis Helm personally 
  should he fail to resolve your payment issues promptly
Well, IANAL, but I don't think that is how it works. The corporation is liable for funds it holds on your behalf. Boy would I be worried if I were Pratt.

they are incorporated, so he himself isn't liable, the corporation's assets may be seized, but he should be fine

violating banking & money transmission laws can be a felony, which could make the officers of the corporation liable

if they were actually holding funds in a corporate account, and not just a front-end for paypal, they could be in a lot of trouble

unless, of course, they didn't do everything by the book, in which case the corporation could be found null and void and both could be personally liable.

If one of the officers of the corporation told paypal to lock the account that could be enough to pierce the veil of corporate liability if any of the parties owed money cannot retrieve their funds because of that.

This just sounds like a bad deal all the way around. If the two partners are as erratic as they now appear to be. I can't imagine that they were particularly fastidious when money was flowing in.

Makes you wonder how much they took in and how much of it is still left.

What about officers of the corp, aren't they also responsible?

I think that only applies if you do something illegal. What will probably happen is that they'll get sued, and as part of the settlement the company will be forced to pay out $_ million. Since the company probably won't have that, they'll end up declaring bankruptcy.

But then again I'm no lawyer

Only if they act illegally or irresponsibly, right? Otherwise only assets of the corporation are at risk.

holding customer funds without complying with banking laws is a federal crime - making them liable personally

you should tell paypal about that

paypal is a registered bank

Not in the US it isn't.

Not unless fraud is proven. Unfortunately, bad management is not punishable,

This is what happens when you give someone 50% of a company for simply having an idea.

From the perspective of the writer it reads more like "this is what happens when you give someone 50% of a company for simply writing the code." At least one side seems to have gotten something wrong...

I have found that people who think the idea is worth half the company are usually so irrational that they make really bad decisions about their contributions to the firm later on.

Companies like this can't thrive if the scales are not balanced in terms of ownership, labor, and results. Animosity and resentment brew and people get selfish and defensive and it all breaks down.

It appears that is what has happened in the fundable case. Perhaps the programmer did not feel like the business guy was pulling his weight. Maybe for him, the upside of working all the time and fixing all the bugs in the code and making the site reliable weren't worth whatever he was getting from the deal. Maybe he wanted the business guy to spend some money on more programmers or maybe the solution was more reliable infrastructure and it wasn't something the programmer could fix with more code.

Who knows. I just know that from the tone, it isn't good and lots of users of fundable are left in the dark now. Sad.

For those who are late to the party like me, here's a screenshot I found of the original farewell message: http://img18.yfrog.com/img18/2396/s8u.png

John was actually one of my college roommates, it's sad to see this come to an end like this.

I visited fundable.com right now, and it looks like the site is functioning again. What gives?

I bet John's lawyer suggested he pull down the message. Either that or the other guy wrestled control of the site back.

John Pratt and his company FUNDABLE NEVER SENT ME A CHECK for the $400.000 raised. It was raised JULY 27 2009 AND THIS IS OCTOBER 18 2009. He will not reply to any emails and the company has NEVER had a way to SPEAK to anyone EVER. I am sure i am just one of many people who have had their money stolen from FUNDABLE. I would like to start a class action suit and am looking into creating a website so that we (ripped off people) can all find each other. He is a common THIEF. This is not a story of basement company gone awry. This is a story of outright plundering of peoples wallets and then walking away and thinking there is no consequence. WHERE IS THE 400.00 ALL THIS TIME? Anyones guess but it (minus their huge 10percent cut) is NOT in my hands nor supporting the rescue dog SY that it was intended for. DO NOT USE FUNDABLE EVER.

I have to really ask, "Why is this upvoted so much?" There aren't really lessons in here; it's just bitter drama.

people love a train wreck, + it has the lesson of being careful of who to pick for your cofounder, and about giving second chances to people who screw you over.

I'd like to believe that this site is better than that – that it's not about watching train wrecks. The problem with picking co-founders isn't that people don't know it's important – it's that they ignore it anyway or don't know how to tell. It's about as useful as a surgeon general's warning on cigarettes.

Not train wrecks in general, but a very specific train wreck along the same tracks upon which many of us are traveling, or hope to travel.

Lesson: in the articles of incorporations, spell out the arbitration process and include clauses that prevent out of control behavior - like automatic forfeiture of company stock.

This saddens me as well, as I was hoping this independent financing model would succeed.

