I don't get the comments bashing the author. This is downright deception and he got screwed. Period.
It's morally wrong and I just don't understand how people can defend this in the comments over at Linkedin. Why the fuck is the free market being used as a blanket argument against morals and ethics?
There's even vaguely veiled threats against the author in the Linkedin comments. I'm fucking appalled and I don't understand why someone would
A) kill your own reputation
B) put women in startups/tech in a bad light
C) use the same branding for the switcheroo that helps the author's case
D) not realize there's post-show background check (that results in 50% of deals announced not going through according to comments)
If she had just been honest and not greedy (why would you be so desperate to own 100% of nothing?) she could've avoided destroying her own goals.
I don't know how anyone can possibly trust her, unless, it was someone who shared the same tony-montana-esque attitude towards wealth & status, bravado, chutzpah at the cost of others and your own soul, for more money in your pocket.
But even Tony did not break his "word & balls" when starting his narcotic empire, in which Alajendro Sosa invested in Tony, risked capital in his business and he got paid. Imagine how angry Sosa would've gotten if never saw his returns. It proved to be lethal for Tony in the end.
> It's morally wrong and I just don't understand how people can defend this in the comments over at Linkedin. Why the fuck is the free market being used as a blanket argument against morals and ethics?
I bet it's because a lot of people over there would do the same given the chance
The unscrupulous founder tried to screw the author, but the author is legally protected. As a result of the potential resulting lawsuit, Mark Cuban will lose any investment that he made in the new company. Therefore Mark Cuban is the one who gets screwed here.
Presumably the next step is for Mark Cuban to either not put his money in that doomed corporate shell, or to open up a negotiation with the original investors and produce a mutually beneficial arrangement. Actually litigating this is in nobody's interest because that will just pay lawyers to verify the obvious result.
As far as I could tell from the article, StartEngine's contract was solid. The Style Club LA had no legal right to transfer assets and IP to a new company without permission from StartEngine, which they did not receive.
So Cuban and Shark Tank invested in a company which came to them under false pretenses, with a significant undisclosed liability. If that's the case, they absolutely got screwed - they probably aren't culpable for Style Club's lack of disclosure, but they did get tricked into a bad investment.
But is there evidence beyond the episode that the deal actually went through? I mean, it's just reality TV, surely a real negotiation happens afterwards where this stuff is checked, no?
Mark Cuban and Shark Tank did get screwed because somebody at the show production thought viewer rating is more important than filtering out entrepreneurs with bad intentions before being asked to put their reputation on line by announcing investments on national television which would expose the Sharks to real risks with implications.
If I was Mark Cuban, I'd be fucking livid at the production for not seeing the risks of doing due diligence at his own expense, both intangible and tangible costs.
"did get screwed because somebody at the show production thought viewer rating is more important than filtering out entrepreneurs with bad intentions before being asked to put their reputation on line by announcing investments on national television"
Listen - you have to take 'Shark Tank' with a little bit of 'Trumpiness'.
It's entertainment man.
The companies are chosen at least as much for their entertainment value as anything else.
Mark Cuban is not concerned about his 'reputation as a serious investor'. In fact, he's probably a joke in serious investment circles.
Mark is a 'pop culture' investor, he cultivates an image of what 'joe street' thinks a 'business investor' ought to be. Obviously - he is that to a great extent, he's putting real money on the line, but he's not a VC in the the more orthodox sense.
He'll have his team do due diligence after the fact, and do a no/go later on.
All of the ridiculous fights, 'isms' and 'sayings' etc. - they are like 'Trump tweets' - you think it will damage him, it won't. It's pop culture ... where having the eye-balls matter. He has legions of 'at home followers' who look up to him. That's his audience.
He might lose an inch of cred with people like you and I, but gain at least as much back from of the kinds of people that watch this show.
Because, for a television production company, ratings fundamentally are more important. Cuban knows it's an entertainment show first-and-foremost and he bought into that (and frankly, from what I can tell, loves that aspect of it).
I've never looked into the details, but I imagine the paperwork Shark Tank entrepreneurs sign includes something along the lines of "all deals agreed are non-binding and subject to completion of satisfactory post-show diligence blah blah". I'd be shocked if a decent percentage of the deals featured don't ultimately fall through for one reason or another at the diligence stage with zero impact on the investor's reputation, so I don't think Cuban will lose too much sleep over it.
