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Tinder founders sue parent companies Match and IAC for at least $2B
- JumpCrisscross 8y ago> The suit alleges that IAC and Match Group manipulated financial data in order to create 'a fake lowball valuation' (to quote the plaintiffs’ press release), then stripped Rad, Mateen, Badeen and others of their stock options Wait, they didn't exercise their options into the sale? Did the founders hire a team of squirrels as their bankers? This is M&A 101 when switching to majority control. EDIT: Ah, Tinder was launched as an internal project at Match. Taking options in a majority-owned entity is...odd. There is no proper way to value a majority-owned entity without discounting for the majority ownership. Issuing options for the parent would have been a better offer and better ask.
- jsnell 8y agoIIRC they were owned by Match from the start.
- themagician 8y agoCan you ELI5 for me, because I don't understand this at all.
- sjg007 8y agoTinder was a match.com spinoff startup and they gave the founders some stock and money... tinder did well and then when they re-acquired the company they did so at a valuation that allegedly improperly compensated some of the shareholders.
- deleted 8y ago[deleted]
- themagician 8y agoStock in Match or stock in the new entity?
- thesausageking 8y agoNote: they weren't really founders. Tinder was created by Hatch Labs, which they worked for and was owned by IAC. I thought it was important to point that out as that's at the core of this lawsuit. The team was given options, but it was majority owned and controlled by Hatch Labs / IAC. When IAC acquired it, they're arguing IAC should've paid more.
- chronolitus 8y agoI just read the plaintiff's complaint, here's my summary (IANAL): - Match gave Tinder founders Tinder stock options, ~20% of Tinder's total worth. - Since Tinder is private, Tinder founders could only sell options to Match. Match would then have to pay 20% of Tinder's 'Worth' to the founders. - The founders could only sell at specific points in time, called "scheduled puts". - Since Tinder is private, 'Worth' is not easy to objectively determine. They have to bring in an external party, give the party information on how the company is doing, and the external party then gives an estimate of valuation. Obviously, Match has an incentive for valuation to be as low as possible. Tinder founders have the opposite incentive. thus, - Valuation was agreed to be supervised by Tinder, to prevent Match interfering. So Tinder founders alledge: - Match removed some Tinder higher-ups and replaced them with their own loyal people. - They then had the loyal higher-ups systematically devalue the company (give pessimistic outlooks, earning forcasts, etc) right before a Scheduled put, to influence the third party into estimating as low a valuation as possible - Once the third party estimated a value of $3 billion, they merged Tinder into match. Since Tinder didn't exist anymore, the Tinder options transformed into $3 billion's worth of Match options. At this point, any crazy future growth in Tinder would not directly translate into crazy growth in the payout Match has to give to the Founders if the cash out. Essentially, beforehand the founders were holding on to X billion dollars of options, set to increase proportionally to Tinder's value. After Match's 'scheming' they found themselves holding on to $3 billion of Match options, no longer set to increase proportionally to Tinder's value, but to Match's value. The founders argue that X > 3, and Tinder's value is set to increase much more than Match in the future, that Match also knows this and cheated for that purpose. ----- Extra details are included, such as the fact that Match stood behind one if it's 'infiltrated' loyalists when he was accused of sexual misconduct, just long enough for him to execute the low valuation, then had him fired with a golden parachute. The defendants claim this is further proof that there was intentional foul play at hand.
- subdane 8y agoTinder was incubated at Hatch Labs at IAC (not Match, but IAC owned Match) https://techcrunch.com/2011/03/31/exclusive-iac-hatches-hatch-a-technology-sandbox-to-incubate-mobile-startups/ https://techcrunch.com/2011/03/31/exclusive-iac-hatches-hatc...
- deleted 8y ago[deleted]
- Kiro 8y ago> Wait, they didn't exercise their options into the sale? What does this mean exactly?
- nextweek2 8y agoIf you’re given share options they can be worthless after the acquisition is complete. I’m not sure exactly how because it’s legal and accounting practice. Hence the lawsuits. If you have share options and you catch wind of a buyout, exercise (buy) the shares. That’s when you have a stake in the game. You have to remember that the company that issued the options won’t exist (in the same form) once acquired, the options become worthless. Sometimes they’ll throw you a bone but that’s usually the bare minimum of what they can get away with.
- pjc50 8y agoYes, but the options may be out-of-the-money at this time, and it costs real money to exercise them and may have tax implications.
- DanielGee 8y agoSimply put, options are an option to buy shares at a specified price sometime in the future. For example, a company can give you options to purchase X amount of shares at a ridiculously cheap price ( like $0.0005 per share ). Many startups do this. Sometime in the future, you can exercise the option and get X amount of shares. If you don't exercise the option, then you don't get to buy shares at the agreed at price.
- hello_asdf 8y agoThat is a brutal response from Match and IAC. Their statement also mentions that two separate banks were part of the valuation. I'd be curious what their proof is. A couple fun phrases from the statement: > his merry band of plaintiffs > but sour grapes alone do not a lawsuit make
- deleted 8y ago[deleted]
- ashelmire 8y agoHow do judges usually react to colorful language like that?
