Entrepreneurs and investors can learn from the Facebook TipJoy “scandal”

by jeffhilimire on August 23, 2009

Seems everyone is getting excited about what Facebook recently did after pursuing a TipJoy acquisition.  Not up on this yet?  You can read a TechCrunch article on it, but the gist is that Facebook was talking to TipJoy (micropayments startup) about an acquisition and reportedly offered around $5MM in stock for the company.  TipJoy allegedly said no, so Facebook did the next best thing: they hired TipJoy’s co-founder and CTO, Ivan Kirigin.

At first I thought that was pretty sh$tty business by Facebook.  If they can do that (and I’m still not sure how they legally did that), then this could start a very bad trend of big companies pretending to want to acquire a startup, even throwing a BS offer like this one, assessing the talent during the due diligence and just hiring the good people away.

But after thinking about this, I realized that TipJoy was never going to work anyway.  You know why?  Ivan isn’t an entrepreneur.

And that’s ok.  Nothing wrong with not being an entrepreneur.  Lots of smart and successful folks aren’t.  But no entrepreneur would take this path.  An entrepreneur doesn’t put their heart and soul into something and then at the 5 yard line decide to take the ball and walk off the field.  So I’m not disappointed in Ivan’s decision, he isn’t and never will be an entrepreneur.

I am, however, disappointed in this guy’s morals.  I don’t know him, he might be the nicest guy in the world, delivering packages to orphans on Christmas and walking old ladies across the street.  But he had investors that backed him to this point, and to walk away from that is complete bullsh$t.  As an entrepreneur AND an investor, that doesn’t sit well with me.

So I think the lesson here is, make sure when you’re investing in a company that you’re investing in the people as much as the idea or the market or whatever else you look at when you give someone a big pile of money.  You better make damn sure that person is someone that has the fire in his/her belly and wants nothing other than to be an entrepreneur, to show the world that they can make it, that they can make a difference.

Because there are a ton of startup folks out there looking at this and thinking about the job they could take and the security that would come with that.  Let’s hope they look inside and realize they aren’t going to sell out like this.

  • http://tipjoy.com ikirigin

    “TipJoy allegedly said no”

    Wow, you read an inflammatory and incorrect TechCrunch article, and even managed to get their version of the facts wrong.

    When making a personal attack like this, try to keep the signal to noise ratio above zero.

  • http://www.jeffhilimire.com Jeff Hilimire

    So are you saying you didn't take the job at Facebook? If you a) were a co-founder at TipJoy and took investment and b) left to work at Facebook, I find that to be a problem. Love to hear you're justification on that point, or if I don't have those two facts right then please set me straight.

  • pfreet

    Either Ivan is a complete f*#ing idiot or you and Techcrunch have some of your facts wrong. As a firm believer in Occam's razor, I'll take the latter for now.

  • http://tipjoy.com ikirigin

    Did you even read my comment? Or reread the techcrunch post? You got some basic facts wrong in your blog post, namely, that at any point Tipjoy walked away from a deal.

  • Mike Bednar

    Great interp of what could become an epidemic. The key to start-ups is the starting line; the people. They have the intelligence, the passion, the drive. When companies do gobble them up, what's the first thing that happens? They shed them off; high salaries. Then they are left with the remains, thinking they have the magic ingredient somewhere in the office space. They never do. No one's left to keep the passion. No one's left to stand for what made success happen in the first place. It's a shame when growth consumes individuality, when profit goals and dreams of expansion turn into nightmares. But it happens. Everyday. Just wish the valuation of assets and resources in that ever-important evaluation stage took into consideration how critical people are in the businessword.

  • http://www.jeffhilimire.com Jeff Hilimire

    No I didn't reread the Techcrunch article because you insinuated that they didn't get the facts straight.

    Based on your comment it would seem either Facebook pulled the deal away or you guys are still working on a deal or something?

    So why don't you set us straight and tell us what really happened instead of just vaguely saying no one has the facts right.

  • http://blog.gleep.org/ andrewwatson

    Even if you didn't walk away from a deal, it still seems like ppl are being left holding broken pieces and you've got a new job to look forward to.

    The perception is that you wronged your startup and the people who put their time and energy into it. That's what freaks people out.

  • http://www.engauge.com/ Todd

    This might help clarify: http://news.ycombinator.com/item?id=779693

    Apparently, there were no remaining suitors.

    Looks like TC had it wrong.

    Due diligence does allow a potential buyer the ability to see that cash is low and a yard sale is forthcoming. I guess at that point, it's their option to take the discount route and just employ instead of buy.

    Seems like a good business decision by FB, if in fact TJ was done.

  • IvanJoy

    Anyway you look at it, knowing that you had a potential job offer at Facebook would cloud your vision about the acquisition process and/or continuing on with the business. The real question, is why did they so no to Twitter, which would have been the logical acquiror? That seems like the biggest mistake here.

  • http://www.jeffhilimire.com Jeff Hilimire

    Definitely the right move for Facebook if they could get away with it (and they did). My concern is that this might start a precedence. It's a slippery slope.

    If Y Cominantor really was in support of this (they say they are though they have every reason not to piss off Facebook publicly), then its probably a fine thing. Though I'm not so sure that YC loved the idea.

  • http://www.jeffhilimire.com Jeff Hilimire

    Yep, you nailed it. That would certainly cloud your decision-making process. Knowing that is an option is what I'm not liking about this whole situation. I'd hate for this to become a trend; having a huge public company like Facebook involved will only make more people consider this route.

  • sylvainperrier

    TipJoy's Founders could have avoided the whole situation if they would have included 1st of all a Non-Solicitation clause in their Mutual Non-Disclosure Agreement with Facebook.

  • http://www.jeffhilimire.com Jeff Hilimire

    Definitely the right move for Facebook if they could get away with it (and they did). My concern is that this might start a precedence. It's a slippery slope.

    If Y Cominantor really was in support of this (they say they are though they have every reason not to piss off Facebook publicly), then its probably a fine thing. Though I'm not so sure that YC loved the idea.

  • http://www.jeffhilimire.com Jeff Hilimire

    Yep, you nailed it. That would certainly cloud your decision-making process. Knowing that is an option is what I'm not liking about this whole situation. I'd hate for this to become a trend; having a huge public company like Facebook involved will only make more people consider this route.

  • sylvainperrier

    TipJoy's Founders could have avoided the whole situation if they would have included 1st of all a Non-Solicitation clause in their Mutual Non-Disclosure Agreement with Facebook.

Previous post:

Next post: