When Founders Litigate

When I heard the news that Tinder's co-founders are suing Tinder's parent company (for $2 billion), I thought that would be the topic of yesterday's post. I reconsidered though because it's not really about products, and while it's a topic of interest in the tech world, it's hard to tell if the tech press is actually just making a meal of morsels. Still it was a big headline so I've continued thinking about it since then.

Today a similar story broke, where FanDuel's founders are suing their acquirer, alleging the valuation was artificially depressed leaving them with nothing after the $465 million acquisition.

These situations are not quite the same—different orders of magnitude in damages and valuations, as well as nuanced cases capturing sexual harassment allegations (Tinder) and changing regulatory climates around legalized betting (FanDuel)—but the same fundamentals do apply. The founders of both Tinder and FanDuel claim the companies owning majority stakes in their businesses purposely manipulated valuations to "cheat" them out of their fair "share."

In Tinder's case especially, the founders created a very, very large amount of value for their shareholders, but they also knew the terms under which they were operating. Tinder was incubated at Hatch Labs, which was funded by IAC (Match Group's parent), so likely the founders were starting with less control and a messy cap table.

By the time this lawsuit came around the founders hadn't been at Tinder for a while, with the exception of Jonathan Badeen. Similarly, the FanDuel CEO and co-founder left six months prior to their acquisition. It was probably very frustrating to see their companies create lots of value, and make others wealthy, while they were on the sidelines.

Both of these cases will be interesting to watch for a couple reasons. Private market valuations are finicky. The cases hinge on the plaintiffs' ability to prove them. Further, it will be interesting to watch the founders go to war with companies they started and dedicated so much time and energy to over the years.

No matter how these lawsuits resolve, it's unfortunate that everyone working on these products doesn't get to focus completely on the actual products for the time-being.