I’m often asked to give folks a better understanding on what happened with Honored, truth be told it’s a hard story to tell in short summary, and so it’s much easier to refer folks to this summary so that one, I don’t miss any details and 2: the details are laid out consistently each time.
In the beginning of early 2014, Honored was more or less out of funds. Up to that point I had self funded the company in 2013, between myself (my personal savings, 401k, etc) and a personal loan to me from my immediate family, to the combined tune of roughly $23,000 that in one way or another came in via myself. A personal friend had also later contributed a combined $10,000 across two payments, in exchange for convertible notes of equity in the company. My two co-founders however, had submitted no liquid funds but instead were issued their respective shares in exchange for their Intellectual Property contributions at a flat dollar value in shares that were equalized to match up to my contributions, so that we obtained the 20/30/50% ownership split we desired to hit. (In short, in 2013 I was issued 50% of a 90% tranche of company shares in return for my ~$23,000 as the CEO, President, and acting CFO, and the two other co-founders were each issued 30% to the CTO and and 20% CMO/CDO of that tranche in exchange for their intellectual property contributions. The remaining 10% of the company was set aside as employee equity.)
However, at this point in Feb 2014 we had now been in operation for about a year. My co-founders, some part time freelancers, and our volunteer staff all had full time jobs elsewhere (with the lone exception of myself), and all were contributing their time in exchange for sweat equity from an employee compensation pool of shares, via written contracts. I myself had been focusing full time on Honored, and was not working another job. So far, I had stretched the 20-some-odd-thousand as far as it would go over the course of the year, between our We-Work membership, prototype badges, some company group stuff (team crunch weekends, indiegogo marketing, a fundraiser campaign brand awareness holiday party, a PAX trip to drum up investors and partners, and most importantly software licensing fees and AWS costs, which is where the bulk of it went)… and so in early 2014 we needed to start thinking about making tough decisions.
We had just wrapped up an Indiegogo campaign over the holidays that unfortunately only raised ~$2,500.. A trivial amount and far short of our goal. While it was, in theory, enough to cover the backer rewards for those few who backed it based on our early math, anyone who has done a crowdfunding campaign or seen the realities of the crowdfunding world knows that once platform fees and bank fees are removed, usable funds dwindle quickly, and the unknown unknowns suddenly tank the ability to leverage those funds if you are far below goal and especially with such small dollar amounts. What we were left with was a little under $1,900, and logistically speaking that was going to be a challenge to reward the backers without spending twice that at minimum to deliver on our plans, due to attrition and the outsized base costs for the low-end funds raised. However we didn’t know this at the time, it wasn’t until conversations began with vendors and providers, and shipping research started. More importantly, half of the rewards were dependent on our platform being launchable in an Alpha state sometime in the coming months, which it was nowhere near being ready for, sadly, due to technical/ development challenges.
Just then… Riot headhunted me, unexpectedly. I consulted with the co founders and they both agreed I should seize the opportunity, and would be a fool not to. The agreement was that they would continue to work on the project in my absence in an attempt to reach our next major milestone that was just over the horizon, with me only very slightly engaged at most for the next 2-3 months while I settled in down in LA, acclimated to my new job, and got through my first 90 days of onboarding. I would check in periodically on slack on overall progress, but due to ramping up to my new role and messy work nuances, my time as CEO/Managing Director/Product Manager would be heavily diminished for the time being, at least for the next 90 days. If we managed to hit our major development milestone (which was a purely technical target and quite honestly was not all that dependent on my engagement) and right our ship, then I would make an effort at that time to properly balance both jobs (already with Riot’s blessing) while we figured out what the next steps to success were and then go from there. If we did not hit that milestone, well then it was time for another series of major, difficult questions.
Fast forward 2 months and we were now still very much as out of money as we were before, and also out of momentum. We failed to make the milestones needed to make any marketable headway on the technical pipeline so that I could put it in front of potential investors, enthusiasm within the team was dying, momentum was waning, and quite honestly I wasn’t able to properly motivate the volunteer team without further cash infusions or digging deeper into the equity reserves. We 3 mutually agreed to let things sort of sit in an icebox for a few weeks, until we could think things through together at an in-person meeting and plan out what a true sunsetting of Honored would look like. Life being what it is, we all didn’t really bring the subject up in any hurry and went about our lives with our respective new jobs between us 3 founders, and rarely spoke for several months.
