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

GE shares drop after the accountant who sounded the alarm on Bernie Madoff released a bombshell of a report.


August 16, 2019

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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.

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