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ArsDigita CEO & VCs Sue Philip Greenspun
Posted by
Hemos
on Thu Apr 19, 2001 07:50 AM
from the good-times-bad-times-you-know-i've-had-my-share dept.
from the good-times-bad-times-you-know-i've-had-my-share dept.
RM writes "ArsDigita, its CEO Allan Shaheen and the venture capitalists who took over ArsDigita Corp., the company that had everything to be the coolest company on earth, are sueing Philip Greenspun and two other co-founders of ArsDigita (Eve Anderson and Tracy Adams). The lawsuit was mentioned in this post to Philip Greenspun's site. Since the VCs took over ArsDigita, many of their best developers and staff have left the company or been fired, and now they are sueing their own co-founders, who gave the company its vision (which seems to be going down the tubes) and the profitability it always had. Sad, really sad."
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ArsDigita CEO & VCs Sue Philip Greenspun
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Re:What this seems to be about (Score:4)
Getting VC was a mistake (Score:4)
In addition, people have said that ArsDigita University (the free computer science school) had been established with money that the venture capitalists had given ArsDigita. Needless to say, they were probably a bit upset by this.
So, the question on my mind was this-- if ArsDigita was always profitable, why did they raise all that VC and over-expand? Were they getting greedy or what?
-Dean
What this seems to be about (Score:3)
They think that the way this has been violated is because Philip, Eve, and Tracy have (according to this new money grubbing bunch of VC's), been claiming that they (or perhaps others) are working for the company as an officer or director, and that there are two sets of individuals that say that they run the company.
Why Arsdigita can't just give up and leave poor Philip and friends alone after completely screwing up everything is beyond me.
If it weren't for lawyers, we wouldn't need more lawyers.
thenerd.
summary of why they're being sued (Score:5)
--
Re:Lesson learned. (Score:3)
Misinformation, and what's really going on (Score:5)
It's the damned market... (Score:3)
The problem here, there is a HUGE market downturn. The VCs try to get money out of each investment. If one looks like it is doing well (gonna IPO, etc.) they leave it alone. If one is not doing that well but they believe that they can extract money from it, they will try to get some money out.
In this case, the company has a lot of silly side projects. Greenspun was teaching at MIT, including a class that taught the ACS system. Additionally, his Arsdigita University was teaching ACS. With the products being Open Source, training hundreds of people how to be ACS consultants probably didn't make the VCs happy.
The company was run like it had the value of Microsoft with it's side projects. The VCs realized that aD didn't have the goal of maximizing revenue and minimizing costs. They had a goal of becoming famous.
I believe the VCs saw that wall street wasn't going to reward them, because they were running PROGRAMS designed to DESTROY their OWN competitive advantage. Think about it, as a consulting company around a program you have released Open Source, you get hired because you know it best. With everyone learning it, that's not the case.
I've had potential clients approach me asking to hire me for ACS projects. I know others from MIT that get the same.
The VCs have a right to be pissed.
However, the VC takeover is unlikely to work. Completely reinventing a start-up isn't that bad, but aD might be a BIT too big for that.
Alex
Re:profits? (Score:3)
arsDigita, not arstechnica. aD was actually quite profitable from my understanding (well, certaintly not an IBM or GM or MSFT in terms of absolute dollars but fairly impressive for a small design shop nonetheless).
I think the numbers mentioned by PG were 10K in initial investment, building into a company with annual revenues in the $millions. I don't know what their profit margin was but it was probably pretty good (the customer is buying all the bandwidth and machinery, all you have to pay are salaries, and maybe the occasional Ferrari ;-).
I wish I knew more about the case. It's still a shame to see this happen to PG and Co. though, I think a lot of people have learned very cool things becuase of their efforts to disseminate what they've learned.
--
News for geeks in Austin: www.geekaustin.org [geekaustin.org]
Not strage at all (Score:3)
Consulting is a very profitable business, now they ae leaving it's roots and a transoforming the comapny to become 'the next Microsoft'. Not strange that the employees are leaving. A business whos most valueable assest are the people behinf it, can't expect to be able to change direction and management and still expect to retain all skilled workers.
It happens when people with no clue try and make profit with something they do not anything about. That lawyers get's involved is no strange either since that is the way many people do business.
I feel sad for Ars Digita who made such a blunder selecting which VC to do business with.
