Founder Control

I have not written a lot about this issue.

As I said in this post, I am generally a “one share one vote proponent”, but I have supported founder control provisions in a few companies where I was or am on the board. These provisions make me uncomfortable but there are solid arguments for them, particularly when you are taking a company public and want to be able to keep it independent.

But the truth about founder control, as I stated in this post from back in 2012, is:

If you want to maintain control of your company, focus on running it well or find a team to run it well, and make sure you have plenty of cash to operate your business and that you never find yourself in a position where you are running out of cash and have nowhere to go but your exisiting investors. Do those two things well and you will be in control for as long as you want to be in control.

We saw that play out with WeWork this week. The founder had a 10:1 supervoting provision and controlled a majority of the board seats.

Until he didn’t.

I don’t know anything about how that all went down.

But I can only imagine that WeWork was running out of cash and needed funds from its existing investors and the founder had to cede all of that to keep the company afloat. Or some version of that story.

So all the agreements and such are only as solid as the performance of the business. They can all get torn up in a nanosecond if things don’t go well.


Comments (Archived):

  1. awaldstein

    Fred–this says it all. Can be generalized to most all contracts.”So all the agreements and such are only as solid as the performance of the business. They can all get torn up in a nanosecond if things don’t go well.”

  2. jason wright

    Where i come from there’s a colloquial English word, ‘mardy’;- “late 19th century (as noun, in the sense ‘spoilt child’): probably from dialect marred (from mar), describing a spoilt, overindulged, or badly behaved child.”The WW founder, and his wife, were definitely overindulged by the investors. The abrupt correction we’ve seen this week is because by the applied standard of public norms the culture of the company was deemed unacceptable. Quite right. Masayoshi Son’s gilded reputation is now looking somewhat tarnished.WW is an unnatural act of financial capitalism, …and USV likes it? I’d like to read that post in explanation.Investor capital seems to have been used to create a price subsidy to undercut local operators in the locations WW has entered (+500,000 ‘members’ in +500 locations). Have local operators gone out of business as a result? What’s the strategy? I keep reading that ML and AI will gut the jobs market. That will gut desk space demand.

  3. John Francis Charles

    What about a company like Mars, where they are not public and nobody knows how much money they have made, short of the IRS?

  4. Matt Zagaja

    I think the effectiveness of this is mostly an individual thing, not a general principle that translates across organizations. Founder control is great for Amazon and Bezos, not so much for WeWork :).

  5. WA

    Simple. Elegant. Truth.

  6. Girish Mehta

    Excellent post. The broader principle applies to many equations/relationships in life beside that of investor-founder.

  7. Tom Labus

    This is step one. There will have to be major changes to get this one out the door to the public markets. It’s better to do this now before you have shorts and analysts tearing you apart. But WW would dumped this out to/on the public for 50 billion if no one yelled.

    1. Girish Mehta

      Yup. See my other comment. It is instructive to see how far this actually got to, before the events of past several days, and that tells you something.

  8. Girish Mehta

    Its also important to note that something like the WeWork story does not come out of nowhere.Rewind some months back. The associated ecosystem expected this IPO to happen as planned within a close range of the targeted valuation.The story of WeWork is not just what transpired over the past few days, but how far the absurdity had got to before that.That is symptomatic of the broader disconnect from reality in the tech space which I think goes back to about 2015.Sapiens was a great book, but the tech industry took Sapiens a bit too literally and started believing their own narrative about the power of narratives. (WeWork is hardly a high-tech company, but that is their narrative).There are others that have made it past IPO, but we will see reality catching up with them on valuation. Exhibit A – Uber.And then there are some “stories”in the crypto space, where someday the common knowledge is going to shift to the fact that the Emperor has no clothes.

    1. Tom Labus

      I keep expected that there will be a market correction for IPO requirements but it doesn’t seem to happen.

      1. Girish Mehta

        Not just IPO. It is the “stories” that enables companies to keep raising money at growing private valuations. It is the governance. It is the VCs who repeat those stories as “thought leadership” (and who also sit on the boards).Being able to tell a story is now glorified as an end in itself. Never let the facts get in the way of a good story.Also take a look at the stories around crypto.It is in that environment that the events of the past few days played out.

