Toptal's equity issue
Emailed on August 23rd, 2019 in The Friday Forward
Toptal, a platform that matches businesses with software engineers, is at the top of its game: The company has grown at a rate of 30% for several years and did $200m in revenue last year.
Founded by 2 entrepreneurs in 2010, the company raised funding from venture capital firms like Andreessen Horowitz and quickly staffed up. Since then they've been a smash hit. They're believed to be valued above $1B.
Sounds like a big win for investors, employees, and founders, right? Well, it appears it's only a win for a founder. Singular founder.
Toptal is now 100% owned by CEO Taso Du Val, despite contracts that granted equity to early employees, including co-founder and former COO Breanden Beneschott. Beneschott, who was promised 17% of Toptal’s shares, says he was fired after demanding his equity. Andreessen Horowitz and others invested $1.5m in Toptal in 2012 in a stake that they expected to be around 15% of the company. No shares for them either.
So how's Du Val doing this?
Is it legal?
Is it a d*** move?
Convertible notes, yes, and definitely a d*** move (the asterisks don't stand for duval).
Beneschott, Andreessen Horowitz, and other stakeholders all received convertible notes for their investments, which granted them equity if and *only if* Toptal raised more money in the future. But Du Val carefully avoided raising money after its initial seed round, which meant that -- contractually -- he didn’t owe anyone anything.
Let me be clear: finding as much success as Toptal has without raising money is an amazing accomplishment. I love it. Totally screwing your early cofounders, investors, and employees out of a fortune that they are very much entitled to and responsible for, incredibly not cool.
By the letter of their contracts, Toptal employees and investors have no recourse -- other than straight up asking for their money back or suing.
You know what happens when you sue a billionaire like Du Val? You get sued by a billionaire like Du Val. Just ask his former cofounder Beneschott, who is now in a legal standoff for 17% of his former company.