Yet another co-founder of hot tech start-up claiming he got unfairly kicked out

Except this time, that co-founder might actually have a case. Valley Wag is reporting that Douglas Warstler is suing Yik Yak’s two co-founders for excluding him out of Yik Yak. The basic story is that the three started a company with 1/3 ownership each that created and launched Yik Yak.

(Yik Yak is a location-based, anonymous chat app popular in schools. My start-up’s app, feecha, actually started out as something similar, so the fact that Yik Yak is more successful is a testament to the importance of execution. But that’s a story for another day.)

Two of Yik Yak’s co-founders graduated from university and moved to a different city while Warstler had a year left that he intended to complete. The two co-founders didn’t want a long distance, part-time situation and tried to buy him out. Warstler refused. And so the other two co-founders transferred Yik Yak to a new company and didn’t give Warstler any shares.

That’s what happened in a nutshell.

Typically, when these kinds of stories appear, my bias is with the remaining co-founders who actually built the business (e.g. Facebook, Snapchat). In this case however, my sympathies are with Warstler if what’s alleged is actually true.

Sure, it’s not ideal that Warstler is in a different city and can’t work full-time on Yik Yak, but that’s a problem easily solved.

If it’s about equitable ownership, one solution is to issue more shares to the two full-time co-founders so Warstler’s 1/3 gets diluted over time. I assume with 2/3 of the vote, the two co-founders can make such a scheme possible. And if they can’t, then that’s Business 101 on why it’s a good idea to have a Memorandum and Articles of Association, which outlines how corporate decisions are made and is a legal requirement in most countries for starting companies.

In asking Warstler to sell his shares, the two co-founders made an excuse about needing Warstler’s signature on things, as seen below in a text allegedly sent to him:

Dougie, this isn’t ideal but it is what needs to happen. We need to start fresh with your name off of this [Yik Yak]. I know we spoke about this before Christmas, but I spoke with my parents over the holidays. They are making me get this settled before continuing to fund it. My parents know how much Brooks and I have riding on making this succeed, so they want everyone to be fully committed. We are also going to have a lot of expenses going forward. We don’t want to be coming to you for money and signatures when we are trying to get stuff done […]

Again, a well written M&AA would have these situations sorted. E.g., that a 2/3s majority vote is all that’s needed to make corporate decisions.

Also, anyone who’s ever worked in a start-up knows you don’t need everyone’s signature for expenses. For example, in my start-up, my signature is the only one necessary for the vast majority of expenses. It’s only big amounts that require my co-founder to co-sign.

So that rationale feels hollow.

Even if Warstler didn’t want to sell, the point is that there are ways to arrive at a fair outcome. What doesn’t seem fair is starting a new company, transferring the old company’s assets, i.e. Yik Yak, and then excluding Warstler completely.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s