        1. JLM

          .The stronger the story, the weaker the fundamentals.It is fine to weave a story. It is not fine to weave a story out of thin air.JLMwww.themusingsofthebigredca…

          1. Girish Mehta

            Yeah. The positioning is important.But don’t lose touch with reality. Elevating the world’s consciousness, it seems. How about real estate duration arbitrage ?

          2. JLM

            .Real estate arbitrage — controlling long term assets and then leasing them for short terms to catch the benefit of a rising market — is and has been a good business as long as you know which side of the arbitrage you are on and stay there.If a building can last for 150 years, and you enter into 15-20 year leases with bumps every 5 years, and you make a “cost of funds + 500 bp” ROI, you will do fine.That 15-20 year lease term will bridge any typical real estate and lease rate cycle. That is the key to continually increasing value.Build a $100MM building, rent it for a 10% return, drop in 25% equity, put a 4% mortgage on it, get it 95% occupied with creditworthy NNN leases, collect your 15% bumps every 5 years — your kids will be able to go to Harvard.If you (talking to you,WeWork) rent part of a building for 25 years, rent it out by the desk for the day, and the market turns against you — your master lease price doesn’t retreat in lockstep with the market, but the daily rents damn sure do.In the first instance, you are on and stay on one side of the rental arbitrage.In the second instance, you are on both sides of the rental arbitrage caused by the long term lease and the short term desk rentals.This is not a hard business to figure out.JLMwww.themusingsofthebigredca…

          3. Amar

            What are NNN leases?

          4. JLM

            .Triple net leases — NNN — the tenant pays their prorated portion of the property taxes, insurance, and maintenance.This makes the rent — a “net” rent — a pure return on the investment and makes it infinitely easier to deliver the desired returns.If the A/C system craps out — the tenants pay for the repairs.If the Austin City Council raises property taxes — the tenants pay the increaseIf the insurance goes up because of hurricane threat — tenants pay.Skillful landlords collect an estimated NNN every month and then “true the account” at the end of the year. This way the tenants don’t get hit with an enormous bill they cannot pay.JLMwww.themusingsofthebigredca…

          5. jason wright


          6. Chimpwithcans

            Do you mean “true the account” off their own back, or going back to the tenants to make up the differences between estimates and reality? I am guessing the latter?

          7. JLM

            .The tenants pay the difference. The landlord pays all the costs pertinent to any vacancy.When I had a large portfolio of buildings, I would make fairly aggressive expense projections and thereby “over collect” on the NNN charges (also called “the prorations”).I, as the landlord, would end up owing the tenant money at the “true up” which I would make good by crediting the amount owed by me to the tenants against their next rent.This ability to keep the accounts correct and, effectively, not “lend” money to the tenants is the difference between the pros and the amateurs.JLMwww.themusingsofthebigredca…

          8. Tom Labus

            That’s what the market is for. You can tell any story you want but have to accept the consequences of the market for total BS.

          9. JLM

            .It used to be what investment banks called “underwriting.” Now, there is no such thing as underwriting by an IB.The world has grown complacent to disclosures. Nobody reads them and we are all anesthetized to them.JLMwww.themusingsofthebigredca…

        2. Tom Labus

          It is the investors responsibility to determine just what is a “story” and BS and what’s a potential market. No one is going to help you there. But all these companies could go the public side much earlier and fce the market and it harshness.

          1. Girish Mehta

            VCs can see it, but they have got want to see it. I don’t think they want to see it. They are playing their part in the game.Do you think Fred sees clearly about crypto ? I said it here sometime last year…I am unsure about his ability to be intellectually rigorous about crypto any more.Its the 21st century version of the Upton Sinclair quote.Public investors are a different story. As you say, that can be a reality check

          2. Amar

            I posit a lot of the VC’s are also consciously and intentionally playing the game of there is a greater fool out there in the future. The “softbank”s of the world help of course. VC’s are sitting on significant amount of liquidity with little high return investment opportunities.Presto, we now have our own insider game of “here is a story” -> “here is a valuation” -> who wants to raise the stakes and buy it from me because you can tell a better story -> “fundamental of business be dam___”

          3. Girish Mehta


          4. sigmaalgebra

            “Buy low. Sell high.””When everyone else wants to sell, buy. When everyone else wants to buy, sell.””Create a wave and ride it.”With volatility can get strong trends, and “The trend is your friend.””The hard part about playing chicken is knowing when to flinch.””Sell the sizzle, not the steak.”

