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Mark Benioff, Sales Force CEO, personally invested in the original venture round that raised $15M [1]. Assuming that round set a $75M valuation, it implies M.B

Mark Benioff, Sales Force CEO, personally invested in the original venture round that raised $15M [1]. Assuming that round set a $75M valuation, it implies M.Benioff made at least a 10X with this investment. I'd assume boards are diligent when it comes to potential conflicts of interest and the $750M valuation is justifiable. But I don't know that for a fact. Does anyone have insight on how boards deal might deal with this scenario ? [1] https://www.crunchbase.com/organization/quip/investors https://www.crunchbase.com/organization/quip/investors edit: grammar

swampthing 10y ago
Usually, you would have the transaction approved (or rejected) by the disinterested members of the board (i.e. the directors with no conflicts of interest).
- acchow 10y ago
  Suppose the conflicted interest on the board has majority share - would they still sit out on the vote?
  - Retric 10y ago
    Not sitting out opens you up to lawsuits. But, a lot of sketchy crap goes on.
  - andrewfong 10y ago
    Yes, what they're looking for is a majority (or 2/3 or whatever threshold is called for in the bylaws) of the disinterested directors. If there are no disinterested directors, or it's something like 5 out of 6 directors are conflicted and the 1 director isn't comfortable going it alone, then the company might ask for approval of a majority of the non-conflicted shareholders. This isn't strictly required I think, but it's considered the safe thing to do.
- dyim 10y ago
  Yup, something similar happened with the Tesla/SolarCity acquisition: "Mr. Musk said Monday he wasn’t involved in the decision making about the valuation of the purchase." [1] [1] http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6-billion-merger-deal-1470050724 http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6...
- galtwho 10y ago
  How does it work when Person A,B & C equally owns Company X which has cash reserves of 10m and liabilities of 10m Person A & B also own Company Y. Company X buys out Company Y for 5m which later leads to bankruptcy of Company X with creditors left holding the can. How is conflict of interest treated here? What if Person C also has equal shares in Company Y. Is Company X debarred from buying Company Y. Can creditors sue Company X directors ?
  - gregpilling 10y ago
    This case may be relevant https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. Henry Ford, in his 3rd attempt at starting a car company, began what we know as Ford Motor today. His previous two ventures had failed; the first was run by the Leland team and renamed Cadillac; the second dissolved; the third made cars using Dodge Brothers engines, transmissions and differentials. According to "Wheels for the World" by Brinkley, the 3rd company of Ford's had run up quite a debt to the Dodge Brothers while getting the Model T going. Henry cut them in as shareholders in order to pay off his parts bill. Once it was a sales hit, Henry Ford resented giving the Dodge Brothers such a high percentage of the profits and did not want to purchase the drivetrain from them anymore. He started manufacturing his own drivetrains to cut them out of the picture. So there is a lot of case history built upon Dodge V Ford, and the actual story is a fascinating thing to compare to modern day Silicon Valley. My main takeaway from reading "Wheels for the World" by Brinkley was the similarity between the tech boom and the auto boom in the early 1900s. Many startups, a few succeed, and then consolidation as the industry matures - Microsoft acquires LinkedIn, Facebook buys WhatsApp, etc. https://www.amazon.com/Wheels-World-Company-Century-Progress/dp/0142004391 https://www.amazon.com/Wheels-World-Company-Century-Progress...
dirkdk 10y ago
that increase in value is peanuts compared to Benioff's net worth of 4.2 billion https://www.google.com/?ion=1&espv=2#q=benioff%20net%20worth https://www.google.com/?ion=1&espv=2#q=benioff%20net%20worth
- brainflake 10y ago
  Irrelevant. On a personal level, he didn't get to his current net worth by not seeking out lucrative deals. It's also irrelevant from the legal perspective (see Martha Stewart).
  - encoderer 10y ago
    Martha Stewart went to jail for lying about something. Also, don't confuse strict liability torts with those that require negligence or intent to harm. But certainly if a strict liability statute _is_ violated, you're right that it doesn't matter if it was "just a little bit".
throwaway6497 10y ago
Good point and observation. In this particular case, it is moot since Benioff is above doing any side-deals to put more money into his kitty. I would certainly suspect a VC on a public company board and the company buying the start-up VC invested in. Lots of examples like that.
- was_boring 10y ago
  > In this particular case, it is moot since Benioff is above doing any side-deals to put more money into his kitty. What makes you say this?
- RockyMcNuts 10y ago
  How is it moot? on the Salesforce side Salesforce is giving Benioff personally a huge exit with shareholder money. On the Quip side he will recuse himself from the final decision, but of course he had insider info, and can offer a lot of reasons board, management might not want to look for a higher. Seems like a nice exit, but seems foolish to pretend conflicts don't exist. In fact, like someone said "no conflict, no interest."
  - throwaway6497 10y ago
    Oh! Sorry for the confusion. Conflicts do exist. I am was speaking purely from the point of view of Benioff pulling of something questionable with the express intention of putting in more money in his kitty or do good for his investments opportunistically. I was saying Benioff is beyond that. Legally speaking, he will have to tread this carefully, and show that he didn't shirk his fiduciary duty as a board member and CEO while making this deal.
mathattack 10y ago
The single most important thing in conflicts of interest is up front disclosure. If you let everyone know what's going on, there is rarely an issue. (This is what ultimately brought down the CEO of LendingClub [0]) One challenge is we never see the instances where boards shoot down pet M&A projects, because those discussions happen behind closed doors without a merger announcement. [0] http://www.wsj.com/articles/lendingclub-ceo-resigns-over-sales-review-1462795070 http://www.wsj.com/articles/lendingclub-ceo-resigns-over-sal...
ryanswapp 10y ago
This is a duty of loyalty issue. When there is a board decision and a conflict of interest arises (like in this circumstance) a court would look at whether the transaction was fair to the company and shareholders to determine if there has been a breach of fiduciary duties. Generally, a board needs to make sure that the deal was both procedurally fair (voted on and approved by disinterested board members, special committees, etc...) and substantively fair (fair dealing, fair price). There is a ton of case law that fills in all the cracks as to what procedurally fair and substantively fair actually mean but that's a high level overview.
mason55 10y ago
When Oracle bought NetSuite there was a special committee put together to handle all the negotiations exactly because of Larry Ellison's personal investment into NetSuite.

