VCs Pay Off Epinions Shareholders, Open Door For New Lawsuits
from the start-of-a-trend dept
This story may not get too much attention, as it seems like a fairly quiet settlement to a lawsuit that wasn't that interesting in the first place, but hearing that the investors in Epinions have agreed to pay out some money to fifty-one former employees could shake up some of the folks in their comfy offices up on Sand Hill Road. The story, which we've followed, involves a startup that was created at the height of the hype during bubble 1.0 and was supposed to be a Silicon Valley fantasy story about the perfect startup -- that turned into something less than ideal. The company had big names, big ideas and big backers -- but the product was only marginally successful, and after lots of struggles most of the original big name employees had bailed out. At one point, in order to secure a round of funding, the existing investors convinced old employees to give up their shares. This happens. However, depending on who you talk to, when the company did this, they kept secret the knowledge that they were about to sign a deal with Google that would eventually boost their revenue and let them get bought out by Dealtime to become Shopping.com -- itself eventually acquired by eBay. The shareholders who sold out turned around and sued their investors, claiming that they were tricked into giving up their shares. Of course, what was most amusing was that for all the stories about how "experienced" the founders of this startup were, none were apparently so experienced to understand that such deals are a part of Valley life. If they didn't give up their shares, then the financing might not have occurred, and the deal with Google (at the time) certainly wasn't obviously as big a deal then as it was now in retrospect. They agreed to give up their shares -- which, in part, helped the company get to the stage where it could be acquired. By suing, and now getting money out of it, they're opening up the doors to more lawsuits of this nature, where investors who sell out get to come back later for their "share" if a company turns itself around. Update: As is pointed out in the comments, it wasn't a "round of funding" that caused the shareholders to give up the funds, but the merger with Dealtime. However, the rest of the point still stands. The merger might never have happened without these people giving up their shares.