    2. DJL

      That was going to be my point. The WeWork model has some obvious holes, but they still kept raising money. And somewhere there are 50 startups that want to compete with them that won’t get a dime.

      1. JLM

        .Actually there are tons of startups in this space right now. I predict that a shotgun marriage occurs between one of them and WeWork.JLMwww.themusingsofthebigredca…

  9. sigmaalgebra

    Yup, “founder control”!!!!Typically a founder wants (i) his company to be successful and (ii) to keep his job. So, there’s a dichotomy:(1) He makes money: Then he doesn’t need an equity check and can keep his job.(2) He doesn’t make money: Then equity check or not, he loses his job.So, either case, an equity check is irrelevant to his keeping his job.Lesson: Make money.In more detail, ASAP accumulate cash, enough to last, say, to borrow from a rumor about Bill Gates early at Microsoft, enough to keep going for a year with $0.00 revenue.Example? The Canadian romantic matchmaking Web site Plenty of Fish, long just one guy, the sole-solo founder and 100% owner, with two old Dell servers and $10 million a year in revenue all just from ads all just from Google. IIRC later he added staff and sold out to Match Group for $575 million.

  10. LIAD

    It’s just leverage right.Everyone fights for their own self interest. People play the cards they hold. Not right or wrong. Just is.

  11. pointsnfigures

    Delving into some academic data from 2004 courtesy of Professor Steve Kaplan at Chicago Booth; the TL:DR is that only 49% of founders were the CEO of their startup when it IPO’ed. VCs change management teams all the time. I blogged about it here… with links to various academic studies on management teams at startups. It’s interesting data and what I love about Kaplan’s research is he went back to 1937 and looked at Ronald Coase’s The Nature of the Firm.It is also one of the few times that I can recall the public market pushing back against the private market pre-IPO

  12. Chia-Lin Simmons

    Founder control of this type typically seem to exist with companies with the worse type of founders. The craziness, poor excercises in judgement and the 10:1 votes are excused away by VC when it is convenient. They tell themselves that the founder is brilliant, he (and most often it is a he..) is breaking things and that is part of being a founder. The more investment there is, the closer of a march to IPO or acquisition, the more likely the VC starts to bring “adults” into the room to prep for exit. Then suddenly that investment into the “brilliant” founder and his 10:1 vote seem like a mistake but they are in too deep. This seems to be the playbook for many of the companies out there. We see less public drama because most VC are smart and they cut bait and the company fail (the 95%) to raise additional rounds as more problems arise from poor management . I wonder if we would see this type of 10:1 of the WeWork drama, if in the early stages of investment more attention is made on avoiding charismatic leadership and with a focus on people who have true capabilities for execution and delivery of revenue? Taking bets on vision for the future does not need to be coupled with the lack of execution capabilities? Having spent the last year as an LP at the same time as being an early stage founder has really opened my eyes on the type of founders that I exist with in the ecosystem. The WeWork founders are not outliers in the founder eorld out there. In the history, many would have been called charlatans, scam artists. Today, many call themselves startup founders.