- staticautomatic 8y agoThey usually think nothing of it.
- ohitsdom 8y agoThese quotes are from a PR response statement to the lawsuit, not any official court filing by Match.
- tzs 8y agoIt's already been mentioned that this particular document was not for a judge, but if it had been it would probably depend on the judge. Many judges treat legal writing as a form of literature, and like to use interesting or creative language instead of just sticking to a dry boring style. I'm sure such judges would not mind some colorful language in filings as long as it helps get the point across. A good lawyer will know if they are dealing with such a judge and write their filings appropriately. Here are some examples of judges deviating from dry boring writing. Noble v. Bradford Marine, Inc., 789 F. Supp. 395 (S.D. Fla. 1992) [1]. The section titles in the opinion are "Hurling Chunks", "Like a Winged Monkey Flying Out of the Ashes...", "NOT!", and "A Schwing and a Miss". Fisher v. Lowe, 122 Mich.App. 418, 333 N.W.2d 67 [2]. A tree was hit by a car, and the owner of the tree sued. Defendants won and plaintiff appealed. The appeals court wrote this opinion: We thought that we would never see A suit to compensate a tree. A suit whose claim in tort is prest Upon a mangled tree's behest; A tree whose battered trunk was prest Against a Chevy's crumpled crest; A tree that faces each new day With bark and limb in disarray; A tree that may forever bear A lasting need for tender care. Flora lovers though we three, We must uphold the court's decree. Affirmed When West [3], published a copy of this case they kept to the spirit of of the judge's writing, and their summary was: A wayward Chevy struck a tree Whose owner sued defendants three. He sued car's owner, driver too, And insurer for what was due For his oak tree that now may bear A lasting need for tender care. The Oakland County Circuit Court, John N. O'Brien, J., set forth The judgment that defendants sought And quickly an appeal was brought. Court of Appeals, J.H. Gillis, J., Gave thought and then had this to say: 1) There is no liability Since No-Fault grants immunity; 2) No jurisdiction can be found Where process service is unsound; And thus the judgment, as it's termed, Is due to be, and is, Affirmed [1] https://law.justia.com/cases/federal/district-courts/FSupp/789/395/1641635/ https://law.justia.com/cases/federal/district-courts/FSupp/7... [2] http://kevinunderhill.typepad.com/Documents/Fisher_v_Lowe.pdf http://kevinunderhill.typepad.com/Documents/Fisher_v_Lowe.pd... [3] a publishing company that took copies of the public domain court opinions and added notes pointing out each important legal point in the cases, labeled those points from an extensive legal subject classification they maintained, and added indexes and cross references to the other cases in the same volume and in their prior volumes. This was in an era when everything was done with paper documents, not electronic. People who grew up with electronic documents and networks might find it quite interesting to look into how legal research worked in, say 1970. They might expect it to be cumbersome, but it was actually quite reasonable, due to metadata companies like West and Shepard's [4]. [4] https://en.wikipedia.org/wiki/Shepard%27s_Citations https://en.wikipedia.org/wiki/Shepard%27s_Citations
- deleted 8y ago[deleted]
- nlh 8y agoRandom semi-tangential question: It seems that when companies/PR people/lawyers respond to lawsuits, they always use some version of this EXACT phrase: "The allegations in the complaint are meritless, and ____ intends to vigorously defend against them." Responses almost always use the word "meritless" (or "baseless") and almost always describe their forthcoming response to be "vigorous". Is there a legal reason why these responses always use the same language? Or is this like an inside joke in legal circles?
- wp381640 8y agoIt's just a cliche, see also "we take your security/privacy very seriously" when disclosing issues
- usepgp 8y agowe seriously will take your security/privacy
- jessaustin 8y ago...which is meritless, after all.
- praneshp 8y agoYou should continue reading the statement. While they use a commonly used phrase, there is some colorful language there.
- staticautomatic 8y agoIt really just means they believe the allegations are untrue and that they think the evidence will demonstrate they're untrue or there won't be enough evidence to prove them. The reason this is often stated or quoted is that a defendant has to make a statement to this effect when replying to the complaint. However, at the time of the initial reply, no discovery will have occurred and therefore no evidence will be officially available to either prove or disprove the allegations. Accordingly, all you can really say at that time is "we disagree and believe the allegations in the complaint are not true and/or can't be proven."
- deleted 8y ago[deleted]
- mistrial9 8y agoI suspect that Tinder came from the Hot-or-Not Mashup Camp contest entry years ago .. Can anyone confirm that ?
- erikpukinskis 8y agoI always assumed it was just “Grindr for straight people”. Thus the similar name.
- fatjokes 8y agoWow. Thanks to your comment, I learned that Grindr predates Tinder.
- JimboOmega 8y agoI was active in online dating around the time Tinder came out, and there was a lot of talk about finding the "Grindr for straight people" - like some sort of holy grail. Consensus at the time was that women weren't interested - that just swiping on pictures didn't appeal to them. But if only they could be - filling out a whole profile was a lot of work that turned off a lot of people... But the reality is that online dating was starting to become more and more acceptable and normalized so that line was crossed, Tinder became a thing, and the rest is history (including most other dating apps evolving towards being clones of it)
- DeonPenny 8y agoNo it was an internal startup made from Match.