swampthing 10y ago

Usually, you would have the transaction approved (or rejected) by the disinterested members of the board (i.e. the directors with no conflicts of interest).

acchow 10y ago
Suppose the conflicted interest on the board has majority share - would they still sit out on the vote?
- Retric 10y ago
  Not sitting out opens you up to lawsuits. But, a lot of sketchy crap goes on.
- andrewfong 10y ago
  Yes, what they're looking for is a majority (or 2/3 or whatever threshold is called for in the bylaws) of the disinterested directors. If there are no disinterested directors, or it's something like 5 out of 6 directors are conflicted and the 1 director isn't comfortable going it alone, then the company might ask for approval of a majority of the non-conflicted shareholders. This isn't strictly required I think, but it's considered the safe thing to do.
dyim 10y ago
Yup, something similar happened with the Tesla/SolarCity acquisition: "Mr. Musk said Monday he wasn’t involved in the decision making about the valuation of the purchase." [1] [1] http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6-billion-merger-deal-1470050724 http://www.wsj.com/articles/tesla-and-solarcity-agree-to-2-6...
galtwho 10y ago
How does it work when Person A,B & C equally owns Company X which has cash reserves of 10m and liabilities of 10m Person A & B also own Company Y. Company X buys out Company Y for 5m which later leads to bankruptcy of Company X with creditors left holding the can. How is conflict of interest treated here? What if Person C also has equal shares in Company Y. Is Company X debarred from buying Company Y. Can creditors sue Company X directors ?
- gregpilling 10y ago
  This case may be relevant https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co. Henry Ford, in his 3rd attempt at starting a car company, began what we know as Ford Motor today. His previous two ventures had failed; the first was run by the Leland team and renamed Cadillac; the second dissolved; the third made cars using Dodge Brothers engines, transmissions and differentials. According to "Wheels for the World" by Brinkley, the 3rd company of Ford's had run up quite a debt to the Dodge Brothers while getting the Model T going. Henry cut them in as shareholders in order to pay off his parts bill. Once it was a sales hit, Henry Ford resented giving the Dodge Brothers such a high percentage of the profits and did not want to purchase the drivetrain from them anymore. He started manufacturing his own drivetrains to cut them out of the picture. So there is a lot of case history built upon Dodge V Ford, and the actual story is a fascinating thing to compare to modern day Silicon Valley. My main takeaway from reading "Wheels for the World" by Brinkley was the similarity between the tech boom and the auto boom in the early 1900s. Many startups, a few succeed, and then consolidation as the industry matures - Microsoft acquires LinkedIn, Facebook buys WhatsApp, etc. https://www.amazon.com/Wheels-World-Company-Century-Progress/dp/0142004391 https://www.amazon.com/Wheels-World-Company-Century-Progress...