    1. JLM

      .I agree more with you than you do with yourself.Nailed. It.If the first funding round is made with a 20:1 founder voting preference already in place, it isn’t going to be reduced unless there is a down round.Unfortunately, charisma is used today to mask human failings — as you noted. The word “charisma” can be translated as “nuts.”If you give a child gasoline and matches, you are going to have a fire. The only question is when? If you go looking for founders who can think big, can disrupt in a major way — you will have bonfires.It gets down to the judgment of VCs who fund these guys. And, yes, they are mostly guys.The VCs themselves are under the spell of people like Adam Neumann, and Travis Kalanik because they themselves are not good judges of human character. Are they compensating for their own charisma deficit? Maybe.In your well-stated rant, I would only find one small defect: Elizabeth Holmes. Now, that chica (purposely offensive language alert) was a charlataness of world class proportions. The freakin’ black turtle necks, the husky, deep voice — she was a Stanford partially educated carnival barker.She seduced Mad Dog Mattis, Henry Kissinger, George Schultz, and a raft of others. She had some mojo.The Yahooess chica? Honorable mention for Marissa Mayer? I so love CEOs who do a Vogue fashion shoot upside down. Nothing says, “I’m a business pro and will get you to the pay window” like a nice trip to the beauty salon, a few highlights, touching up the roots, a Brazilian bikini wax, and a Vogue fashion shoot. Another Stanford woman.JLMwww.themusingsofthebigredca…

      1. Chia-Lin Simmons

        No doubt Elizabeth Holmes was also a scam artist. I don’t think that my post excluded women. But I like numbers and stats and since women receive less than 2.5% of VC funding, I do believe most of the founders tend to be men and therefore the investment in more male scam artists is the case. It’s a matter of what’s happening in the investment world in real dollars.FYI, I think Elizabeth Holmes would not be able to fool half of those individuals if she did not first have the support of some very powerful VC like Tim Draper as the first money in. That was the first validation. Investors look for signals and they love signals of smart investors jumping into the pool first so they can follow. Rationally, for complex medical related fields, experience in the field and age is a plus factor, vs a negative factor. This is an instance where ageism in the VC industry may have played a role. Investors are typically older but love young founders. She must have been extremely charismatic to have convinced those initial investors that someone with no true science background was the person to run that business.It ultimately does come down to the judgement of VCs. They are people and as a whole, I believe most are rational, smart people. Of course they fall under the spell of folks like Neumann. But I also believe awareness is the key to change. The industry keeps chasing a model that is more of an outlier than a norm for success. At minimum, the need for experienced executives to be installed early would be a good thing. The pattern recognition they are so proud of may be the wrong pattern for future success. As individuals, we all need to check ourselves, be aware of our blindspots and biases etc. I know there are plenty of amazing VCs out there doing exactly that as they look at what’s happening at WeWork, Uber, etc.Will agree to disagree on Marissa Myers. I think that Yahoo is a broken ship that needed correcting and a long line of CEO (men and women) have not been able to steer it right. That was a glass cliff for any CEO if I have seen one. I believe truly that there are CEOs and executives with specializations. Yahoo needed a turn around CEO and that was not Marissa.Your Stanford reference. There are so many Stanford, Harvard people in VC, startup founder world, you’d hit one swinging a stick. They are the norm, not the exception. Whether that should be the case is a whole other debate! (FYI, Not a Stanford grad so I’m not defending them in anyway)

        1. JLM

          .Paragraphs, let’s try some paragraphs, shall we?Even by their own admission, Rebekah Neumann was not a co-founder.The co-founders of We Work were Adam Neumann and Miguel McKelvey who had gotten together initially at GreenDesk. They sold that and started WeWork in SoHo with funding from a real estate developer Joel Schreiber.The notion that Rebekah Neumann was a co-founder is a recent fiction.I don’t disagree that Yahoo was a tough nut to crack. Nonetheless, nobody forced Marissa Mayer to do that silly Vogue fashion shoot. That was her decision and it reflects bad judgment.The Vogue fashion shoot was a faux attempt to brand herself as something more than just a CEO — fashion icon, charismatic leader, Anna Wintour wannabe? Take your pick.I am not opposed to women taking a public profile in support of their business. My Perfect Daughter is a co-founder of Weezie Towels (Savannah, NYC) and had a 4-page article in Southern Living. If you live in the South, SL competes with The Bible for “best book.”JLMwww.themusingsofthebigredca…

