4 ms·

> too small to get sued in the first place. And being sued probably means you have paying customers Apparently I'm the exception, but my business was pretty sm

> too small to get sued in the first place. And being sued probably means you have paying customers Apparently I'm the exception, but my business was pretty small (under $1M ARR), and one of our investors (which was also our largest client), sued us to pay his convertible note back. The company went bankrupt and after bankruptcy he sued my cofounder and I personally for the note. Still dealing with the whole thing. Every step of the way our other investors and lawyers were caught off guard, because the situation is apparently very rare, however, it still happened. Having said that, knowing what I know now, I'd prefer to start a business, with all the issues and risks that it might entail, rather than let fear keep me from doing it. It's also been a hell of a learning experience and I'm sure it's all going to help me in the future.

gnicholas 6y ago
Wow, sounds pretty crazy. Did the note have personal guarantees? My understanding is that kind of thing is very rare. If not, what grounds did he have for suing you personally? Fraudulent conveyance or breach of fiduciary duties? Something else?
- sushshshsh 6y ago
  It is not crazy and not rare. I can sue you right now, personally, and you would need to pay someone to defend you in court. If you've never owned a business and have no relation to me, then probably you'll survive the suit just fine. But as you can see, OP had a business relationship with the person involved, and though OP probably won the suit in the end, he still had to pay oodles of money to protect himself. And if he lost, well, then there's my point.
- ta1234567890 6y ago
  The note did not have personal guarantees. But that didn't stop him from trying to claim alter ego. Like the sibling comment says, even if we win, we still need to pay tons of money to lawyers just to deal with it, and put in a lot of our time as well. Our lawyers and other investors do think this situation is pretty rare, as the guy ended up killing the business that could have given him a better return on his money, and also screwed everyone else involved in the process.
mgkimsal 6y ago
interesting (sorry you had to deal with that). "having investors" is perhaps a different sort of business than other small businesses that start up. many of the smaller businesses (esp software) don't have 'investors' as such, though some have taken out bank loans.
- ta1234567890 6y ago
  You are totally right. And it will take me a very long time before I want to have investors again (if ever at all).

gnicholas 6y ago

Wow, sounds pretty crazy. Did the note have personal guarantees? My understanding is that kind of thing is very rare. If not, what grounds did he have for suing you personally? Fraudulent conveyance or breach of fiduciary duties? Something else?

sushshshsh 6y ago
It is not crazy and not rare. I can sue you right now, personally, and you would need to pay someone to defend you in court. If you've never owned a business and have no relation to me, then probably you'll survive the suit just fine. But as you can see, OP had a business relationship with the person involved, and though OP probably won the suit in the end, he still had to pay oodles of money to protect himself. And if he lost, well, then there's my point.
ta1234567890 6y ago
The note did not have personal guarantees. But that didn't stop him from trying to claim alter ego. Like the sibling comment says, even if we win, we still need to pay tons of money to lawyers just to deal with it, and put in a lot of our time as well. Our lawyers and other investors do think this situation is pretty rare, as the guy ended up killing the business that could have given him a better return on his money, and also screwed everyone else involved in the process.

mgkimsal 6y ago

interesting (sorry you had to deal with that). "having investors" is perhaps a different sort of business than other small businesses that start up. many of the smaller businesses (esp software) don't have 'investors' as such, though some have taken out bank loans.

ta1234567890 6y ago
You are totally right. And it will take me a very long time before I want to have investors again (if ever at all).