Money Changes People

January 25, 2023

How much money would it take for you to backstab one of your friends? A friend you’ve known for decades?

Fifty thousand? Five hundred thousand? One million? Ten million?

How about $100 million?

That’s how much founder and former president of Stansberry Research, Porter Stansberry, got screwed out of when his company went public via special purpose acquisition company (SPAC) Ascendant Digital.

(Disclaimer: Stansberry Research was my former employer over a decade ago. I have no affiliation with the company.)

Stansberry Research is one of the most successful financial publishing businesses in the country.

Porter helped grow Stansberry Research’s revenue and profits by 30% on average per year from 1999 through 2020. It had over 1 million paying subscribers. And earned $142 million in profits.

Porter acquired sister publications and rolled it all up into Stansberry Holdings.

He owned about 75% of the company by the time they started the IPO process in 2019.

Here’s Porter in his 13D SEC Filing (emphasis added):

“Virtually every leading member of our staff was personally recruited and mentored by me. I shared the company’s astounding success generously with our employees, granting around 10% of the company’s profits annually to employees and, over time, granting roughly 25% of the firms’ equity to employees too – while never asking for another share of stock myself. At many critical points in the company’s evolution, I gave up very large amounts of income to increase the bonus pool for employees. My relationships with my partners were so cordial that we ran the company on a handshake, without a written operating agreement, for years until we began the IPO process in 2019.”

Porter’s salary was $500,000 and was collecting $10-$20 million per year in distributions.

So why go public at all?

Well, for one, Porter was promised $100 million. But allegedly, other major shareholder Bill Bonner was looking for a liquidity event too. Bonner is a billionaire. But is in his twilight years. So getting that additional liquidity would free him up to do whatever else he wanted. (For his legacy? For his family?)

Here’s what the terms of the deal were according to the filing:

“At the time, Mark Arnold promised me that I would receive roughly $100 million in cash at the IPO of the company, in exchange for between 12% and 15% of my shares. Additionally, I was told that a liquid market for our stock would develop, and that my “lock up” would expire six months before Ascendant Digital’s. All these protections meant that I could “cash out” if I did not like how things were going at the company. These same assurances were made to all of the legacy shareholders of the company, like Bill Bonner and Doug Casey.”

It all went wrong for Porter when he trusted his supposed friends — who were lawyers — to get his liquidity event.

First, they forced him to step down and leave ten minutes before the 5:00 p.m. Friday deadline (when their definitive merger agreement was to be signed.

Then, the legal proceedings allowed the SPAC sponsor, Ascendant Digital, to redeem all of their shares and cash out. Leaving only $150 million left for the company before going public.

Here’s Porter again (emphasis added):

“In what I can only describe as the most ruinous business transaction in history (if not plainly fraudulent), MarketWise chose to move forward with our IPO even though virtually all of the money Ascendant had promised us was “redeemed” by their investors, leaving us with only the $150 million we raised independently in a coinciding PIPE transaction. The company then spent $48 million on lawyers and bankers, to raise $113 million we didn’t need, while giving up 20% of our company.

Who in their right minds would have agreed to this deal? Well, who benefitted?

Ascendant Digital walked away from our IPO with 10 million shares of stock and millions of warrants – securities worth more than $100 million. But they paid virtually nothing for any of these shares. Mark Arnold, Marco Ferri, and Dale Lynch, MarketWise’s executive team, the people that the owners trusted to see us through this transaction, walked away with roughly 20 million shares, worth more than $200 million. They paid absolutely nothing for these shares.

But… what did the company’s legacy owners – including me – get? What did the people who spent 21 years building this company, innovating its products, recruiting its key employees, and serving its valuable customers… what did we get out of the IPO? Not a single penny. In fact, we didn’t gain liquidity and we lost roughly 20% of the shares.

I personally lost even more: I gave up my chairmanship of the board and effective control of the business; I gave up my board seat; I gave up my employment – a job that paid me $500k a year: And I gave up my dividends, which were typically between $10 million and $20 million a year. No one would have given up these things without compensation. All of these things were stolen from me, with zero compensation given, by members of this board of directors.

There was a $3 billion IPO. And what did I get out of the deal? Bupkis.”

The filing continues on to make incendiary allegations about who and how bad they screwed him.

You can see the full report here. It’s a must read.

The takeaway here is how money changes people. For Porter, it was that he should’ve sought and used independent counsel. Not his friends.

But ultimately, there’s a number that would get your friend to flip on you. Or maybe even you on them?

What is that number? Hopefully, you never have to find out.

Eduardo Saverin found out when he got diluted out of Facebook by his best friend Mark Zuckerberg. (Saverin eventually sued and got 4-5% of the company, now worth billions.)

The business saying “don’t work with friends” is true on many levels. This being a prime example. Sometimes the friend/colleague/business partner dynamic can be a successful one, but always remember to keep your guard up.

Good investing,

Lance

P.S. Mike and I are great friends and business partners. Our friendship is more important than any joint business success. But we’ve set up agreements to avoid this very issue.

P.P.S. I’ll let everyone know what Mike’s first comment is to me after he reads this. Should provide great cannon fodder.

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