Don’t get any ideas


August 19, 2019

Hustle Logo The Motley Fool

Today, Bitcoin giants invest in underground, alpine vaults and New York’s casinos expose the legal gambling industry’s faults, but first…

The Hustle Daily Email

As Toptal employees and investors demand equity, founder points to the fine print

Toptal, a platform that matches businesses with software engineers, is at the top of its game: The company has grown at a rate of 30% for several years and did $200m in revenue last year.

In some ways, Toptal’s success seems like a standard startup success story: Founded by 2 entrepreneurs in 2010, the company raised funding from venture capital firms like Andreessen and quickly staffed up, promising its early employees equity in the growing business.

But, according to a report from The Information, Toptal’s CEO Taso Du Val hasn’t given any Toptal employees or investors equity in the company — a move that may be shady but is also completely legal.

Now, even the company’s co-founder is empty-handed

Toptal, which is believed to be valued at more than $1B, is now 100% owned by Du Val, despite contracts that granted equity to early employees, including co-founder and former COO Breanden Beneschott.

Beneschott, who was promised 17% of Toptal’s shares, says he was fired after demanding his equity.

Andreessen Horowitz and others invested $1.5m in Toptal in 2012 in a stake that they expected to be around 15% of the company — but they, too, haven’t seen any cash. 

Wait… is that even allowed?

Technically, yes. 

Beneschott, Andreessen Horowitz, and other stakeholders all received convertible notes, which granted them equity if and only if Toptal raised more money in the future. 

But Du Val carefully avoided raising money after its initial seed round, which meant that — contractually — he didn’t owe anyone anything.

Du Val insists he has no obligation to award anyone equity, saying it’s a smart move not to raise money — basically, a contract’s a contract. But some employees say he tricked them into thinking he would raise money, and others insist that they were, at the very least, misled. 

“Silicon Valley runs on the trust that people aren’t going to do something like this,” one Toptal investor told The Information.

Now what?

By the letter of their contracts, Toptal employees and investors have no recourse — other than straight up asking for their money back or suing Du Val to high heaven. 

People have already tried both: An early Toptal investor asked for (and got) their money back, and Beneschott is now suing Du Val (who, in turn, is suing him right back).

Convertible notes and similar good-faith equity contracts are becoming more common because they enable founders to raise money more quickly. But on the flipside, they sometimes make promises that businesses never intend to keep.

It’s lonely at the Top(tal)
Share on Facebook Share on LinkedIn Share on Twitter View in Browser
 

To securely store cryptocurrency, Coinbase buys a vault under a mountain in Switzerland

The budding blockchain behemoth Coinbase bought a company called Xapo’s “custody business,” which stores Bitcoin securely in a vault under a mountain in Switzerland, for $55m.

After the deal closes, Coinbase will have more than $7B in crypto assets under management — potentially storing as many as 5% of all Bitcoins in circulation.

But wait a second… why, exactly, does a crypto company need a physical vault built underneath a Swiss mountain?

Digital currencies still need physical custodians

Unlike wire transfers at banks — which leave digital trails and can therefore be recovered when stolen — blockchain-based transactions leave no trace… and are therefore nearly impossible to trace.

So the safest place to store crypto keys — strings of letters and numbers used to access cryptocurrencies — is not online (where they can be hacked without a trace) but in offline, IRL vaults.

Now “custodians” like Xapo, which offer physical vaults that consumers want to store their crypto-cash safely, are becoming common.

And these Bitcoin vaults have something to prove 

Crypto companies are focused on attracting institutional investors who’ve been reluctant to trade cold, hard cash for digital dollar-replacements. 

One way to win over wary wealth-managers is to make these custody services seem suuuuper secure — so, the more they look like evil supervillain lairs from James Bond movies, the better.

Xapo certainly fits the bill: The ultra-secure vault, which is built in an old Swiss military bunker, is hidden in an undisclosed location and protected from nuclear explosions, electromagnetic pulse (EMP) attacks.

» Good news for super-villains
This one’s for all the people out there who prefer absorbing stories through your ear-holes instead of your eyeballs. Click on a podcast episode below to start listening.

podcast image

Swindled
The Producer (Joe Francis)
This episode of Swindled dives deep into the outrageous Girls Gone Wild saga and how the company’s bro-creator became one of the most hated men in America.

podcast image

Song Exploder
Big Thief – Cattails
You’ve heard Big Thief featured on the Hustle’s song of the day. Now, you can dive deeper into the band’s recording process behind one of their best songs on the new album U.F.O.F.

podcast image
The Habitat
This is the Way Up
6 volunteers are chosen to live in a secluded imitation Mars habitat for a year. Their objective: To help Nasa learn what life might be like on the red planet. And let’s just say, sh*t gets real.

Rivered on the flop: New York State’s big casino bet is having trouble cutting the deck

With the promise of hefty state tax revenues and job creation, NY leaders thought building a multi-billion dollar community of commercial casinos in the Catskills was a sure bet for the state’s economy. 

But being a Black Jack dealer at the new billion-dollar casino doesn’t mean sh*t if gamblers already have their preferred haunts. 

Now, because of underwhelming attendance and, for some, exorbitant loans in an already over-saturated market, all 4 of New York’s newest casinos are struggling to keep the slots on.

