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How My Startup Got Robbed

startup co-founder thievesWTF!?, I cried as I discovered that half of all the company's cash equivalents had been withdrawn from its bank account. But when I found out who had made the withdrawal, I realized we had not been screwed. We had been robbed. The investors' money, my face. It was gone.

A short week earlier the company had held a board meeting. The director of the board and my partner (who I will keep anonymous) had naturally resigned, arguing that he wanted to focus on private matters. The board had been discussing the change of board seats and settlements, but disagreed. I have never ever witnessed such an unprofessional behavior from anyone I've trusted in business.

Leaving that meeting, on the way out, in the parking lot, my co-founder loudly left the rest of the board with an off-the-record, oral preposition: "Pay me 30 per cent of the company's liquid cash by midnight, or else I want 50 per cent." Seriously? It was just sad, and I kind of felt sorry for him. Even though he had resigned at free will.

It was after that meeting that the director of the board silently had granted my former co-founder direct access to the company's bank account - without the CEO's, the board's, nor the owners' approval or knowledge. Upon the withdrawal I received a fictitious invoice pulling out administrative and managerial hours far beyond my knowledge.

Now - isn't that a crime? Strange enough my partner didn't have any formal position or rights at the company at the time. Despite several attempts at formally hiring him, he had insisted on not being employed. Rather he wanted to function as a board member and a contractor. Obviously that earned him more money and flexibility.

Due to his relatively young age, I still felt like giving him a break. After all it was the director of the board who was the trojan horse responsible for giving him access. So after several friendly attempts at solving it, the company filed a case against the director of the board (read: former director).

As new pieces of evidence came to the surface, their motivation became clear.

Some time before this accident our company had been in talks with one of our clients, an advertising company, about creating a joint venture between a media house and the company. But we had politely refused because what we needed at the time was profit, not sweat equity in another company.

Shortly after his resignation, my previous partner joined as the CEO at another, new company - owned by that very same client. Unlikely a coincident. I'm curious nevertheless if he put the money that he stole from the company's bank account into this new company.

Our, the company's legal party was confident we had a rock solid case. The sudden counterpart had seemingly broken the law.

Several consultations and meetings later, however, the company's board faced a dilemma. We had to make a decision. The costs of pursuing the case would simply exceed any compensation from winning it. So, should we then pursue the case?

Considering the company's financials at the time - investments had been made and the cash equivalents were already earmarked taxes due the following month - we decided not to pursue the case (at the time). Existing customers and stakeholders were way more important. We figured that running in countless meetings and preparing the case were too time consuming. We simply couldn't afford it. Although not principally right, the decision was the best to the company's health.

As the manager at the company I used some time to get over this accident. How couldn't I see that these guys were snatchers - almost like it was a planned scheme. How could I let the unauthorized bank transaction to happen? Why didn't I listen to people hinting at me that there was something not sound about this guy, even when I kind of already knew it? Lots of questions hunted me down. Sure, I could have done things differently.

No matter the impression or fancy titles, a closer background check on the former director of the board would have revealed that the he had been involved in somewhat similar behaviors previously. People are an unpredictable kind. They are not always who they pretend to be. Indeed, that is part of the entrepreneurial risk. But does it mean that you shouldn't trust them?

If your gut feeling tells you something isn't right, it often isn't. That is not sufficient, though. When founding a company it often seems convenient to focus on product development and marketing over legal - even if that is the background of the board director! When things get tougher, however, what at first seems trivial easily backfires at you.

Running a startup means carefully balancing between your own principles and what is best for the company. You must be able to give up on something. Making objective decisions requires you to understand that you started a company and (at first) hired yourself to run it. At that point it is - for the better or the worse - business but personal.

Startup's a hard knock life.

Update: The hardest part was keeping the story to myself as I felt a moral obligation to let others know. For now, I hope this post might help others avoid getting down that same line.

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Img credit: michaelmolenda

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15 Comments

  1. In this country you can screw anyone for up to $100,000 and get away with it. That’s the equilibrium where the legal fees and effort meets the expected reward. Keep that in mind next time you enter into any contract.

  2. Tor, you are the person the world sees as a entrepreneur who shares knowledge freely. Those trying to take these shortcuts will get hit with karma… but that’s not really the point. The point is you are right: This post is an extremely valuable lessons learned report that people need to see… before these red flags appear.

    This act of transparency makes the behavior less likely to fester in the global innovation ecosystem.

    • Hi Grant. I’m glad that you find it valuable. I believe that both transparency and integrity are important in cases like this. Many thanks.

  3. I was caught on a trap once…

    Invited to be the CTO, build the IT part of the business and hire people that could make things happen.

    In the end, I was an employee, without salary and contract, doing every (dirt) work the CEO and investor were meant to do. When I realized and tried to get out the nightmare, I still left as the monster on the story.

    Once in a while, I pray for the souls of men like these guys… they’re going to hell and don’t know that! =/

  4. Why are you keeping this scumbags name anonymous? Is this a made up story? Spread the word, let other people know that it is a bad idea to work with either of these people!

  5. If he stole money that was used as equity in this other new company, why not bide your time and watch the statute of limitation for such a crime, secure your company’s financial position, and then at a point down the line, sue for the equity share commensurate with the original investment? if that business grows, so would the potential return.

  6. Hi,

    thanks for this post. I lived a similar situation (and still live the situation through the lawyer experience) past year though the scenario was different.

    I nonetheless have the same conclusion: having guts, listening to feelings when we’re still in a good shape.

    And snatcher. Yes totally true! Some people just behave way different than us and can run those immoral plans. In my case, I was an associate in the holding of a company which get funded, and owns the materials (code and other stuff). I was legally only an employee of this one.

    And you know what? The boss let the whole company leave while not paying employees, including me. Firing people when they were all exhausted of the poor situation.

    You lost money. We felt loosing our soul and dignity.

  7. I cannot possibly see your reason for keeping him anonymous.

    Destroy his future prospects.

    Do it for yourself and to save anyone else who might working with him.

  8. Sorry this happened, but let’s look at the facts:

    You just made the best investment of your life. You got rid of a lowlife loser who was wrecking your company and it only cost you $100K. You’ve still got 50% of your money left. Be thankful he didn’t take ALL the money, after completely wrecking things.

    Don’t worry about getting even, karma will take care of that. When people call you asking about him, don’t be bitter, just say “I can’t recommend him” or “due to potential legal proceedings, I can’t comment”. You could also say “he’s a good golfer.” They’ll know exactly what the situation was.

    As for your company, you’ll probably discover another dozen things this joker did to wreck your company. Your sales will now double and everyone else at your shop will tell you how relieved they are that he’s gone. Life is now good.

  9. Many if not most people have a threshold beyond which the temptation to take the money and run is irresistible. However, methods to measure and increase an individual’s level of integrity do exist. Unfortunately, most business people don’t think they need to use such methods to screen their partners. This story is a good reason explanation why it is a good idea.

  10. We are just recovering from a terrible similar incident of snatched and stashed this past fall. It rocked us hard. Time and work has helped us move on and heal. Since then, I have realized that just about everyone has an experience of trust being brutally broken by business partners, friends or family at some point in their lives. Take the time you need. I could hardly focus there for way too long but amazingly, we do get over it!