Can't remember where I saw it, but recall reading that a significant number of deals do fall through. Mark Cuban actually had one of the higher success rates with about 80% of deals actually succeeding, and I think both Lori and Robert were at around 45%.
Edit: From this AMA on reddit with Mark Cuban 3 years ago, he says that about 25% of deals have something wrong (and therefore presumably don't work out).
Presumably Mark Cuban got screwed because if The Style Club ever scaled up and became a massive success, there is an obvious and near-indefensible (if Howard's evidence is accurate) shareholder lawsuit from the previous investors patiently waiting on the sidelines.
It's pretty much a done deal here. What's so special about Style Club? Why not something completely different like 21 Forever, Nasty Gal to keep in trend?
Your reading of Tony is good. Still, I'd say that at the time that Tony says:
I never fucked anybody over in my life didn't have it coming to them. You got that? All I have in this world is my balls and my word and I don't break them for no one.
he's still poor and he has his principles. Later, he gets rich and then, violating the cardinal rule, gets high on his own supply. That's what corrupts Tony.
Hahn doesn't even have a gangster's ethos. So Tony isn't a fair comparison (to Tony). Trump is a fair comparison.
That's most likely true but there really are people who genuinely believe that free market is a panacea and that corporations and public as well as private interests are aligned to the point where even the suffering of people and individuals (getting wined and dined) is justified.
Kevin O'rly comes to mind when he claimed 3.5 billion people living in poverty is good because free market lol
I read it as "I feel like I got screwed, but I don't want to sound whiny, so I'll frame it as 'Mark Cuban got screwed' instead because it affects him too".
He did get screwed. It's not the author's fault for not knowing the behind the scenes due process that isn't televised.
I'm just shocked by why the background checks come after the the pitch and not before. It's not the author or audiences job to know and protect Mark Cuban or any of the shark's reputation or financial well being.
I'm also wondering why there are so many Koreans circle jerking Mark Cuban in the linkedin comments. As a Korean myself, wtf? Did he pull the Incheon Landing or something?
My guess is that it's because running the check costs money.
Doing checks after going through the show means paying for fewer checks because you don't need to check people who don't get picked. Also, you get to air people who have a pitch that would rate well on TV but who end up failing the check.
I don't see how this is can get expensive. Don't they have interns delivering coffee and running errands and other bullshit in the media/entertainment industry? Why not have them do more valuable and relevant tasks such as quick sanity check before the pitch?
Visiting the link you post would indeed have uncovered this particular problem in just a few moments, but doing due diligence means a whole load of other checks as well. It is very cheap to verify that a problem exists if you already know what the problem is.
I'm not suggesting that a quick sanity check before the pitch is a bad idea. For all I know they may do quick sanity checks before the pitch, but a quick sanity check is by definition incomplete. It isn't fair to say after-the-fact that a particular sanity check should have been included because that's where a failure was eventually found.
To be clear, they are a well-funded TV show and personally I think they should bother with due diligence on pitches before the show. But I don't run it, and I guess they don't seem to agree.
Simple fact checking whatever the entrepreneur is pitching doesn't take a lot of resources for the most part.
I think we have a different picture of "background check". I'm saying assume whatever numbers are thrown as bullshit until proven otherwise. That's just due diligence and common sense, it's hard to fathom it being an expensive and time consuming task unless you involve accountants and lawyers provided there's a audit trail available. That costs money and every year thousands of eager accounting/finance graduates are willing to work 60 hours a week at a depressed market rate due to the abundance of supply.
From everything I've read, the handshake deal on the show is meaningless. After the show the investors do real due diligence, and not every deal works out.
"First of all, the handshake deal that happens on the show isn't anything binding. Filming for each season is split over the start of the summer and the start of the fall. After each round, the Sharks and their teams do due diligence on each of the companies to ensure that everything within the company is how it was represented in the pitch room.
There are times when the numbers check out, but the entrepreneurs decide they no longer want to make a deal, such as when the founders of evREwares decided they weren't actually willing to sell 100% of their struggling company to Cuban for $200,000 as they agreed to in season six.
Ultimately, said Cuban's fellow Shark Daymond John, about 80% of season seven's deals made on camera closed, which is up from about 60% to 70% of past seasons."
I don't think this is going to end well for anyone.
This article by Pando Daily on StartEngine's 2012 demo day lists "Style Club" and not "Style Me Stylish" as she claims the company was called then. [0] From the description there it does seem like it may have pivoted once they got an offer to work with Urban Outfitters but it is hard to tell?
