Net Enforcers, Inc.
The second company I started was Net Enforcers, Inc. The idea originally started out as an eBay monitoring service for grey market sales in the consumer electronics industry (an early version of our website can be found here) but soon grew into a wide range of technology and services solving a very big problem. Although we began the company as a service provider, NEI quickly pivoted to develop its own unique technology platform around grey/black market e-commerce detection and enforcement. We had no idea that over time, NEI would slowly transform itself into a leader in the world of cybercrime and online fraud detection. Creating successful platforms in markets that didn’t exist seems to have been an incredible trend in my professional life!
The idea for NEI originally developed during my time as an electrical engineer for an electronics company which had been plagued by grey market distribution. Grey market distribution is when an unauthorized person or entity sells your products online in a low-cost, unauthorized manner. NEI developed its business and reputation by working closely with several government agencies to stop illegal online activity. We detected this activity through a spider/crawler technology we developed, and the results were rendered on our browser based platform, called HAL. Our technology was so effective that we eventually gained the support and cooperation of the FBI, DEA and ICE, as we were able to find crime faster than anyone else. NEI eventually gained world renowned brands like Apple, LG, Samsung, Sharp, Novartis, Eli Lilly, Sony and others as long-term clients. One of our 2006 presentations on the HAL Platform can be found here. Through our success, NEI also became a registered Private Investigative Agency conducting undercover operations, investigations and take-downs. By 2007, we had built a market leading company serving a critical need in the world of online crime – and the business showed no signs of slowing down.
Profitable and growing fast, a trusted friend recommended that we try to raise outside money to help scale from our 60-person operation into a full enterprise. Our technology portal was sophisticated and innovative and our clients were in love with our innovation plan.
Instead of finding money, we were welcomed in the market with a few acquisition offers – quite a surprise to say the least. While it was never my intention to sell the company, it was a very difficult decision to decide what to do. When you’re making more than $1 million in profits a year, it’s hard to just say, “Let’s sell!” and it took me a few months to figure this all out. The last known version of our corporate website before we sold NEI can be found here.
After courting multiple acquisition offers (including one from Kleiner Perkins, the top shelf venture capital firm), I decided to sell Net Enforcers to a technology company called Intersections, Inc. I decided to sell NEI to Intersections because I respected its CEO and I looked up to him as a mentor. I also liked his idea of growing a combined billion-dollar enterprise together. I signed the LOI in March of 2007 and spent more than eight months in due diligence – Intersections spent more than a million dollars in legal fees during the course of the acquisition of Net Enforcers. The deal closed in November of that year. An article on the acquisition can be found here.
While the story of NEI ended with what I thought was a really awesome personal exit, it also came with some very important, expensive and painful lessons about deal mechanics, timing, who you sell your company to, the responsibility of managing your new wealth. Although the sale occurred at the top of the 2007 market, only 10 months later, the market tumbled to levels not seen since the Great Depression (referred to by many as “The Great Recession”). This crash started a chain of events leading up to Intersections’ decision to try to reverse the NEI acquisition altogether in order to save the parent company. We have to remember, no one knew if any of the banks would survive and it really caused panic among the public markets, including Intersections’ stock price.
Unlike the dot-com bust in 2001, the Great Recession had a much larger and widespread impact to the economy and unfortunately, it caused me great personal pain as well.
In 2008, massive banks were going insolvent, enterprise corporations were losing billions in value, the housing market crashed and no one knew if the end was near. Due to the insolvency of many of their banking customers, Intersections was impacted by a major reduction in revenue and ultimately had to abandon its growth-by-acquisition strategy altogether. This reduction caused a big strain between Intersections and me, as I came to realize I would never make my earn out with these financial cut backs and layoffs.
After multiple failed attempts to find a resolution about my earn out and the future of Net Enforcers, Intersections terminated my position as part of their cost savings strategy. It wasn’t something I saw coming and I felt humiliated, embarrassed, angry, betrayed and confused.
Faced with what to do next, I had a hard time deciding on whether to walk away from a more than $6 million earn out or find some other form of resolution. While I personally and professionally responded to the claims of my termination letter with factual evidence, emails, documents and materials, Intersections chose to not respond to my personal request for a sit down meeting. Unfortunately, this did not feel right, I did not think I should have to walk away from my earn out especially knowing I hadn’t done anything wrong. Due to the lack of response from Intersections, I chose to hire a law firm to find out why Intersections terminated me, refused to meet with me, and to discuss an amicable resolution.
After sending a demand letter, Intersections agreed to a meeting. Unfortunately, it seems that Intersections was not interested in settling with me, they remained aggressive and unreasonable. Although both parties agreed at the conclusion of the meeting to not file suit against each other, within an hour of its conclusion, Intersections filed their “kitchen sink” lawsuit anyway – we got played and countersued. I only found out then that Intersections had been known to be an aggressive and litigious corporation, having filed multiple suits in the past and this was their way of finding resolution: the courts.
So what’s a kitchen sink lawsuit? It’s when the one side makes up claims regardless of basis in an attempt to create pressure, influence and financial stress for the other side. They do this in order to force a settlement and in the end seek a dismissal of your countersuit. You can read more about this legal strategy here.This stuff really does happen.
I was advised that during commercial litigation, I had to accept the ugly reality that even a baseless lawsuit can hurt a highly creditable reputation and I needed to do everything in my power to clear my name. When I was at NEI, I had relationships with the FBI, DEA, ICE and others, and carefully planned to have agents testify on behalf of my character. I spent months collecting all the evidence I could find to win this case as I was now fighting not just for my earn out, but for what I valued the most: my name and reputation. In those efforts, legal counsel advised that I take a polygraph, which I did – and PASSED it. That polygraph can be found here.
Through the course of the litigation, my legal team also discovered that following my termination, an outside financial firm was hired by Intersections to audit the acquisition of Net Enforcers and determine if NEI’s financials pre-acquisition were correctly stated. This was all part of Intersections trying to find cause in order to eliminate my employment agreement, paying my severance and awarding me my stock options. Luckily for my defense, the auditor’s concluded that no wrongdoing or inaccurate statements were made by NEI and no fraud had been committed during the acquisition. A copy of that audit report can found here.
So after months of aggressive legal action coupled with what I found to be tiresome and pointless fighting, Intersections and I finally agreed to find an amicable resolution. This was the same resolution I sought when all this started but for whatever reason, it’s sue first, ask questions later with some people. We both agreed to attend a mediation and after eight hours of debate, found resolution. As a result, we dismissed each other’s lawsuits and went our separate ways. That dismissal can be found here.
Today I still believe that Intersections is a good company and delivers well for its shareholders. I still have a lot of respect for their leadership team, although I cannot say I agree with their resolution strategy. I just think that we were all put in a difficult position with incomprehensible instability of the market, which left us both unsure of what the other would do and a fight broke out. I believe that the economic crash caused our indifferences to escalate and unfortunately lawyers get paid to fight and they do it so well.
I certainly learned many lessons about litigation, selling your business, defending your reputation to say the least, and firmly believe that the experience made me a better person, better executive and a better business leader. If someone was to ask me, “If I could go back, what would I do differently?” First, I would not have hired a law firm – instead, I would have found a way to get a sit down with the Founder/CEO. I still think that if we were still working together, we would have been chasing down that billion-dollar market valuation.
Following some much needed time off and sheer boredom, I decided to build again and put all these important lessons to work. I landed on a great idea and in 2013, started CyberSponse, Inc. As a result, starting my next venture even landed me on HBO’s John Oliver… ha.