Weekly Update #184: Getting Financial Information from Private Tech Companies: A New Chapter?

Something to keep an eye on in the pre-IPO secondaries space is the ongoing - ahem - "negotiation" between Jay Biederman and his former employer, Domo, a Salt Lake City tech startup worth $2 billion at its last round.

 

The backstory: Biederman was an employee of Domo for a few years, and then left. After leaving, Biederman asked Domo if he could inspect the company's books, for the purpose of "better valuing his shares", which we can assume were acquired by way of exercising stock options that Domo granted him.

 

Well, the company politely declined access to Biederman. This may not surprise you, if you've been an ex-employee of a tech company. Private financials are considered sacred, and there's often an (unsubstantiated?) paranoia that a competitor will somehow get access to the financials and use them to BURY YOU. (Sounds like I'm being facetious, but this is a common situation). 

 

Biederman decided to test the legality of Domo's actions. According to the Wall Street Journal, After a 17-month battle (and $100K in legal fees), Biederman has emerged victorious: a Delaware judge ruled in his favor to inspect Domo's books and records.

 

Can you imagine how awkward that inspection must have been?

 

Biederman: Could I ask for a glass of water? And perhaps a pen? 

Domo Execs: We will be turning off the lights in approximately 8 seconds, please conclude your note-taking and inspection.

Biederman: Hey this pen doesn't even have any ink! 

Domo Execs: Meeting's over, you must now leave the premises.

 

Wondering why a Delaware judge presided over the case? 64% of Fortune 500 companies are incorporated in "The First State", due to its business-friendly laws. Kind of ironic for Domo, isn't it?

 

What it means for other tech companies: I wouldn't expect a meaningful uptick in these types of cases for tech companies. For starters, not everyone has $100K to spend on legal fees voluntarily. But what you may see is that Silicon Valley's attitudes towards full privacy on financial statements may change ever so slightly. And that would be a major step forward for pre-IPO secondary investors.