Re:What this seems to be about (Score:3)
Philip was an asshole to me every single time I spoke to him. And I was fairly high up in the food chain, as a level 3 engineer (there were four levels, and Eve/Jin/Tracy/a couple of others were L4's). I was also a Technical Sales Manager - the first engineer brought into the sales group to try to coordinate the process of bringing in new business and keeping the out of control developers (led by Philip) at bay while we tried to sort out what was going on.
My second day at the company, I met Philip for the first time. I was really looking forward to it. The conversation went something like this:
Philip: Who are you?
Me: My name's Hans, I just started. I wanted to say that...
Philip: Are you a programmer or a system administrator?
Me: I do both, but I prefer...
Philip: You are wearing a cell phone on your belt. You're a sysadmin.
Me: Well, not really. I...
Philip: Do you use emacs of vi?
Me (proudly): vi (it *is* the better editor)
Philip: You're a sysadmin. You just don't know it.
Me: Well, anyway, I wanted to say that I really enjoyed your book and I am looking forward to working here.
Philip:
Well, it really didn't matter WHAT Philip said, since he had already dismissed me and walked away.
At least Alex hung around and got a tummy rub.
Over the next few months, I attempted to build up an office in the midwest (Ann Arbor). I also worked to get new business and add a technical perspective to the sales efforts and keep promises to clients in line. Every time I came back to Cambridge, I either was pummeled by Philiip who couldn't give me the time of day but reveled in being insulting, or heard tails from the aD staff about his latest loose-cannon move.
Philip was OUT OF CONTROL. Spending money like water, planning koi ponds, and having doorways enlarged to allow his ego to pass through. The company was headed towards bankruptcy if his spending continued at the helm. Allen and his pack decided that it was time to curb those expenses. For god's sake, there were 40 $3000 flat panels, aeron chairs and workstations sitting in a nearly empty office in Atlanta (for example) that a) didn't have developers to work them and b) didn't have the client base to support hiring the developers to work them. There is one basic premise of business that, from my perspective, Philip decided to ignore. You have to earn more than you spend.
I finally decided to leave when Allen and Ern (rightfully, in hindsight) decided to close the Ann Arbor office that I was tasked to open, staff, and build up. I returned to a research position at the University of Michigan, where I am today. I was given the option to continue with Ars Digita in my current role, but with a new baby I didn't want to travel that much, so I declined.
I was constantly aghast at the over-the-top spending that aD did. The modest Ann Arbor office (which never had a chance to get established) worked with $20 chairs from office max, used 17" monitors and $5 steelcase desks from the University of Michigan property disposition. And you know what? We could have gotten as much work done as if we had the expensive stuff. My thinking was that we would push for this if we ever made a profit for the company, not before.
That ideal wasn't perpetuated by Philip, who was going around the world talking at conferences and opening offices. I *think* the last straw was when he sent an email to the company talking about how great Australia was, and that we were opening an office in Sydney. It was total anarchy, and Philip was simply out of control.
The board and VC's did the right thing to cut him out of a management position. They also did the right thing to try to keep his
- Hans
VC Morality (Score:3)
But this is probably the same kind of thinking that led VCs, in San Francisco to treat the remaining employees at one company so badly that they basically walked out, screwing the VCs.
Without more info it is hard to know where to point the finger, but I know where I'm placing my bets.
Check out the Vinny the Vampire [eplugz.com] comic strip
Re:Getting VC was a mistake (Score:5)
Greylock and General Atlantic are not vulture investors. They are two of the three most respected venture capital firms on the east coast (I would say Patricof is the third) and both are, IMHO, in the top ten in the country. They have also been around for as long as pretty much anyone and are staffed with real professionals (that is to say, they're not Benchmark - a hype-driven latecomer.)
I can't imagine that these two firms would risk annoying their other current and future portfolio companies with a baseless lawsuit.
[full disclosure: I used to be a hardware developer, but now I'm a venture investor, although not with any of the firms mentioned in this post.]
Re:Misinformation, and what's really going on (Score:3)
The ironic thing is that most VC deals from the past few years were for companies struggling to figure out how to make money. The VCs would go in and try to turn the company into something with a sustainable business and profits. Most of the time they weren't creative enough and failed, losing their investors $millions. In the handful of cases where they succeeded, they built things sort of like ArsDigita with Philip as CEO: $20 million in revenue, happy customers, profit. What is ironic is that the VCs turned ArsDigita from what they were always desperately trying to build themselves (a company with revenue and profits) into the kind of company that has historically lost them all their money (a company with an optimistic spreadsheet and revenue forecasts from not-yet-existing products).
Don't assume that merely because a VC made money in the go-go years of the 1990s that the VC therefore has any special knowledge of business.