Several months later, I get an unexpected heads up from the friend noted above who had given money for convertible notes, that my co founders had sent him an email where they implied to him that I had mismanaged his funds and asked him if he was interested in pursuing any legal action to get to the bottom of what happened to his investment. He politely declined, saying he had written it off as an exciting but knowingly risky endeavor and that he considered the matter closed from his end. He then subsequently filled me in on the conversation as a friendly heads up. As I mentioned previously, my family pitched in a little money to me as well, to help pad my contributions, and at this time they also sent the same email to my father the next day, who declined to respond at all to their inquiry..
I reached out to the team in shock asking what was up and if there was something they wished to discuss with me, as I was willing to be an open book and happy to talk about anything. In return it was explained to me that they were under the impression I had mismanaged the company funds (the word embezzlement was not used but heavily alluded to), that the fact the company ran out of money was, in their opinion, by my own negligence, and they were now wanting full explanations and threatening pending legal action. They wanted to have a phone meeting with me, with a lawyer they had retained present, and I gladly obliged as I felt I had nothing to hide and wanted an amicable resolution for what I felt was simply a great misunderstanding. After all, I managed to enable us to operate on less than $30,000 over the course of 16 months, a non-trivial feat and it wasn’t as though hundreds of thousands of dollars had gone into a black hole, and as such I felt it was just a terrible misunderstanding to be hashed out in person.
In preparation for the meeting, I tried to grab up-to-date bank statements of the corporate bank account to have all my notes in order. In trying to do so however, I learned I was locked out of our accounts. In contacting the banks customer service thinking it was simply a login issue from lack of using it for so long, I was informed I was no longer on file as an authorized representative of the company, and that control of the accounts had been turned over to other parties (bear in mind prior to this, I was the *only* signatory on the account… I was interim CFO in lieu of one existing. The bank had no knowledge or record of the other co-founders due to how the initial paperwork was constructed, and I was both the exclusive legal entity with rights to the bank account). The bank quite firmly shut down all of my attempts to gain insight or ask questions about the situation and sent me packing, eventually finally admitting not only was I not on the account but there were actually notes in place explicitly baring my access to it citing “pending legal action”. Surprised, I prepared as best as I could with what I had on hand, and I also consulted with a lawyer myself in slight fear, who gave me some reassuring and sound advice regarding corporate finance law. He confirmed my understanding around several things, including around the latitude of a CEO (and CFO) making judgment calls in “good faith”. (All of which, in short he said, I was well and above in the clear legally and I had no reason to worry nor should I feel like I needed to go into this conversation with anything but open honesty and calm expectations, based on what I told him. He covered the fundamentals of “piercing the corporate veil” in the legal context which, in short, obvious good faith efforts by a CEO to grow the company shield me from having to explain line item expenses or individual expense justifications to any party, even fellow shareholders or co-founders, so long as those expenses were made with an intent to better the company. )
I showed up for the call, and they requested to go through every… single… bank transaction. Line by line, for virtually the entire year of 2013. In the interests of good faith and still convinced this was a huge misunderstanding, I obliged without complaint. Halfway through it became clear they had a specific agenda in motion however, and one that I didn’t agree with. They were beginning to question and demand explanations for the most mundane of things. For example, one day we had everyone at my house for a hackathon coding session to dog pile a sprint we were weeks behind on in order to have a demo for potential investors at PAX, and I ordered delivery food for the whole team on my company card. They demanded I explain why I had expensed the food to the company, and wanted me to show them a form of documented proof they had pre-agreed in writing to that expense. At another point, they asked why I had spent X$ on paying for business cards for pax for the 3 of us… questioning the necessity and why I couldn’t have made some “cheap ones by hand at Kinkos”, and again challenged me claiming this expenditure of funds was unethical because it did not have their explicit approval in writing. I explained that they seemed to have no issue with me doing these things at the time they occurred and were discussed (in fact one of them designed those cards), and they responded they had no idea I had used company funds for it and assumed (and expected) that I was using my own personal money for all of these things at the time. They stated that, as there was no written record of them approving this expense, I was therefore legally responsible for the liability of the funds… It continued like this for almost an hour, transaction by transaction.
