David Selinger is a die-hard Redfin supporter.
He’s purchased homes through the online real estate service, and speaks highly of Redfin boss Glenn Kelman whom he calls “an amazing CEO.” Selinger, who runs the data analytics startup RichRelevance, has even been known to exchange recruiting tips with Kelman, since both companies operate dual offices in Seattle and San Francisco. They also share a similar venture investor in Greylock Partners.
So, it was with some shock and dismay that Selinger — Redfin’s first CTO and one of its earliest employees — received a letter in a FedEx package about seven weeks ago from Redfin general counsel Kate Ross. The letter included a check for about $370,000 — a payout for his 924,000 shares.
Selinger didn’t request it, nor did he cash it.
The content of the letter was clear: Redfin was attempting to cancel the shares of Selinger, along with those of co-founder Michael Dougherty. (See earlier this post: Redfin co-founder and ex-CTO sue company, allege scheme to cancel shares as IPO nears).
In an interview with GeekWire, Selinger said he felt “terrible” and “bummed” when the letter arrived and wasn’t quite sure what to do. Both he and Dougherty felt entitled to the shares, which they said fully vested in 2005 when Madrona Venture Group purchased a majority stake in Redfin at a time when the company was struggling.
But the bigger issue for Selinger and the one that particularly stung was this: Why didn’t Kelman just pick up the phone and give him a call?
“He has my cell phone number, I have his cell phone number. There is no reason that the first time I hear from Redfin, it is from their lawyer,” said Selinger. “That is really probably the most unfortunate decision in this whole process from my perspective is that we took something that could have been handled by: ‘Hey, guys, this is what we want to do.’ And, we say: ‘Hey, you can’t do that.’ And it gets resolved. It immediately escalated to lawyers.”
Given the legal ramifications and the large amount of money involved — Selinger and Dougherty say their roughly three million shares represent more than one percent of the company — the former employees filed suit in King County Superior Court.
The suit came after much deliberation, and thought. Selinger said he spoke to his wife in detail about the case, before making the decision. At time, he said he wondered if it would just be better to avoid the emotional turmoil.
“It’s financially important because of our kids. I made the sacrifice and I’d like to see that back,” said Selinger, detailing the long hours he put into Redfin while still working at Amazon.com. “But it is also just holding someone accountable on the basis of integrity when it impacts our family… Honestly, I sat there, and there was a big delay. And Michael and I went back and forth for probably three weeks before we hired a lawyer.”
It was especially challenging given the respect that Selinger has for Kelman and Redfin, a company that he helped build with a team of top-notch engineers from the Seattle area.
“This is incredibly emotional for us,” he says.
Selinger also took issue with those who’ve said he was trying to block Redfin’s IPO intentions. In fact, he said he’d like to hold onto his shares in the company, post IPO, noting that “I want to be in Redfin for the long haul.”
“I don’t want to hurt them in this process. I bought most of my homes through Redfin. I love Redfin. I use the Redfin app all of the time,” said Selinger. “I am so proud of what my team accomplished there. I don’t want to hurt Redfin. So, please be aware that I know you have to write a good story, but that is sincerely my angle.”
Selinger also noted that the suit is more than about the money, and he hopes the issue gets resolved quickly. In his view, the settlement agreement he signed is pretty “black and white” and not really open to interpretation. He’s also hopeful that the agreement happened so long ago that the shareholders and legal team at the company just aren’t up to speed on the matter.
“Our primary complaint here is: Please be fair,” said Selinger, adding that his stock is now worth significantly more than the payout that Redfin offered earlier this year.
“It is worth more than four times that much. I am not a man of tons of cash at home. That would be a significant change in the amount of cash that I have, more than doubling, tripling or quadrupling the cash I have at home, but what we are seeking here is that they treat us fairly based on the contracts that we all signed.”
Redfin declined to comment, while Dougherty, who now works at Amazon, issued this statement:
“Redfin is a fantastic company. I’m proud of the role I played in its founding, and excited about what it’s achieved since. Our current dispute is unfortunate, but I’m hopeful that Redfin will recognize our rights with respect to our shares and that we’ll ultimately resolve things.”
Madrona Venture Group, an early investor in Redfin, also declined to comment. Selinger said that Madrona has been reluctant to share information, treating the two former employees as if they are no longer shareholders. That’s part of why he said they decided to file the lawsuit, so they could collect more information in the discovery process. “This is why it is so silly,” he said.
The situation certainly is a messy one. And it highlights the challenges that sometimes accompany early-stage startups, in this case one that has grown into a significant company. Redfin raised a $50 million venture capital round last fall, and some have speculated that it is positioning to go public.
Selinger, who now runs his own venture-backed startup in RichRelevance, says that the letter appears, to him, to be a method to force a settlement in an effort to get his shares back, and those of Dougherty. At this point, he said Redfin is treating them as non-shareholders, initiating the lockout when they sent the checks earlier this year canceling their shares. That set the entire chain of events in motion, he says.
“They have gone out of their way to take action…. It would be advantageous for them to try to execute this in order to force a settlement where they get some of their shares back…. It feels like a financial engineering move,” said Selinger. “It just really sucks.”
He then paused for a moment, and added:
“As the CEO of a company, this is something that I would never do to a shareholder. Period.”