dirkdk 10y ago

that increase in value is peanuts compared to Benioff's net worth of 4.2 billion https://www.google.com/?ion=1&espv=2#q=benioff%20net%20worth https://www.google.com/?ion=1&espv=2#q=benioff%20net%20worth

brainflake 10y ago
Irrelevant. On a personal level, he didn't get to his current net worth by not seeking out lucrative deals. It's also irrelevant from the legal perspective (see Martha Stewart).
- encoderer 10y ago
  Martha Stewart went to jail for lying about something. Also, don't confuse strict liability torts with those that require negligence or intent to harm. But certainly if a strict liability statute _is_ violated, you're right that it doesn't matter if it was "just a little bit".

throwaway6497 10y ago

Good point and observation. In this particular case, it is moot since Benioff is above doing any side-deals to put more money into his kitty. I would certainly suspect a VC on a public company board and the company buying the start-up VC invested in. Lots of examples like that.

was_boring 10y ago
> In this particular case, it is moot since Benioff is above doing any side-deals to put more money into his kitty. What makes you say this?
RockyMcNuts 10y ago
How is it moot? on the Salesforce side Salesforce is giving Benioff personally a huge exit with shareholder money. On the Quip side he will recuse himself from the final decision, but of course he had insider info, and can offer a lot of reasons board, management might not want to look for a higher. Seems like a nice exit, but seems foolish to pretend conflicts don't exist. In fact, like someone said "no conflict, no interest."
- throwaway6497 10y ago
  Oh! Sorry for the confusion. Conflicts do exist. I am was speaking purely from the point of view of Benioff pulling of something questionable with the express intention of putting in more money in his kitty or do good for his investments opportunistically. I was saying Benioff is beyond that. Legally speaking, he will have to tread this carefully, and show that he didn't shirk his fiduciary duty as a board member and CEO while making this deal.

mathattack 10y ago

The single most important thing in conflicts of interest is up front disclosure. If you let everyone know what's going on, there is rarely an issue. (This is what ultimately brought down the CEO of LendingClub [0]) One challenge is we never see the instances where boards shoot down pet M&A projects, because those discussions happen behind closed doors without a merger announcement. [0] http://www.wsj.com/articles/lendingclub-ceo-resigns-over-sales-review-1462795070 http://www.wsj.com/articles/lendingclub-ceo-resigns-over-sal...

ryanswapp 10y ago

This is a duty of loyalty issue. When there is a board decision and a conflict of interest arises (like in this circumstance) a court would look at whether the transaction was fair to the company and shareholders to determine if there has been a breach of fiduciary duties. Generally, a board needs to make sure that the deal was both procedurally fair (voted on and approved by disinterested board members, special committees, etc...) and substantively fair (fair dealing, fair price). There is a ton of case law that fills in all the cracks as to what procedurally fair and substantively fair actually mean but that's a high level overview.

mason55 10y ago

When Oracle bought NetSuite there was a special committee put together to handle all the negotiations exactly because of Larry Ellison's personal investment into NetSuite.