GREED AND DRAMA
M&A Deals usually involve money, and money can bring out the worst in people.
Purely hypothetical: Founder starts company, takes two rounds of capital, and the company fails to perform. 5 years after the last capital raise, the shareholders agree to sell at a fair price, based on the company’s performance. The founder is buried behind preerences and gets nothing. The board tries to address this with a management carve-out that delivers a hundred thousand dollars to the founder.
Does the founder A) take his money and move on? B) Negotiate with the board for more money? Or C) consult a lawyer who writes a letter to the CEO claiming that he (the founder) owns the company’s IP?
I have seen this movie too many times. The bitter founder usually gets a payoff. Financially it is winning strategy. Sometimes it backfires. The founder launches a claim without merit on the day the deal is scheduled to close, hoping to force a payout by holding the deal hostage. His lawyer advises him to claim that he is solely focused on his IP rights, and that his timing has nothing to do with blocking the deal (yeah, right). The reason for this is, of course, that the founder has opened himself up to a tortious interference counter suit.
At this point the founder feels good. “Hah! I really stuck it to him.” Now, fast forward 6 months and we find that our founder isn’t feeling so good anymore. He was fired, his portion of the management carveout was reallocated to an indemnity escrow to fund litigation against him, and he can’t get a job because of the actions that he took in his last position. Meanwhile the shareholders are off investing in their next deal, and the company is running just fine without him.
As I said, I’ve seen this movie several times, but I can’t always predict the ending.