tipjoyTipjoy was a micropayments startup run by a husband and wife team. The pair raised $1MM from investors and were in the process of trying to sell the company to Twitter or Facebook. Facebook had given the pair a term sheet to acquire the company, but at the 11th hour the offer disappeared. By the 12th hour the husband had taken a job at Facebook and the company was shuttered. The balance of the initial $1MM (unknown as to how much was left) was returned to the investors. Ouch.

Investors including: BetaWorks, the Accelerator Group, Chris Sacca and Y Combinator. Of course this is a great deal for both Ivan and Facebook.  Facebook doesn’t have to pay BetaWorks, the Accelerator Group, Chris Sacca and Y Combinator a return for their investment in the company; instead they can simply give Ivan as much upside and incentive as necessary.  Of course I think this deal is a mistake for both Facebook and Ivan.

Did either party violate the law? It doesn’t appear as though they did. Should Facebook have offered to hire the key employee from a company they were looking to acquire? Not unless they had approval from the investors. Why?  Assuming Facebook is in the race for the long term they are going to want to be consulted on all the cool startups looking to sell. If investors fear that Facebook will ’steal’ their people rather than pay a return they won’t shop deals to the Facebook team. As for Ivan? It will be very hard for him to raise another round of venture capital. Why would anyone trust him again? Hopefully he will make enough that he never needs another job or investor.

So why buy when you can hire? Because it isn’t the ethical thing to do. It may be legal, but it will cost you in the long run. Trust me…



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