- geofft 8y agoIn 2014, former Tinder VP Whitney Wolfe, who previously had a "cofounder" title (and would later go on to found Bumble), sued IAC and Match over sexual harassment from another Tinder "cofounder" Justin Mateen, who is one of the plaintiffs in this lawsuit. (I put "cofounder" in quotation marks because it was an internal project at IAC and the history is a complicated.) Mateen was suspended and the lawsuit was settled for $1M. https://www.washingtonpost.com/news/the-switch/wp/2014/07/01/read-the-most-surprising-allegations-from-the-tinder-sexual-harassment-lawsuit/ https://www.washingtonpost.com/news/the-switch/wp/2014/07/01... https://techcrunch.com/2014/07/09/whitney-wolfe-vs-tinder/ https://techcrunch.com/2014/07/09/whitney-wolfe-vs-tinder/ http://valleywag.gawker.com/every-fucked-up-text-from-the-tinder-sexual-harassment-1598642609 http://valleywag.gawker.com/every-fucked-up-text-from-the-ti... Earlier this year Match and Bumble both sued each other in the midst of an attempt from Match to acquire Bumble. I am a little lost but I think Match / Tinder sued for $450M for patent infringement and Bumble countersued for $400M for using the lawsuit to make them look less attractive to potential (non-Match) acquirers?
- jessaustin 8y agoMatch might have to find a model besides "buy the latest popular matchmaking firm"?
- shanghaiaway 8y agoWhy?
- jessaustin 8y agoIf they consistently screw over everybody else in the deal, people won't want to deal with them.
- pm90 8y agoHasn’t stopped them from dominating the market so far. But I do believe they’re a shady company though.
- ArtWomb 8y ago$3B valuation sounds quite reasonable for Tinder. Even with Tinder Gold "resetting the metrics" with per transaction monetization. $IAC total revenues last quarter was approx $1B. At market valuation ~$16B. I could be very wrong, but valuing Tinder at $10B seems upper bound optimistic to me. Match probably enjoys 10x engagement.
- krn 8y agoMarket valuation in tech is all about growth, not revenue. The rest of the companies in The Match Group (Match, OkCupid, PlentyOfFish) are nowhere near as attractive to the younger generation.
- forkLding 8y agoFor those who don't know, Tinder was launched by Sean Rad and his team out of IAC's incubator Hatch Labs and IAC owns most of Tinder since launch. More detailed link here: https://www.hollywoodreporter.com/news/barry-dillers-iac-sued-by-tinder-founders-2-billion-1134767 https://www.hollywoodreporter.com/news/barry-dillers-iac-sue...
- rajacombinator 8y agoIf you had this obviously brilliant app idea why would you launch it as an internal project? Something about the founding story here has never added up.
- bing_dai 8y agoThere might be clauses in those Tinder founders' employment contracts with Match.com that any intellectual property that they came up with during their employment belongs to Match.com. There's a similar plot in the Silicon Valley TV show (Piped Piper v.s. Hooli).
- ralston 8y agoOnly if there was a Gavin Belson in this version
- rajacombinator 8y agoYea that’s one of a few plausible scenarios. However a real founder of this app would find a way around those contracts.
- gnicholas 8y agoObviously brilliant in retrospect
- rajacombinator 8y agoNot really. For people that work with social networks and social dynamics it was an obvious game changer. (Not obvious to invent, obviously, but once shown, anyone who understands the space could see its brilliance.)
- mandeepj 8y agousing their domain terminology, just for fun - Match, Tinder and Bumble are in a weird relationship. Match tried to make an inappropriate pass atTinder, but she is not interested, so considers it as a sexual harassment. Same goes for Bumble. This is a relationship 101. If they can't settle internally then they should leave this dating business :-)
- Retra 8y agoUnsurprisingly, if you start treating a personal relationship like a legal agreement, you'll probably suffer the situation just as badly as if you treat a legal agreement like a personal relationship. They're entirely different creatures. There's no "relationship 101" that covers them both.
- CryoLogic 8y agotl;dr match.com: we would like to buy tinder. tinder: for how much? match.com: we will offer you our stock in exchange for yours at a fair valuation. tinder: okay! match: alrighty accountants, round down on everything and use the methodologies that provide tinder with the lowest valuation. tinder: not fair!
- msmith10101 8y agoGlad to see founders get the employee treatment ;-)
- spaceflunky 8y agoExcept its more like employees getting the employee treatment.
- msmith10101 8y agoI'm playing the smallest violin in the world for these guys, a la Reservoir Dogs :-). I hope they can find a new job :-( if they can't suss out this 2b :-(((
- bradbatt 8y ago"Mr. Rad and his merry band of plaintiffs" I sometimes really love legalese.
- pssflops 8y agoMom always said if you play with match.com, you're going to get burned.