Priceonomics

Editor's Note

Startups get sued. Sometimes by patent trolls, sometimes by competitors, and sometimes by former employers who accuse them of stealing trade secrets. Sometimes the lawsuits are valid, but many times they are a tactical maneuver meant to deliver an insurmountable blow to the startup. It’s nearly impossible for very early stage startups to raise money and build a successful company while facing a lawsuit. 

These lawsuits, justified or not, happen all the time, but people rarely discuss them publicly. With Walmart Labs acquiring Adchemy this week, Antonio Garcia-Martinez decided to chime in publicly on Facebook about the time Adchemy sued his startup.  

With Antonio’s permission, here is an excerpt of his post. This is just his version of what happened, so it's not a definitive narrative of what took place. We decided to share it because it's one of the only cases we've found of someone in Silicon Valley speaking publicly about getting sued by a former employer.

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“Sit on your front porch long enough, and you'll watch the corpse of your enemy go by.”

-Spanish proverb

Adchemy was my first introduction to ad tech, back in 2008 when I was a recently-arrived Wall Street fugitive. There I learned the rudiments of exchanged-traded media, which I put to good use at Facebook building their exchange FBX.

Before that, however, two former Adchemy employees and I applied to Y Combinator, where we founded a small ad tech company AdGrok. Diving headfirst into the startup game, we lived and worked almost 24/7 in a sordid apartment in Mountain View, living off savings, and building frenetically to save our lives.

Adchemy, however, would cast a long shadow. Four months into AdGrok, Adchemy's CEO Murthy Nukala maliciously and frivolously sued us personally on trumped-up claims of trade secret theft, aiming to quash the company for no reason other than his wounded amour-propre at being spurned by valued employees. Wilson Sonsini Goodrich & Rosati duly took up the obviously ridiculous lawsuit, firing intimidating legal missives at a company that consisted of three guys with laptops.

Fortunately, the lawyers at Fenwick & West LLP agreed to take on the case on generous terms, and zealously defended us through our eventual victory and dismissal of the case. Through the most dogged persistence, we managed to raise a seed round in the teeth of a bitter lawsuit, and continued to fund operations. But the damage had been done. My co-founders and I were tired of the fight, and the startup adventure for us had been a yearlong, unremitting existential battle that had subsumed whatever product vision we had. The company sold to Twitter in May 2011 and the product disappeared. In a way, Murthy won in the end.

Back to Adchemy: why is this deal a funeral for a corpse, you ask? The company raised $120MM, grew to 200+ people, ran for eight years...and never once shipped a real product. The acquisition price is likely embarrassingly low, otherwise it would have been leaked. Between liquidation preferences and Murthy's stake, common shareholders will surely get nothing. No one who worked for Murthy will see a dime. This is a monumental failure, and Adchemy is one of the great train wrecks of ad tech history.



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