This article has quotes by Mark Cuban which seem like they may have finalized something.[1] Impossible to tell though. Maybe they are just talking about due diligence type things.
Interesting quotes from the article:
-She started mapping out the company in Los Angeles in 2013 and was fully operational by 2015.
-“My job is to support Hilary and give her guidance where she needs it. It’s her baby,” Mr. Cuban said in an email interview. “I love supporting Pittsburgh entrepreneurs.”
-Since the deal, they talk each week and are focused on developing a watching/shopping app to grow direct-to-consumer business.
> He said: "Out of the 71, I would say ten or 11 are netting a minimum of half-a-million dollars a year, doing $8 million to $15 or in some cases, $20+ million revenue. I would say about 30% of my companies have returned all of my investment and then some."
> "Of the 71 startups that I've invested in through Shark Tank, two have gone out of business, three are so stupid they don't know they're out of business."
I'm sure being seen as a judge on Shark Tank is profitable too. I can't imagine he hasn't received deal offers because of his involvement in the show.
The majority are probably worthless, but there's a non-zero chance he gets a buy-in on a new venture whose founder isn't savvy to chase normal money but did contact "that famous guy from Shark Tank."
The title of the article - "Mark Cuban and Shark Tank got Royally Screwed" - makes no sense after reading the body.
The author is saying that 1 person, in whose company he'd invested 4 years ago, closed her company down and registered another company just before pitching to Shark Tank and getting 500K investment from Mark Cuban.
So? How did Mark Cuban or Shark Tank get "Royally Screwed"? I don't get it. The author didn't state that he was going to sue the Style Club or enforce his 2012 investment agreement with Hillary (the founder of Style Club).
What am I missing? Or is this a half-baked poorly written angry op-ed?
The author's perception is that Mark Cuban, in agreeing to do that deal, is bound by contract to invest in someone now alleged to be committing fraud, and is therefore "screwed." However, there are almost certainly clauses that any deal on Shark Tank is subject to diligence after the deal is made. Maybe, and I'm just hypothesizing here, there are even punitive terms that if due diligence falls apart, they need to pay the production company in exchange for the exposure... in which case, it is the entrepreneur here who would be royally screwed!
From the production company's perspective, why bother doing due diligence beforehand if it still makes for good television, and they're protected in a downside case? The true sharks are the ones who build the tank.
They own a small percent of every company that appears on the show whether they make a deal or not. After agreeing to a deal, it is subject to due diligence afterward.
> They own a small percent of every company that appears on the show whether they make a deal or not. After agreeing to a deal, it is subject to due diligence afterward.
They got rid of that clause after people called them out on it being horrifically unfair to everyone that pitches on the show.
She did not close one company down and open a new one.
The domain for the new global company was registered 4 years ago, same time as the LA one showing intention for a global expansion early on.
Closing the LA company and moving the entire IP to a new global company is in breach of her original investment deal.
So basically Mark Cuban invested in a company who's IP is in dispute (because legally that IP belong to the LA company) - basically he invested in nothing.
Was thinking along the "invested in dishonest person" lines as well. At the end he makes a comment about thinking she was "honest", which wasn't "proven true."
Maybe a VC should have a better pulse on the companies they're investing in? Maybe as an investor, he should go to them and ask what happened first?
Seems rather unprofessional to air dirty laundry in a one-sided way. It appears this guy is just a crappy investor, IMO.
The title should maybe read "I possibly got screwed by not keeping a better eye on my investments."
> The author is saying that 1 person, in whose company he'd invested 4 years ago, closed her company down and registered another company just before pitching to Shark Tank and getting 500K investment from Mark Cuban.
This is more or less correct, but the big part to me was this quote from the article:
> If he/she wants to sell assets to another company — this includes a domain name, a logo and emails lists — needs our permission. Basically, a CEO cannot harm the company in any way without a written agreement with the StartEngine accelerator.
If I am interpreting this correctly she wasn't able to just "close" her company down and move on. Especially reusing assets from the first company because of legally binding contracts between the first company and the start-up accelerator it took investment from.
A possible problem with the author's blog is that it may premature. As others have noted, deals made on Shark Tank are subject to diligence after the show is recorded and possibly even aired. So it may be likely that diligence is still in progress.
