Techcrunch Gets It Wrong Re Tweetphoto CEO (Plus, Lessons For Entrepreneurs)

by Scott Edward Walker on November 19th, 2009

Introduction

Yesterday evening, Michael Arrington of TechCrunch posted an interesting piece entitled “TweetPhoto CEO Says Too Much In Interview, Gets Fired. And That’s Just The Beginning…” (which has been subsequently re-posted throughout the blogosphere).  Unfortunately, Arrington has gotten his facts all wrong — at least according to Dan Caulfield, the CEO in question.

Arrington sets forth in his post that Caulfield “apparently said too much in [his podcast] interview [with Frank Peters], disclosing confidential information about partnerships [and] was fired by the company for the transgression.”  In the comments section to the post, however, Caulfield denied that there was any connection between his firing and the interview.  First, yesterday evening, he noted that: “I conducted this interview on [the] Morning of Nov 9th.  It had nothing to do with me leaving the company”; and then, this morning, he added that: “I was terminated a week prior to anyone hearing the interview.  Events not connected.”  Caulfield also retweeted the TechCrunch link to the post yesterday evening with a “Totally false!” insertion.

Arrington responded to Caulfield in the comments section this morning that: “Whatever you did or didn’t do, I think it’s pretty obvious what the company thinks” (citing a letter from the law firm Wilson Sonsini to Frank Peters demanding that he remove the podcast interview from his site).  Caulfield did not respond back to Arrington.

Needless to say, all of this made me scratch my head and wonder what the hell is going on here.  So I picked-up the phone and called Caulfield (he had given his telephone number out during the podcast), and I got the full scoop.

Caulfield’s Version of the Facts

I had a very good telephone conversation with Caulfield, who was gracious enough to take my call and answer all of my questions.  The bottom line is that Caulfield was “voted off of the island” (as he put it).  Indeed, Caulfield reiterated that his firing had nothing to do with the Frank Peters interview — he did the interview at 9am on November 9th (and no one at TweetPhoto was aware of it) and was fired at 2pm that afternoon.  The interview was subsequently posted and available to the public on November 16th (one week later).  According to Caulfield, it was just a matter of the founders “[wanting] to go forward without me.”  He explained that he was originally brought on by the founders to help them as a Board member; he then was appointed CEO.  And he emphasized that he was very disappointed (particularly in light of all the work he has done to help TweetPhoto), but does not want to do anything to hurt the company.

Caulfield seems like a stand-up guy, and if you listen to his podcast with Frank Peters, it is clear that he added a lot of value to TweetPhoto (including executing a significant partnering agreement on behalf of the company with Kodak).

Lessons for Entrepreneurs

The foregoing may be interesting from a personal-interest perspective; however, as a corporate attorney, I am more interested in the lessons that can be learned here.  Below are my takeaways.

Lesson #1: Diligence the Guys on the Other Side of the Table. As I have discussed many times (including in “Mistake #1” in my post “Five Mistakes Entrepreneurs Make in Dealmaking”), in any deal or business relationship, entrepreneurs must investigate the guys on the other side of the table.  This means getting references and speaking with other entrepreneurs or CEO’s who have worked with the guys on the other side of the table in order to make an informed judgment as to whether they are guys with whom the entrepreneur should be doing business.  As Caulfield noted to me, “at the end of the day, people have to work in a harmonious environment.”  The implication, of course, is that things were not “harmonious” at TweetPhoto.  Did the founders diligence Caulfield?  Did Caulfield diligence the founders?  It seems like there was a trial period where they got to know each other while Caulfield was a Board member.  Accordingly, there should not have been any surprises once Caulfield became CEO.

Lesson #2: All Employment Relationships Must be Documented. As I discuss in tip #8 of my post “Launching a Venture: Ten Tips for Entrepreneurs,” if any employees are hired by the company, they should be required to execute two documents: (i) an offer letter agreement and (ii) a confidentiality and IP/invention assignment agreement.  The offer letter agreement will set forth all of the employee’s respective rights and obligations, including position, compensation (including stock options and/or other incentive compensation), benefits and, most importantly, whether the relationship is “at will.”  The confidentiality and IP/invention assignment agreement is designed to prevent disclosure of the company’s trade secrets and other confidential information and to ensure that any IP developed by the employee is legally owned by the company.

Caulfield advised me that he signed the “same agreements” as the founders, which means they were likely pro-company, not pro-employee.  From an employee’s perspective, you obviously do not want your relationship to be “at will”; instead, you want a fixed term with appropriate protections against termination by the company without “cause” or if you (as the employee) terminate the agreement for “good reason” (e.g., because your title/duties have been substantially diminished or if you are forced to re-locate).  Such protections include severance payments, acceleration of vesting of options, etc.; however, as I note in tip #5 of my post, “Founder Vesting: Five Tips for Entrepreneurs,” startups will push back on this issue because (i) they need the flexibility to make personnel changes if things aren’t working out (like at TweetPhoto); and (ii) it is difficult to establish “cause” or negate “good reason” from a legal perspective.

Lesson #3: Employees and Consultants Must be Required to Execute Confidentiality Agreements. As noted above, it is imperative that all employees and consultants be required to execute confidentiality agreements to prevent them from disclosing any of the company’s confidential and proprietary information.  Such confidentiality obligations generally run indefinitely – i.e., apply even after the employment or consultancy relationship has been terminated or has expired.  Perhaps this may have caused Arrington’s confusion – not recognizing that the Wilson Sonsini letter to Frank Peters was citing Caulfield’s “continuing” confidentiality obligations (despite his employment termination for unrelated reasons).

Lesson #4: Retain a Small, Experienced Law Firm for Small Projects. As I discuss in my post “Behind the Big Law Firm Curtain: The Good, The Bad, The Ugly,” it doesn’t make practical sense to retain large law firms to handle small corporate projects.  I’d love to know how much Wilson Sonsini billed TweetPhoto for the one-page letter to Frank Peters.  Indeed, Arrington hits the nail on the head: “amateur hour.”  Having worked at two large New York City law firms, I can only imagine the hours of research and drafting by some young Wilson Sonsini associate trying to meet his annual minimum billable-hour requirements.  What are these guys thinking sending a threatening letter to a blogger for posting a recorded audio interview of a company’s CEO?

Conclusion

Arrington is a superstar blogger, but missed this one.  Caulfield is a solid CEO, but got mixed-up with a couple of flakes.  Frank Peters is sweating bullets.  Wilson Sonsini is spinning their wheels.  And entrepreneurs hopefully can take-away a few lessons.

Tags: CEO, confidentiality, diligence, employment, entrepreneurs, founders, law firm, vesting