Why Can’t You Just Buy Back My Shares?
A former CEO shares his personal account of a difficult shareholder buy-back experience
The good news is that our company went on to become highly successful, beyond our dreams, going public, and making all of our employees more money than they ever imagined. Over time, I also learned that I was not a person cut out to be CEO. That job is incredibly difficult. To make and execute all those necessary and truly painful decisions requires steely nerves, elephant-thick skin, and surgical skills that I simply do not possess. I ended up trading jobs with our chairman, who was brilliant as our CEO. He led us to become the global leader in our field, semiconductor wet processing.
But then, as the dot-bomb recession loomed, he made the ultimate painful decision, and convinced our board to sell our company to a larger public company. Ugh.
The good news is that, twenty years later, we still have reunions and remember everything: the great times as well as the intense challenges. What an awesome team, and an amazing adventure.
The next chapter: Adondo Corporation
Unfortunately, our next company took a bit longer. Many of our friends knew that we could “do it again,” and invested. For this new venture, we toiled long and hard, but we were just too early, and found ourselves facing a much more well-funded product (Siri from Apple), plus additional competition from Google and Microsoft. In a late-stage pivot, we coerced our technology into a sophisticated computational linguistics algorithm that drove our next product: a market-neutral hedge fund.
Initially, this was so much fun. But after a while running a hedge fund begins to wear anyone down. Soon we became “long in the tooth” and several of our shareholders had reached the age where “cleaning up their estate” became a priority. A few called us and earnestly asked if we could help them sell their shares. Reluctantly we told them that, really, we couldn’t help because our hands were tied by SEC regulations and fiduciary duties. There was no way that we could offer them special treatment. We had no good ideas, and they had nowhere to turn.
Then one day, a day that I never will forget, I got a phone call from my close friend, Brad. “Chris, my sister Becky just received a K-1 from you. She can’t handle it. It can’t happen again. You have to do something.”
By way of background, Becky’s dad was one of our earliest investors, albeit a small one. He had become old and quite ill, and he decided to transfer everything to his children. Becky ended up with our shares. And get this: Becky is quadriplegic due to a horrible childhood mishap. Brilliant and admired by all, Becky is profoundly disabled. So I shivered when Brad said, “Chris, I’m talking about Becky. You need to do something.”
Oh my god. We knew that Becky’s shares were worth only about $5K, but having been subject to SEC regulations most of our careers, and (even more importantly) being 100% committed to treating everyone fairly, we just couldn’t do what Brad hoped: “Just buy back her shares. What’s the difference?”
To us, everything. Once a Boy Scout, always a Boy Scout.
To make a long story short, after several board meetings, valuation exercises, draft shareholder communications, legal opinions, more money, and much more effort than $5K ever would suggest, we offered a limited partial buy-back to all shareholders. Becky and one other person took advantage of the offer.
Even after that, personally, I continued losing sleep, worried that, despite our best efforts, we still were setting ourselves up for some future problem, maybe even litigation. I swore that I would never let this happen again. That was June 2016.
A new way to facilitate buy-backs
Today, exactly three years later, by using a relatively obscure, yet powerful and convenient legal structure, the voting trust, we can create a perfectly fair and transparent “walled garden” for buying and selling private company shares. Further, using a clever Ethereum smart contract, we can assure that all transactions are settled instantly, recorded faithfully, and accomplished with no fees whatsoever. Now, any private company can set up their own internal private market quickly and inexpensively, so that their shareholders have the flexibility to buy or sell their shares anytime, anywhere. It’s fully compliant with all SEC requirements, and it meets all the fiduciary responsibilities, even those that will appease Boy Scouts (or Girl Scouts) like us. For a fraction of the cost, situations like Becky’s can be resolved in a few minutes on her cell phone, literally. It’s so cool. It’s so much fun. And it’s such a better solution.
One final note. Remember I said that I was losing sleep after all that hard work to resolve Becky’s situation? Well, I stopped losing sleep about a week later. Why? Because in the mail I opened one of the kindest, most thoughtful, and most beautifully written thank you notes that I’ve ever received, signed, “Love, Becky.”