Quote:
Originally Posted by tame_deuces
Your posts on US law, precedence and legal mechanisms are always appreciated, Rococo.
Yes they are. Very much by me as well as I find the law fascinating and spend way too much time reading and watching judicial review stuff.
True story.
In the early 2000's (DotCom) I was Chairman of a fintech start up company that launched on an IP platform that was all Patent Pending technology.
Long story longer the company soon found itself being sued by a major competitor in the space who felt this area was within their Patent protection. Our CTO, a very well reputed data scientist and technologist, and our CEO, both greatly disagreed.
We hired one of the best reputed Patent IP lawyers in the country to review our position and give opinion on what we should do.
The gambit was high as we had raised $10MM and one quarter of it was sunk in IP build out and a Beta roll out to a major industry customer who had partnered with us. if we could not go that path then we would just shut down the company and give people their pro-rata portion of the money back.
The lawyers felt strongly that this case was likely not winnable for us and it would costs us a lot (the estimate was ~$300K) to fight it. As the Chairman, I asked them for a formal written recommendation as I would have to take this to the shareholders.
I however, in consultation with our CEO and CTO agreed with them there was a definable distinction and ended up recommending we go against Lawyer advice, keep building out the business and fight and risk losing more money if we were wrong.
As the Chairman, the person who represented the Stakeholders more broadly this really fell to me more than the CEO whose mandate is more narrow and who is more conflicted. It I had to recognize he will lose his job and dream if we shut down and i have to filter that bias.
Anyway I took the case to the shareholders (it was the monied shareholders I was most wanting to engage with) and I made the case for putting aside the legal advice and proceeding. I had personally lawyered up, as I did not want personal exposure if sued if things got really bad. We set up 3 times for conference calls with the IP Lawyers for groups of investors who might want to speak to them directly and hear their view. They did. Of the ~40 shareholders we had (minimum investment was $150K or accredited Investor level) 35 of them participated in the calls.
I held fast, and I continued to make the case to continue. They voted and supported my view. These were mostly all very wealthy and successful business people. We respected the Patent lawyers view. We took into full consideration and we gave it a ton of weight in our deliberations. We DID NOT accept their advice when we advised our client of the litigation threat and they said they would continue the beta test with us regardless and make their ultimate call upon its conclusion. A very risky thing for them to do in terms of sunk time and employee time and without that vote of confidence we would not have proceeded.
We decided to continue and the lawsuit was on. Many months in to the legals my personal lawyer suggested I engage with the suing firm, as they were active investors in many competitive other DotCom startups and see if we could broker a deal of some sorts. I did and we offered them a First Right of Offer (like a First Right of Refusal but better for our company) on our subsequent earmarked Financing so that they could become a significant shareholder in the company but would not have to sink a penny as they got to sit on the sideline and see if we were being successful or not and they accepted it. They also negotiated on an anti dilution follow on which gave them the right to participate in all future financings at a pro rata amount equivalent to their percent holdings.
So for them it was a win/win as they were very active in supporting other Tech startups with disruptive Tech and then buying them out if successfully. And that is exactly what ended up happening with us. They bought out all the private shareholders of the company in the very next round of financing and became the sole shareholder with the founding management team and the rest of us got a nice exit on something that would have been a significant right down and loss had we instead just took our lawyers advice without using our own discretion and thought.