Altman Episode Makes Startups Fret --- Founders build up protections, explore new share classes after OpenAI firing

"There is a new task on the 2024 to-do list for founders: Make sure you can't get Altmaned.

While startups have ousted leaders before, the entrepreneur world was stunned to see the board of hot artificial-intelligence company OpenAI fire Sam Altman just before Thanksgiving. He had been the face of one of the biggest successes of the year and suddenly he was out. In startup land, founders and advisers say they started discussing new ways to protect themselves.

Altman eventually made it back to OpenAI in a countercoup. But the tension at one of the country's biggest startups is playing out in a longstanding debate about who should control a burgeoning company. It is an inherent conflict in business, with founders wanting protection for their jobs while investors want it for their money.

Among startups, tougher economic conditions have recently given venture capitalists and investors the upper hand. After OpenAI, founders are going to try to regain their footing.

Eric Ries, founder of the Long-Term Stock Exchange and something of a corporate governance guru and go-to mentor among the Silicon Valley set, said his phone has been ringing off the hook.

"My really niche, weird hobby suddenly became mainstream," he said. "All of a sudden, founders realized if this can happen to Sam, this can happen to anyone."

Ries has a system of hurdles founders can set up that would make it harder for a board to move against a company's mission or management. The most protective moves, Ries and lawyers say, are implementing supervoting shares or dual-class shares, which give founders ultimate control over their companies. These structures create multiple classes of shares to give founders, and sometimes early employees or investors, voting control.

Proponents of dual-share classes say they protect a company's mission and prevent investors from making decisions on short-term benefits.

 They cite a young Mark Zuckerberg's ability to turn down a 2006 offer from Yahoo to buy Facebook for $1 billion, against the initial advice of other board members.

Investors are less keen on these structures. In 2017, the S&P 500 said it would bar new companies from entering its index if they had multiple share classes, but later altered its stance.

Several startup founders said they are exploring how to get new share classes for their companies in the wake of OpenAI, including Adam Laor, co-founder of Sinatra, which builds software for insurance companies that underwrite the hospitality industry, and Paul Yacoubian of Copy.ai, a copywriting and marketing software company that uses OpenAI technology.

Yacoubian said he watched with anxiety the OpenAI saga, both for his company and his own position.

"For the first few days I was most worried about whether OpenAI would keep functioning for us," said Yacoubian. "After we got a bit out of that, my big question was, 'Am I going to get thrown out of my own company as CEO even if we're crushing it?'"

Founders who have been ousted themselves, like Roger Beaman, said they learned that lesson the hard way.

In 2021, Beaman was finalizing details on a financing round that would value his young company at around $75 million. Overnight, he was stripped of his chief executive role. Beaman, who overcame a troubled youth of addiction before he became sober, said it was still difficult to talk about getting pushed out.

"There's been no more painful experience in my life," Beaman said.

Beaman said he was pushed out before an equity stake he was eligible to own had vested. At his new company, Novel, Beaman set up a double-trigger clause to his vesting schedule. If he is fired or if the e-commerce technology company is acquired, he will receive a year's worth of vesting. His second time around, Beaman said, he also chose his early investors carefully, paying close attention to how they treated founders in the past.

Other founders are thinking about how to build softer bulwarks in their board. Ries is encouraging a mission pledge that adds some legal language in how a board should make decisions. Others are just trying to get board members they can trust.

A few days after Altman's firing, Max Bregman went out to dinner with seven other founders in Phoenix. Over pizza, they asked how they could protect themselves.

At 22 years old, Bregman is young even by startup-founder standards. In March, he co-founded BreatheEV, which builds software for electric-vehicle-charging stations.

Bregman said he wants to steer clear of career board members who he thinks can be conflicted. He said he was also exploring a separate ethics board or an ethics pledge for his board members.

"Someone on your board should have the best intentions for your company. They shouldn't be more worried about alliances with other board members," he said. "Setting the framework up now when not as much is at stake is important for the future." [1]

1. Altman Episode Makes Startups Fret --- Founders build up protections, explore new share classes after OpenAI firing. Driebusch, Corrie.  Wall Street Journal