        2. JLM

          .Further to your edited comment –I think you are absolutely right as to the Tim Draper impact.The book Bad Blood implies that he had “lost a step” as a means of suggesting how she had taken him in. What is interesting in the wind up of Theranos is the huge number of people on the tail end who were scientists and lab tech people who said, “Small sample approach could NEVER have worked. Just not enough blood.” Where were they at the beginning?The importance of sucking in people like Mad Dod Mattis was the ability to wiggle into military procurement. That’s why all the retired generals end up working for these kind of companies. The entre.Part of being wise, rational, smart is having a tuned up bullshit meter and testing what you think you heard by some measure of reality. Having been in the commercial real estate business and having built millions of SF of high rises, I got the real estate rental arbitrage time frame mismatch at WeWork in the first 5 minutes.I had actually done something similar twenty-five years ago and sold it all to Regus. It is a damn good business in a good market. It is a dagger in an artery in a bad or falling market.I have no bone to pick with Stanford other than the whole SV – Stanford inbreeding. I have never met anyone from Stanford who wasn’t above average. In the end, it is always the “I WILL” not the school or the “IQ.”I agree that if one is taken to swinging cats on 10′ ropes, you will hit a lot of Stanford, Harvard, Wharton persons. All great schools.You look so good in paragraphs. Thanks.JLMwww.themusingsofthebigredca…

        3. Pete Griffiths

          “She must have been extremely charismatic to have convinced those initial investors…” She was indeed AND importantly she was also a bully who successfully crushed the internal expressions of concern. There should have been alarm signals much earlier. Skilled bullies can co-opt and corrupt.

      2. sigmaalgebra

        Holmes had a beautiful face! Really pretty. The girl 12-13 I dated when I was 14-15 was MUCH prettier, but that is just a special case of the general result that she was the prettiest human female I ever saw in person, movies, magazines, etc. — her family had her high school graduation picture on Facebook and I have it on the upper right corner of my computer screen and am still in love with her!! Powerful stuff, a pretty face.In that Vogue shot, and I kept a copy, Marissa shows one heck of a figure!I’m sure as heck not built anything like that!Recently on HN there was a long, intense thread on was the statistics any good that confirmed that their really is a “difference”!Looks like HN style statistics is beaten by that old cartoon with a back view of a pre-school boy and girl looking down at each other and exclaiming with surprise “There IS a difference!”.Yup, there’s a “difference” all right, (i) things can easily see and (ii) LOTS more LOTS more important. For (ii), I was in a long course of intense study where I paid very expensive, enough to make Harvard look dirt cheap, “full tuition”.Looks like Mattis, Kissinger, etc. didn’t learn the material in the course.

      3. Michael Elling

        +10 “they themselves are not good judges of human character”

