When Co-founders Become Thieves: How My Startup Got Robbed and Why I Couldn’t Do Much About It

WTF!?, I cried as I discovered that half of all the company’s cash equivalents suddenly had been withdrawn from its bank account. But when I found out who had made the withdrawal, I realized we had not been screwed. We had been robbed. The investors’ money, and my face. It was gone.

A short week earlier the company had held a board meeting. The director of the board and my co-founder (who I will keep anonymous) had naturally resigned, arguing that he wanted to focus on private matters. The board had been discussing the change of board seats and settlements, but disagreed. I have never ever witnessed such an unprofessional behavior from anyone I’ve trusted in business.

Leaving that meeting, on the way out, in the parking lot, my co-founder loudly left the rest of the board with an off-the-record, oral preposition: “Pay me 30 per cent of the company’s liquid cash by midnight, or else I want 50 per cent.” Seriously? It was just sad, and I kind of felt sorry for him. Even though he had resigned at free will.

It was after that meeting that the director of the board silently had granted my former co-founder direct access to the company’s bank account - without the CEO’s, the board’s, nor the owners’ approval or knowledge. Upon the withdrawal I received a fictitious invoice pulling out administrative and managerial hours far beyond my knowledge.

Now – isn’t that a crime? Strange enough my co-founder didn’t have any formal position or rights at the company at the time. Despite several attempts at formally hiring him, he had insisted on not being employed. Rather he wanted to function as a board member and a contractor. Obviously that earned him more money and flexibility.

Due to his relatively young age, I still felt like giving him a break. After all it was the director of the board who was the trojan horse responsible for giving him access. So after several friendly attempts at solving it, the company filed a case against the director of the board (read: former director).

As new pieces of evidence came to the surface, their motivation became clear.

Some time before this accident our company had been in talks with one of our clients, an advertising company, about creating a joint venture between a media house and the company. But we had politely refused because what we needed at the time was profit, not sweat equity in another company.

Shortly after his resignation, my previous co-founder joined as the CEO at another, new company – owned by that very same client. Unlikely a coincident. I’m curious nevertheless if he put the money that he stole from the company’s bank account into this new company.

Our, the company’s legal party was confident we had a rock solid case. The sudden counterpart had seemingly broken the law.

Several consultations and meetings later, however, the company’s board faced a dilemma. We had to make a decision. The costs of pursuing the case would simply exceed any compensation from winning it. So, should we then pursue the case?

Considering the company’s financials at the time – investments had been made and the cash equivalents were already earmarked taxes due the following month – we decided not to pursue the case (at the time). Existing customers and stakeholders were way more important. We figured that running in countless meetings and preparing the case were too time consuming. We simply couldn’t afford it. Although not principally right, the decision was the best to the company’s health.

As the manager at the company I used some time to get over this accident. How couldn’t I see that these guys were snatchers – almost like it was a planned scheme. How could I let the unauthorized bank transaction to happen? Why didn’t I listen to people hinting at me that there was something not sound about this guy, even when I kind of already knew it? Lots of questions hunted me down. Sure, I could have done things differently.

No matter the impression or fancy titles, a closer background check on the former director of the board would have revealed that the he had been involved in somewhat similar behaviors previously. People are an unpredictable kind. They are not always who they pretend to be. Indeed, that is part of the entrepreneurial risk. But does it mean that you shouldn’t trust them?

If your gut feeling tells you something isn’t right, it often isn’t. That is not sufficient, though. When you are founding a company it often seems convenient to focus on product development and marketing over legal. When things get tougher, however, what seems trivial at first can easily backfire at you.

Running a startup means carefully balancing between your own principles and what is best for the company. You must be able to give up on something. Making objective decisions requires you to understand that you started a company and (at first) hired yourself to run it. At that point it is – for the better or the worse – business but personal.

It’s a hard knock life.

Update: The hardest part was keeping the story to myself as I felt a moral obligation to let others know. For now, I hope this post might help others avoid getting down that same line.

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Img credit: michaelmolenda