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Twilio Sued by Authy (YC W12) Founder Over Merger Compensation

81 points by immad 9y ago

zaatar 9y ago
Actual complaint (PDF): https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/download https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/do...
- tdumitrescu 9y ago
  Am I reading that document correctly? He had a clause for accelerated vesting upon termination and so vested 507885 shares immediately when they fired him in December (par. 36), and this suit is about the remaining 127386 "earn-out" shares that were dependent on hitting revenue targets? On the one hand that sucks and it sounds like he had a terrible time at Twilio; on the other hand he just got an extra 2.5 years' worth of stock without having to stick it out and is basically set up for life if he wants to be. Puts this in a slightly different light. (I have no connection to any of these people or companies, just interested in the story.)
  - jondubois 9y ago
    He got a very good deal, he is lucky that Twilio acquired his company that I've never heard of.
    - StudentStuff 9y ago
      I think I've heard of them once, but what does Twilio bring to the table to enrich Authy? Plus, Authy is literally competing against Google Authenticator, which despite the name is open source and free to use. Authy is asking nearly 10 cents per auth: https://www.twilio.com/two-factor-authentication/pricing https://www.twilio.com/two-factor-authentication/pricing
      - falsedan 9y ago
        Other way around, Authy gets Twilio another channel to upsell telco services. $0.09/auth is fine if you cache it for 30 days/ever. And why not Google Authenticator? Some people either want to avoid Google products or be more appealing to customers who want to avoid Google. I know of Authy since itch.io use them.
        StudentStuff 9y ago
        Damn, that is over $1 a year per user. Gotta have a high value customer demographic to justify that...
        falsedan 9y ago
        Yeah, that's a great succinct analysis. Use this to auth your mult-dollar purchases, not your SSH logins.
      - erpellan 9y ago
        Google authenticator only stores its data locally. If you lose your phone you're screwed. Authy replicates data so you can have your 2FA on multiple devices and easily restore them if your phone dies.
        pfooti 9y ago
        The funny thing is that as and end user, I can use authy to replace my Google authenticator, since it also implements the same protocol. So I use it for all my 2fa codes, mainly so I can access it from places other than my phone if needs be. I wonder if authy has monetized my use case somehow (adverts most likely).
        jbronn 9y ago
        Yes it stores locally, but on iOS the data will be kept in backups if they're encrypyted.
      - sb8244 9y ago
  - beagle3 9y ago
    It's common to have this sentiment, but it doesn't actually put anything in a different light, anymore than the fact that you're getting a salary of (say) $150,000/year makes your landord stealing your $5,000 deposit "in a different light". (If it looks completely unrelated to you, think about the deposit story from the point of view of someone who lives on $20/day). I have not read the complaint, and have no knowledge of this case. But when you've been treated unfairly (in the legal sense), it is your right to seek compensation for that through the courts, and the fact that other agreements were honored (and put him in a good financial position) should not put anything in "a different light".
    - tdumitrescu 9y ago
      Absolutely - I'm not saying he shouldn't take action if he thinks he's entitled to that compensation. But I think most people coming to this thread with just the news article will be reading it more as "twilio acquired and fired so they could claw back promised equity" rather than "head of acquired company thinks twilio made it hard for him to hit revenue goals, affecting 1/6 of his equity compensation."
  - deleted 9y ago
    [deleted]
isubkhankulov 9y ago
i wonder how often this happens in the valley.
- logronoide 9y ago
  I wonder how often this happens outside of The Valley too.
  - rsp1984 9y ago
    A friend of mine works for a large M&A advisory firm. Apparently it happens all the time and the acquiring companies often make it deliberately hard for an acquired company to meet their earn-out targets, e.g. by hitting them with a lot of bureaucracy.
    - dstroot 9y ago
      I've been bought twice. Each time the acquiring firm's bureaucracy was massively impactful. It's not done intentionally- larger companies need the structure. I have always thought of it as "gearing" - as in a large gear can make a small gear turn very fast simply by barely moving. Or put another way what happens when everyone in the larger company just needs 10 minutes of your time? You are booked for six months.
  - c17r 9y ago
    Not part of The Valley and not in the sexy start-up space but it happened to me when I sold my company. They wanted us to meet minimum revenue numbers for 2 years but month after month they (A) wanted to take the bulk of our available time to do their needs and (B) certainly weren't going to PAY for any of that work. Pointing out the incongruent mandates were met with ignorance or "we'll figure it out later" with no later actually happening. My co-founder and I left as soon as we could and never looked back. Fortunately our earn out wasn't an all or nothing, so we hit a bunch of the milestones and got the bulk of our money. Still a little bitter over the whole thing.
  - siegel 9y ago
    Whenever there is an earnout in the M&A context, the acquiring company will attempt to insert language in the transaction agreements relieving the acquiror from any liability if it does not help (or even hinders) the target (or the relevant employees from the target) in meeting the earnout thresholds. If your company receives an acquisition offer and it includes an earnout, do not sign a term sheet that lacks protections in terms of your ability to meet earnout thresholds. Your leverage decreases once the term sheet is signed. So, if there's any chance to get protections, it's at the term sheet phase.
payne92 9y ago
Complaint: https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/download https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/do... TL;DR: earnout disagreement, with the key earnout definitions completely redacted. This is why earnouts are SO hard: too many external factors.