  13. JLM

    .The questions are really this — does a founder sacrifice any element of control when they solicit outside funding? Does the Board of Directors actually control the company — as it is supposed to do by law?The founder owns 100% of the common stock of a corporation the instant she breathes life into it by signing the Articles of Incorporation and Corporate Bylaws.The founder further exerts control by forming a Board of Directors. This may be delayed until the company raises outside funding. The Board should be composed of management (CEO), investors, and independent directors. “Should be” — sometimes it isn’t.In those documents, the pathway to sell stock — the type of stock — and the manner in which the corporation will be controlled — the Board of Directors — is spelled out.The problem begins when different classes of stock — common, preferred, convertible — are created.In the instant case of We Work (or Zynga, Facebook, Snap — there are plenty), the co-founding CEO owned Class B and Class C stock that carried a 20:1 voting provision. After the feathers hit the fan, this was reduced in a Revised S-1 to 10:1 and at the end — before the CEO stepped down — it was reduced to 3:1.This had to be authorized by the Articles of Incorporation, the ByLaws, and the Board of Directors.Stop for just a second, take a deep breath — Did any member of the We Work Board of Directors read the freakin’ S-1? It was a orgy of unresolved conflicts and absurd puffery suggesting that real estate — a rental arbitrage business that has been around since we were cavemen renting caves — was somehow a “service” tech business like SaaS.This is where the problem lies — WTF was the Board of Directors thinking? They have to ultimately approve the CEO’s comp, the stock option plan, the S-1, the indentures on the stock certificates.More importantly, the Board has to rise to its fiduciary duty to serve the interests of the current and future shareholders. In my view, this is the critical locus of failure. These control arrangements do damage to the shareholders who buy shares in an IPO. The S-1 tells us as much.When the Board is composed of VCs, their own interests are factored into their decisions. In a perfect world, this would not be the truth of the matter as the Board has a fiduciary duty not to their own shares, but to all shares.VCs are facing the EXIT sign and thinking no further than their own exit post-lockup period. They don’t GAS about the interests of the common shareholders.I am not aware of a single instance in which this type of “super control” provision has multiplied, leveraged, enhanced the actual operations or value of a company.It is time to expose the Emperors and their Boards who are running around naked.There is another culprit — absurd pre-IPO valuations that create an artificial pressure to exert control. More subtle point, but it is clear that the Uber and WeWork valuations made the IPO a more difficult matter.These unicorn IPOs that drop in value when the harsh light of day hits their income statements will not continue. They can’t.Last point — huge problem is that the Alpha Male business toxicity that is in the head of a Travis Kalanik or an Adam Neumann is what gets these businesses out of the cradle, but it is the same Alpha Male business toxicity that makes these IPOs such shit shows.Horses for courses. You need the vigor to launch, but the same vigor will doom the IPO.Who owns this problem? The funders and the Boards of Directors. Nobody suddenly discovered that the CEO of WeWork liked smoking a little weed or dealing with bad news with tequila yesterday. [Or that they exerted outlandish control through stock indentures.]VCs and Boards have to step up and exert some discipline. Not much, just a little.JLMwww.themusingsofthebigredca…

    1. Pete Griffiths

      Well said.

    2. Salt Shaker

      Wait a minute, it’s really wrong to smoke weed and do shots of tequila? The former accounts for approx 30% of the US under 30, the latter 8%. If you combine the two roughly 5% of the U.S. under 30 would immediately be non-CEO eligible based solely on that two-headed criteria. My old HS buddies would def over index as non-eligibles.

      1. JLM

        .Being from Texas, I am forced to applaud and defend tequila. There is some tequila out there that is as smooth as silk. There is some that will rip the brain cells out of your head.If you are going to take billions of dollars of OPM, then you are going to have to wear your underwear on the inside of your pants and refrain from smoking pot on airplanes.Small hurdles to access the cash.I am not saying any of this is “wrong.” It is not my job to judge. I am saying that it is an indicator for a serious investor as to the judgment of somebody like Adam Neumann who turned out to be a greedy dope who has obliterated a lot of investor value.I am pretty damn sure there are way more under 30s who are not eligible or who should not be eligible to be CEOs of startups. I may be overly cautious.JLMwww.themusingsofthebigredca…

        1. Pete Griffiths

          The underwear thing is a big one.

        2. Salt Shaker

          You do know I was making light of your weed/tequila comment. These startups take on so much debt an IPO is the only legit exit strategy. It’s a bit of a sham when they go public with huge losses and poor guidance. It’s like selling junk bonds. Yes, buyer beware, but lots are complicit in the food chain, including the VC’s and those underwriting an offering. The VC model imo is becoming more exploitative, contributors to increasingly high and unreasonable valuations.

          1. JLM

            .Never thought otherwise. You are a gentleman and a scholar.JLMwww.themusingsofthebigredca…

      2. Frank Traylor

        Many CEOs drink. I suppose a good number smoke weed. Those don’t disqualify a CEO. Neither does promiscuity, tweeting, or whatever other habits they might have. The problem comes for the CEOs that smoke weed on a plane (or on TV, Elon), celebrate a layoff with shots, sleep with associates, tweet SEC violations (Elon again). It’s the execution that demonstrates lack of judgement.

    3. sigmaalgebra

      How did the 20:1 get changed to 10:1 and, then, 3:1? E.g., with 20:1, just call a vote and win the vote?