If you build it, they won’t come

Economists warned of market-crowding at the start of the 2018 casino boom. But, giddy to bring in revenue and create jobs, New York did it anyway. 

As a result, Resorts World Catskills, which is about 80 miles from the closest city, has doused its dough and lit it a blaze every quarter since it opened in 2018 (including a $36m loss in Q2 of 2019) — and now the owners are worried they may have to file for bankruptcy.

A day late, a billion bucks short

The New York gambling scene already had a lot of players at the table with multiple tribal casinos and more than a dozen race tracks that offer video slots. 

In other words, there was already a war going on out there, and building a gambling mecca more than 80 miles away didn’t give New York’s commercial casino initiative any better odds.

“None of this is a shock,” longtime gaming industry analyst, Harold L. Vogel told the NYT. “We know that there are so many states that have legalized different forms of gambling. And New York State was late to the game.”

» The deck was stacked

Small business of the week: Marion Dodd and Sarah Whitesell, zero-waste salon owners

Welcome to our new Small Business section. Every Monday, we feature a company started by one of our readers. Want your story told next? Fill out our Small Business Survey here.

During the dozen years Marion Dodd and Sarah Whitesell worked at salons in Arizona and New York, they grew disgusted at the amount of waste.

Several garbage cans per week would be filled with hair, aluminum foil that had been used for highlighting, plastic water bottles given to customers, and much more.

Last year, they opened their own salon in Phoenix, Organic Hair Lab. It is thought to be the only “zero-waste” salon in Arizona — and one of only a handful of all-organic salons. 

They keep 8 different receptacles in the salon, an 800 square-foot space, for sorting various items. 

“You should see it; it stresses me out,” says Dodd, who (despite dropping out of school at 16) has gone on to pick up three degrees. “You have to be specific about what item goes in which trash can.” 

The hair is collected to be turned into hair booms for oil slicks; the aluminum foil for highlighting is turned into a bioplastic. They throw out one four-gallon garbage bag per month.

“It’s not even a large bag,” says Whitesell, who competes in styling competitions at the international level.

Many customers have visited for environmental reasons. Dodd and Whitesell project revenues to increase from $110k last year to $180k this year.    

And Organic Hair Lab has even had a copycat effect in the Arts District of Phoenix: Since opening their zero-waste salon, they say, several other nearby businesses have tried becoming zero-waste. 

Stats at a glance:

  • Founders: Marion Dodd and Sarah Whitesell
  • Employees: 3
  • Years in business: 1
  • Cost to launch: $60k
  • Funding method(s): Personal savings
  • 1st year revenue: $110k
  • Estimated 2019 revenue: $180k
  • Current annual overhead: $48k
SPONSORED

With $909 in cashback, we could finally crown the true Wing King (or Queen)

A couple of months ago, The Hustle office held a contest to determine our buffalo-wing-eating champion. 

Unfortunately, we ran out of food before we ran out of stomach space… but if we’d had this card recommended by The Ascent, we could’ve raked in enough cashback to score $1K+ in hot-winged goodness. 

But why trust The Ascent

Simple: They operate independently of the companies they recommend, so they can give you unbiased strategies to help improve your finance game. 

You don’t have to be a competitive eater to appreciate a card that gets you up to 5% bonus cashback and up to $909 in rewards during the first year. If you’re itching for that extra coin, it only takes two minutes to apply

Cluck yeah →

Hustle Con Archives

Q: How do you sell a $30 bottle of vitamins?

A: You start with the cold hard facts. Learn how Katerina Schneider and her company Ritual did it 1 million times over.

Read our latest speaker profile →

How did you like today’s email?
love it
meh
hate it

Now Playing Now Playing:
The Gambler, Kenny Rogers.
[%Count%] SHARE THE HUSTLE
REFERRALS
[%URL%]
YOUR UNIQUE URL
Wes Schlagenhauf
Wes Schlagenhauf
STAFF WRITER
Conor Grant
Conor Grant
MANAGING EDITOR
Bobby Durben
Bobby Durben
AD WRITER
Brad “Hot on the dice” Wolverton
HEAD OF CONTENT
Kent Hoyt
VP of Car Ride Snacks
SUBSCRIBE JOBS ADVERTISE EVENTS SHOP
Facebook Instagram YouTube
Join our Instagram community →
You opted in by signing up, attending an event, or through divine intervention. 251 KEARNY ST. STE 300, SAN FRANCISCO, CA 94108, UNITED STATES415.506.7210 Never want to hear from us again? Break our hearts and unsubscribe
The Hustle

Daily briefings, straight to your inbox

Business and tech news in 5 minutes or less

Join over 1 million people who read The Hustle

Psst

How'd Bezos build a billion dollar empire?

In 1994, Jeff Bezos discovered a shocking stat: Internet usage grew 2,300% per year.

Data shows where markets are headed.

And that’s why we built Trends — to show you up-and-coming market opportunities about to explode. Interested?

Join us, it's free.

Look, you came to this site because you saw something cool. But here’s the deal. This site is actually a daily email that covers the important news in business, tech, and culture.

So, if you like what you’re reading, give the email a try.