81 points by immad 9y ago

Actual complaint (PDF): https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/download https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/do...

tdumitrescu 9y ago
Am I reading that document correctly? He had a clause for accelerated vesting upon termination and so vested 507885 shares immediately when they fired him in December (par. 36), and this suit is about the remaining 127386 "earn-out" shares that were dependent on hitting revenue targets? On the one hand that sucks and it sounds like he had a terrible time at Twilio; on the other hand he just got an extra 2.5 years' worth of stock without having to stick it out and is basically set up for life if he wants to be. Puts this in a slightly different light. (I have no connection to any of these people or companies, just interested in the story.)
- jondubois 9y ago
  He got a very good deal, he is lucky that Twilio acquired his company that I've never heard of.
  - StudentStuff 9y ago
    I think I've heard of them once, but what does Twilio bring to the table to enrich Authy? Plus, Authy is literally competing against Google Authenticator, which despite the name is open source and free to use. Authy is asking nearly 10 cents per auth: https://www.twilio.com/two-factor-authentication/pricing https://www.twilio.com/two-factor-authentication/pricing
    - falsedan 9y ago
      Other way around, Authy gets Twilio another channel to upsell telco services. $0.09/auth is fine if you cache it for 30 days/ever. And why not Google Authenticator? Some people either want to avoid Google products or be more appealing to customers who want to avoid Google. I know of Authy since itch.io use them.
      - StudentStuff 9y ago
        Damn, that is over $1 a year per user. Gotta have a high value customer demographic to justify that...
        falsedan 9y ago
        Yeah, that's a great succinct analysis. Use this to auth your mult-dollar purchases, not your SSH logins.
    - erpellan 9y ago
      Google authenticator only stores its data locally. If you lose your phone you're screwed. Authy replicates data so you can have your 2FA on multiple devices and easily restore them if your phone dies.
      - pfooti 9y ago
        The funny thing is that as and end user, I can use authy to replace my Google authenticator, since it also implements the same protocol. So I use it for all my 2fa codes, mainly so I can access it from places other than my phone if needs be. I wonder if authy has monetized my use case somehow (adverts most likely).
      - jbronn 9y ago
        Yes it stores locally, but on iOS the data will be kept in backups if they're encrypyted.
    - sb8244 9y ago
- beagle3 9y ago
  It's common to have this sentiment, but it doesn't actually put anything in a different light, anymore than the fact that you're getting a salary of (say) $150,000/year makes your landord stealing your $5,000 deposit "in a different light". (If it looks completely unrelated to you, think about the deposit story from the point of view of someone who lives on $20/day). I have not read the complaint, and have no knowledge of this case. But when you've been treated unfairly (in the legal sense), it is your right to seek compensation for that through the courts, and the fact that other agreements were honored (and put him in a good financial position) should not put anything in "a different light".
  - tdumitrescu 9y ago
    Absolutely - I'm not saying he shouldn't take action if he thinks he's entitled to that compensation. But I think most people coming to this thread with just the news article will be reading it more as "twilio acquired and fired so they could claw back promised equity" rather than "head of acquired company thinks twilio made it hard for him to hit revenue goals, affecting 1/6 of his equity compensation."
- deleted 9y ago
  [deleted]

isubkhankulov 9y ago

i wonder how often this happens in the valley.

logronoide 9y ago
I wonder how often this happens outside of The Valley too.
- rsp1984 9y ago
  A friend of mine works for a large M&A advisory firm. Apparently it happens all the time and the acquiring companies often make it deliberately hard for an acquired company to meet their earn-out targets, e.g. by hitting them with a lot of bureaucracy.
  - dstroot 9y ago
    I've been bought twice. Each time the acquiring firm's bureaucracy was massively impactful. It's not done intentionally- larger companies need the structure. I have always thought of it as "gearing" - as in a large gear can make a small gear turn very fast simply by barely moving. Or put another way what happens when everyone in the larger company just needs 10 minutes of your time? You are booked for six months.
- c17r 9y ago
  Not part of The Valley and not in the sexy start-up space but it happened to me when I sold my company. They wanted us to meet minimum revenue numbers for 2 years but month after month they (A) wanted to take the bulk of our available time to do their needs and (B) certainly weren't going to PAY for any of that work. Pointing out the incongruent mandates were met with ignorance or "we'll figure it out later" with no later actually happening. My co-founder and I left as soon as we could and never looked back. Fortunately our earn out wasn't an all or nothing, so we hit a bunch of the milestones and got the bulk of our money. Still a little bitter over the whole thing.
- siegel 9y ago
  Whenever there is an earnout in the M&A context, the acquiring company will attempt to insert language in the transaction agreements relieving the acquiror from any liability if it does not help (or even hinders) the target (or the relevant employees from the target) in meeting the earnout thresholds. If your company receives an acquisition offer and it includes an earnout, do not sign a term sheet that lacks protections in terms of your ability to meet earnout thresholds. Your leverage decreases once the term sheet is signed. So, if there's any chance to get protections, it's at the term sheet phase.

payne92 9y ago

Complaint: https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/download https://www.bloomberglaw.com/iframe/document/X1Q6NR78D282/do... TL;DR: earnout disagreement, with the key earnout definitions completely redacted. This is why earnouts are SO hard: too many external factors.