Anyway this whole thing is a mess and The Style Club entrepreneur is at the center of it. At any rate I am interested in seeing how this plays out legally.
I noticed the author didn't really expand on that either, but I really don't think Mr. Cuban would be happy finding out someone he has invested in has previous history of defrauding investors. Not to mention how little investigation was required to find that out.
You're right this doesn't really affect the tv show, people who work for the show, and the cable network. Absolutely nobody cares if the companies are "fake."
If we learned anything from Cruise, it's that he should hang back, wait to see if her new business is a success, then come forward and make an equity claim. No sense wasting time and money just yet when 90% of businesses fail.
More seriously, it could very well be an entirely different business, and she just liked the name Style Club. Re-using almost the same business name is hardly a crime.
The biggest issue, in my opinion, is that she "shut down" her old business without notifying her investors. Now, to be practical, most customer-less startups (that is, most startups) don't have an official day where everyone walks away. One founder gets a day job, another starts spending a little more time on other projects, and so on. Everyone involved, including investors, knows that its dead. Startups that haven't done anything for 4 years don't suddenly take the world by storm.
Nevertheless, she should have "officially" shut down her startup if she was going to go on national TV pitching her new one.
While she handled this poorly, I would be wary of placing too many restrictions on allowing entrepreneurs to start new businesses. Although if they are nearly identical and you are a success, you will get into trouble (just ask Zuckerberg...)
The latter two are arguable. Is it really the same IP and organization? And how much of that IP is her personal experience? Do investors really have claim to that?
I agree she handled this very poorly, but just trying to look at the other side. Is she really so stupid to literately pitch the same exact company on TV, just with the LA changed to Global in the name?
It's possible she is, but starting from that assumption is an excuse to avoid thinking, in my opinion.
And on his side, if it was really as bald-faced as he claims, why is he moaning about it on his blog in a resigned manner rather than taking legal action?
...why is he moaning about it on his blog in a resigned manner rather than taking legal action?
The obvious answer is that it is far cheaper to talk about what will happen if lawyers get involved than to actually involve them. It is in everyone's interest to resolve this through negotiation. There is no need to openly state the obvious fact that lawyers can get involved if needed.
An example of a desirable result is that all assets are transferred back to the original company, the CEO remains in charge, chastened by the experience, Mark Cuban is cut into the deal with the original company, and previous investors get a piece of some future deal with Mark Cuban.
This result is much better for EVERYONE than anything achievable with lawyers. But you can't get there if you get people unnecessarily outraged.
You can't separate yourself from your partners and claim you own the brand, the merchandise, the copyrights, the trademarks, the domain name, and other assets alone.
Still, how do "Mark Cuban and Shark Tank" get screwed? It's foolish to expect the producers to look at domain name registrations and LLCs and all that. I am guessing that once a pitcher gets a commitment for funding, that lawyers from the individual investors will do due diligence, and if anything Hillary (founder of style club) gets in trouble and gets told that she cannot take the investment from Mark Cuban. In which case, they don't technically get "screwed", they just lose out on 1 of the 100s of startups they invest in every year... big deal.
They also waste their time airing a show with a false premise showcasing someone who is potentially doing something very dishonest. You can't just take a bunch of VCs' capital and develop business XYZ, then dump them and open up XYZ.1 that does the same thing while cutting out the VC's. So Mark's getting screwed by wasting his time with someone who doesn't own the rights to her own startup.
Exactly. Cuban and Shark Tank will still be able to back out of this deal and stay squeaky clean, assuming Howard Marks' story holds up.
The parties who will get screwed are The Style Club (more specifically the CEO), and Marks, who should have kept quiet and let her make the company a huge success with Cuban's help before coming forward with the dirt. He had the nut hole card but he flashed it too early.
Poker analogy: the nut is the one card that forms the best possible hand out of the shared cards on the table. Having the nut card in the hole means you have it in your hidden cards. When you're in this position, you know you're going to win the hand but the other players do not and your goal is to get them to bid as much as possible on the hand without tipping them off that you know you will win it.
It's a Texas Hold'em reference. The "nuts" is the ultimate best hand for a given flop. Such as the 4th ace if three are already on the board (without a straight flush possibility).
Yes - but transferring the assets from your company with one group of investors, over to another company, and then misrepresenting all of this entirely ... may be criminal.
It appears she is saying he invested in some other company (Style Me Stylish).