Eventually I reached the point of exasperation, but I tried hard not to let it show. I finally informed them that the money I spent was spent with the good faith that it would further the overall goal of the growth of the company and establish us in a better position to raise funding and deliver a working demo. As the CEO, the functioning work of our non-existent CFO, and the largest shareholder and chairman of the Corporation, it was within my rights to make these leadership decisions without their itemized, detailed input. Additionally, the Corporation, like all Corporations, is a legal entity in and of itself, and I am just an agent of it. I explained my admittedly limited but guided-by-a-lawyer understanding on how, legally speaking, they cannot challenge individual line items of the funds exercised with my authority without a legal order from a court to “pierce the corporate veil” and dive into the financials directly. I explained I was more than happy to have any conversations need to allay their fears that I had done something questionable, but that this call felt not like an opportunity to clear the air, but a witch hunt to find an “aha” moment to establish a way to lay blame on me for the overall failure of the company… something, as the core founder, visionary, and CEO I *already* took ownership of with great remorse and and heavy heart both privately and publicly. They responded in disagreement with this position, and insisted I present to them a cash payment equal to the amount of money they had deemed “spent without their authorization” of a sum tallied up based on the charges they questions (which were virtually all non-AWS costs, nearly).
After the call ended I re-consulted a lawyer. He proposed that I give them a few options based on the fact it was now clear that money was the issue at hand, and that they were seeking a way to obtain more from me. I emailed them back several days later with a few different proposals that I felt were more than fair and equitable, and with any hope might even help put the company in a place to have something productive done with it’s IP down the road with this mess behind us:
Option 1 – Per the formation paperwork, neither of them had put up any funds for their shares, only Intellectual Property. However, that IP had an established dollar value per share in the paperwork that correlated to the shares issued to me for cash. I offered them each cash equal in value to 2 times the declared value of their shares, to buy out their old equity and let them walk away with a 100% increase in their share value. In the event they did not find this exchange favorable to their long term prospects, I presented Option 1-B; a plan of buying out their controlling equity for the above value in cash *and* issuing then each an equal dollar value of non-controlling shares… this way their investment of time and effort would still have liquidity in the future if an opportunity ever arose for the company to move forward once more, still giving them some money for their shares, and removing the hurdle of us having owning directors at odds with each other.
Option 2 – Per corporate finance law, I, as a private entity, could not legally deposit my own money into the company bank account, even to “reimburse” it for any of the expenses that they took issue with, without the company recompensing me with equity in like kind. (Not my ask, this was how it was outlined to me by legal experts. Private assets going in need to reflect something going out to me.) There are pretty strict rules about this sort of thing, but I said I would be more than willing to buy additional shares in the company at current cap-table values, for a dollar value *they*, not I, felt was practical and responsible to make things feel right to them. Additionally, this would help to inject fresh life in the company to continue finding a way towards success and might actually open some new avenues for us. However, the unspoken caveat in the offer was that in doing this, the additional shares issued to me would mean my controlling stake would increase.. And while I didn’t lay it out directly, it would be clear to anyone paying attention that even the smallest investment of any meaningful value would tip the scales by even 1 share into majority control in my favor against the two of them combined, which I suspect they would not agree with.
Option 3 – we formally declare Honored a failure.. And I, as CEO, was more than ready to own the situation and responsibility of it entirely. We would mutually sign the papers of dissolution, and the company would be no more at that point and we all walk away having learned from the experience.
I sent this email to them and their lawyer they brought to the call, and just to be safe I sent it to their personal emails as well as old honored accounts. I followed up on the un-answered thread twice more over the following 2 weeks after not receiving any responses. That was towards the fall of 2014… and I have heard nothing from any of them since that time, and with myself frozen out of all accounts, and having never heard back from those attempts… this is where I sit today. Not even able to dissolve the company or even file it’s taxes, as I have been legally locked out of everything, but as far as the state of California is concerned, I am still the responsible agent for the business as well.