      1. JLM

        .We Work revised its S-1 by amendment which means the underwriters — who are in constant contact with potential buyers of the stock through their syndication desk — and the board went to A Neumann and slapped him around a little.It was insulting — the 20:1. It was offensive — the 10:1. It was dopey — the 3:1.It’s OK to be a billionaire, why be a greedy billionaire?JLMwww.themusingsofthebigredca…

        1. sigmaalgebra

          They must have “slapped” him really hard — to give up the 20:1 he gave up a LOT of control. If he needed more equity funding, I can understand. Maybeby going to 10:1 he made the stock look more attractive and could sell some of his stock (in a private sale) and, thus, get the $700 million or so he got in green cash — if so, then I can understand. With the $700 million safely in the bank, he’d had his desired “trip to the pay window”, and the time since then was just hanging around and appearing still to care.

          1. JLM

            .The company needs cash. The IPO was the answer.He was going to make billions more through this deal.The worst possible thing was the IPO would not get done — it didn’t get done.JLMwww.themusingsofthebigredca…

          2. sigmaalgebra

            Okay, he had his $700 million and for approving the change to 3:1 he got to spin the wheel again hoping to get some $billions more. He didn’t, but I assume he still has his $700 million.

          3. JLM

            .$500MM of that was a loan secured by his shares. I think he and JP Morgan are probably having a few awkward discussions right about now.JLMwww.themusingsofthebigredca…

          4. sigmaalgebra

            Well, of COURSE he still has the $500 million in some relatively liquid form so can just pay back JPM and be down to only his last $200 million. If he lost the $500 at Vegas or some such, then he has negative net worth, is broke.

  14. Oliver Roup

    The bar is how bad things need to get for a founder to be stripped of power is higher when these provisions are in place than when they’re not. WeWork seems like a particularly egregious case of company need and market consensus that the CEO has misbehaved. But there are many very real cases where these types of provisions mark the difference between a founder being able to accept an outcome they want vs not. The common story of a founder accepting an exit where they make a life changing amount of money but investors achieve only a modest return is a key case. Founder control matters. The argument that investors will be reasonable works just as well in reverse.

    1. Mike

      My thought as well. When the ship is sinking it probably does not make a difference, but the leverage is probably useful in a lot of “grey” areas that can come up. Always keep leverage when you can. You never know when it might be useful.

    2. JLM

      .Once money is involved, nobody is “reasonable.”Well, except for you and me. And, I am not that sure about you.JLMwww.themusingsofthebigredca…

  15. Pete Griffiths

    Remember that devastating analysis by JLM!?He totally nailed it and it unfolded pretty much as he forecast.

  16. Frank Traylor

    Neumann was convincing but did he believe the hype? He was able to ramp to a stratospheric valuation, take out low interest loans to pad his real estate portfolio, and sell $700M in stock to pad his bank account before the S1 “big reveal” and deposition. His first gig was a big (personal) success. Makes him seem not so crazy.

    1. JLM

      .He’s not even remotely crazy. He played the situation like a pro.Any real estate pro knew immediately it was a shell game, a head fake.Long term assets used to create short term rental streams fail during recessions.This a perfect example of somebody — AN and SoftBank, et al — thinking they re-invented sex and real estate.Nothing new here.My only regret is that I never got a chance to short this dung pile.JLMwww.themusingsofthebigredca…

      1. sigmaalgebra

        Would the short pay off (i) soon after the lock up period was over or (ii) would have to wait until a real estate recession?

        1. JLM

          .Depends how deep one thought the price drop would be. Looking at Uber, Lyft, Snap — one wouldn’t have to wait too long.These overhyped IPOs are low hanging fruit.Look at Blue Apron — APRNStock price today $8.44/sh. Out the door price $140.14/sh. It is trickier than usual to short an iPO, but it can be done.The problem is getting your hands on the stock to sell — borrowing the stock.Only two people own stock at the time of the IPO — the underwriters (who cannot lend stock for 30 days after they handle an offering) and institutions/retail investors who bought the stock.New buyers are understandably reluctant to assist a short seller. Brokerage firms will help. So, borrowing the stock is the trick.JLMwww.themusingsofthebigredca…

    2. sdso234

      I suspect he should not get too comfortable with that $700MM. It would not be surprising to see Softbank and other investors eventually sue him for fraud.