I am guessing some lawyers out there are going to be making some money soon.
StartEngine claims to have contract terms which require that "if the CEO wants to shut down the company, he/she needs StartEngine’s permission. If he/she wants to sell assets to another company — this includes a domain name, a logo and emails lists — needs our permission. Basically, a CEO cannot harm the company in any way without a written agreement with the StartEngine accelerator." This is a routine bit of corporate law, and it's time to send lawyer letters.
Moving a substantial portion of the assets to a new corporate shell requires shareholder notice and approval.[1] Even without those contract terms, the company had an obligation to inform shareholders. A company just can't do this because the CEO wants to. Delaware's Court of Chancery [2] has seen this before and can deal with it.
I think the Sharks get to do due diligence after the deal is made. They let pretty much anything interesting on the show for obvious reasons and quietly terminate deals later down the line as needed.
First of all, yes, I think the founder screwed up.
I'm just amazed this investor doesn't have Google Alerts setup for every company he invests in. The Style Club sent out a Press Release on 11/9/2016 saying they received an investment. [0]
Also, wouldn't you expect to be kept up to date with what happened on Shark Tank as an investor? I'm assuming the filming takes place well in advance of the broadcast. Wouldn't one think to set up a meeting afterwards but before broadcast to see how it went? Or is that not how these things would normally work?
The show is TV first and VC second. As long as the company is entertaining I'm sure they don't really care. After the show I'm sure they do their due diligence. I would be very surprised if they went ahead and invested in this company.
Lots of discussion here - is there any more hard info? Statement from the CEO, press release, something like that? Could be innocuous, the first company might be a major shareholder in the second, or similar.
In case anyone else was confused in the same was I was at first, no the person mentioned in here is not the same Hilary Hahn who is the famous violin soloist. :)
wait, there's no proof of anyone being screwed over at all. Did the author even reach out to the company to ask for a clarification? maybe The Style Club global is owned entirely by The Style Club LA? Or maybe there's another email someplace the author isn't showing us that said the company went broke and was restructuring?
At the moment this reads like a filthy attempt to cash in on some extra media attention.
Hilary on Twitter claims that the accelerator invested in a company called "Style Me Stylish" and not The Style Club. But the signed contract contradicts that.
My article has brought up some very interesting conversations about how a CEO needs to behave in terms of corporate governance and ethics. The Style Club story is not unique but I was able to show how the deception was created. I want to thank Shark Tank for giving The Style Club national attention which helped me get the story to be viewed by tens of thousands of fans.
I think Warren Buffet would suggest that without ethics, a person is an untrustworthy liability bound to sabotage themselves or someone else, eventually. History is littered with case-studies and it will be another scalp on display in the museum of lapses of character.
Having a web site that was registered years ago isn't necessarily a smoking gun. I have a few domains that I registered years ago for businesses that I never started. That's not to dismiss the claims, only to say that it wouldn't be a red flag.
I don't think the issues is two URL's, I think the issue is two separate corporations.
If you read the article, you would see that the fact that the corporation was registered in 2012, and then a new company by the same name with the same owner was registered in 2015. This is the smoking gun.
I don't understand why I'm being downvoted. I'm not disagreeing!
Certainly there were two different corporations, and certainly the web site was passed from one to the other. But the whois data presented in the post is not evidence of that. You need to look elsewhere for that evidence. That's the only point I was trying to make.
It's morally wrong and I just don't understand how people can defend this in the comments over at Linkedin. Why the fuck is the free market being used as a blanket argument against morals and ethics?
There's even vaguely veiled threats against the author in the Linkedin comments. I'm fucking appalled and I don't understand why someone would
A) kill your own reputation
B) put women in startups/tech in a bad light
C) use the same branding for the switcheroo that helps the author's case
D) not realize there's post-show background check (that results in 50% of deals announced not going through according to comments)
If she had just been honest and not greedy (why would you be so desperate to own 100% of nothing?) she could've avoided destroying her own goals.
I don't know how anyone can possibly trust her, unless, it was someone who shared the same tony-montana-esque attitude towards wealth & status, bravado, chutzpah at the cost of others and your own soul, for more money in your pocket.
But even Tony did not break his "word & balls" when starting his narcotic empire, in which Alajendro Sosa invested in Tony, risked capital in his business and he got paid. Imagine how angry Sosa would've gotten if never saw his returns. It proved to be lethal for Tony in the end.