The Bebo Lawsuit, and the Tragedy of Departed Founders Who Can't Let Go

By Paul Bradley Carr , written on April 26, 2012

From The News Desk

This week, Michael Birch -- co-founder of Bebo -- began legal action against the site's (third) owners, Criterion Capital Partners.

The suit, in which Birch is joined by his wife Xochi, Richard Hecker, and TV exec Michael Jackson, alleges that Criterion neglected the teen-friendly social network to the point of ruin.

There are certainly some damning claims. The company failed to hold a single board meeting, made vital business decisions without shareholder approval while paying Criterion's CEO tens of thousands of dollars in remuneration, and some days no-one from the company even bothered showing up at the Bebo office -- an office from which, if eye-witness reports are accurate, the company was ultimately evicted from for non-payment of rent.

Of course, as a shareholder, Birch is well within his legal rights to sue. The real question, though, is why on earth he got re-involved with Bebo in the first place?

In my early twenties, as I've written before in painful detail, I was kicked out of several companies that I co-founded. Like after any relationship gone sour, I decided the best approach was to simply move on and never look back. (Note: I was less good following that advice when actual relationships went sour). Really that's the only sensible approach. To many entrepreneurs, the company that made their name and fortune is like a first-born child. Suddenly finding oneself no longer intimately involved in its upbringing is impossibly difficult to deal with, especially when its new parents are -- to one's own mind at least -- mistreating it.

But there's a difference between a child and a company: You can put a price on a company. And many entrepreneurs, including Michael Birch have done precisely that.

In 2008, Birch sold Bebo to AOL for $850 million. By any metric you care to use, AOL paid an idiotically high price for a teen social network, which is to say, a site where, inevitably, all of its users will one day grow up and move on. Sure enough, Criterion was able to pick up the near-deserted shell of Bebo just two years later for less than $10 million.

It's easy to understand Birch's thinking. Here was a chance to (tee hee!) use some of the money he got from selling Bebo to re-take control of at least part of it. With him back in the cockpit, perhaps the company could be restored to its former glory!

Trouble is, Birch's minority stake in the company only doubled his frustration: He still didn't have enough control to repair Bebo (not least because by that point it was irreparable). But now he was forced to watch from even closer quarters, as his child shuffled still closer to the grave. If the child metaphor is too grim for you, how's this: It's the equivalent of paying millions of dollars to be best man at your ex-wife's wedding. You'd have to be out of your fucking mind to put yourself through that kind of pain.

But such is the logic of the Departed Founder Who Can't Let Go. To the DFWCLG, the fact that he received millions of dollars for his company doesn't alter the fact that, in his mind, it's still his company. He has the right -- the obligation, damnit -- to involve and re-involve himself in its affairs, long after everyone else has shed their final tears.

Keen-eyed PandoDaily followers won't need me to spell out some of the other potential problems this can cause. Many entrepreneurs who enjoy big exits go on to style themselves as angel investors or even full-blown VCs. For a portfolio company, watching such an investor renege on his promises, because he's spending hours each day obsessing over a former love is, at best, frustrating and, at worse, a massive breach of fiduciary duty. No-one, of course, is accusing Birch of such a breach, but this latest legal fight can only be a distraction from his new incubator, Monkey Inferno.

What's more, even if a departed founder is successful in his attempts to retake control, the results can be equally damaging. After Terry Semel left Yahoo, co-founder Jerry Yang came back to the company as CEO. Billed briefly as a triumphant return (a la Steve Jobs to Apple), in fact Yang's unwillingness to accept that New Yahoo was different from Old Yahoo led to him blocking the sale of the company to Microsoft, believing Redmond's offer to be far too low. That stubbornness is directly linked to the company's struggles today.

Michael Birch is a fine entrepreneur and a good guy. As, I have no reason to doubt, is Jerry Yang and the vast majority of other Departed Founders Who Can't Let Go. But that's the point. Most of the time, an unwillingness to let go of a company one has sold is a sign of too much love, not too little. And yet, and yet... if Queen taught us anything…

Too much love will kill you If you can't make up your mind Torn between the lover And the love you leave behind You're headed for disaster 'cos you never read the signs Too much love will kill you Every time
Every time.