But I definitely see a few lessons here: 1. The need to have performance/milestone based equity sharing vs blindly giving a person 50% based on their POTENTIAL. 2. The need to have a checks and balance system that places control of the domain/trademarks in hands other than the programmer or developers. That way the person controlling the domain can have some control, while the developer has other control (passwords, access). And a third party/person who may control the finances. (Domain/Trademarks/Copyrights)+technology+finances. Like the checks and balances of Legislative+Executive+Judicial systems. 3. The need to repair or remove faulty systems/people at the first signs of unreliability.

There are lessons here! But no matter what your conclusion, I'd rather crash and burn than fade away. Cheers to Fundable and to making a stir.

I am having a total mental block trying to recall the name of the "Donate people money through Twitter" service that was on HN a few times, but I think this is what he meant when he said "Do not take payments lightly."

[Edited to add: Tipjoy. I knew it was T-something but I ran through about 15 combinations of Twit-X before realizing that it was not from that naming convention.]

They were a YC company, weren't they? Ivan and Abby?

They were. Ivan's now at Facebook, where everyone assumes he's working on Facebook Payments. Abby's probably doing something even cooler, although IDK.

BTW, Tipjoy never held the money; they were just a front-end for PayPal, so they didn't have the issues that Fundable apparently is having.

Tipjoy never held the money

That does not match with my understanding of their business model.


Look for their instructions on, e.g., cashing out.

I guess I only read it early on and didn't see the change. Building a totally new payment system is actually rather impressive.

Could not resist a laugh really, this is so childish. That's why I would not put any trust in an online business without knowing it's background - can as well be two boys in a basement.

Absolutely...I mean, look how Sergei and Brin's and Steve and Steve's ventures turned out... sheesh.

Wow, that's not good for anybody. I guess this is really a case of "be careful who your partners are", jeeze.

This is exactly why I will never go into business with a non-technical person. This site is exactly what I think of when I think "business person".

That's a piss-poor attitude.

I think it's a responsible attitude, but perhaps for reasons you're overlooking.

Communication is important in general, but vital in a start-up situation. If you're of a technical mindset and have a partner who is business minded, you two may have a significant communication barrier.

Any healthy partnership has enough overlap in terms of expertise that the ability of one partner to communicate to another using a language they understand.

Sometimes this takes a third partner who's somewhere in the middle and can intermediate and provide a more objective opinion when the other parties take opposing sides.

That being said, I'm sure there are start-ups where the founders do not have a lot of overlap, but I doubt they will succeed if they do not make the effort to find or create some common ground to have informed discussions on.

If you don't understand "business types", then perhaps it is responsible to not go into business with them. The "poor attitude part" may mean that you're not willing to make an effort to learn more about business, though.

Just so you know, at the time you posted this comment the site had changed from what it was when I posted my comment.

When I commented, the link was to a rant about how the programmer screwed over the business with bad code.

I'm curious if anyone has experience with something like this or know of other situations where a joint venture was owned 50/50 and one side allegedly decided to take their ball and go home?

Is there legal recourse either side can take to reclaim ownership and move on?

There may be legal recourse but the legal system moves so slowly that in Internet time you are pretty much screwed. So in the beginning stages it may be a good idea to keep copies of all software, data, etc. close just in case one gets locked out of the servers.

I know of this one company that decided to move their servers out of a collocation facility. The collocation facility hated to lose a good customer so they just locked the company out, disconnected the servers and did not let the company get to them. But they helpfully offered to reconnect the servers if only the company would sign another long term contract. The litigation took many years, so the data on the servers was pretty much lost for all practical purposes.

So yeah ... keep backups and keep them where you can get to them if the s hits the fan.

Regarding the domain name ... I suppose one person needs to have control of that, no way around that. Well, it is possible to set up a trust where an impartial party (such as an attorney or a professional trustee) controls the domain name according to a previous agreement between the founders, but if you have to resort to this, there is probably not enough trust to do a startup.

so he's complaining about his partner being immature and the second phrase on the site gives away said partners personal contact information?

Am I the only one seeing a slight bit of irony there?

Here is the boing boing post referenced in the original farewell message: http://boingboing.net/2009/08/22/fundable-rips-off-hu.html

Comments #5, #13, #23, #25, #30 and #31 between Mr. Pratt and Cory Doctorow are the relevant bits. I'm sure there is lesson here about mega-blog PR.

Kind of frighteningly, it's now back up in it's original form, ready to take your money again.

It does not matter how fucked up things became, you don't go broadcasting it, if for no other reason because its a taint by association.

When two immature people get together to form a business.

Very enlightening.

Better to learn on others mistakes.

Nice ending.

sarcasm woosh

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