Buxfer's Founders Both Work For Facebook. Who Works For Buxfer?

Buxfer is a social payments service that launched in 2007 as part of that class of new Y Combinator companies. The site is still live and working, but a user, Sean Leather, emailed us to say it’s a bit of a ghost town.

The blog has been taken down and was last updated in 2009. The last tweet was on October 9, 2009, six days after their first tweet. And users are wondering if the site is dead over on Get Satisfaction.

So what happened? The two founders, Shashank Pandit and Ashwin Bharambe, took jobs at Facebook. Bhramabe joined Facebook way back in October 2008, as noted on Buxfer’s About page. But according to Pandit’s LinkedIn profile, he too left the company in June and has been full time at Facebook since late 2009.

So is Buxfer dead or just walking dead? And does it really matter?

Yes, in my opinion. Buxfer also raised a $300,000 angel round of financing. I haven’t been able to speak to the investors yet, but it seems like they’re a lot less likely to see a return on their investment with the founders working at Facebook full time and no other employees around to run the site.

There’s likely a perfectly reasonable explanation for all of this, and the investors, I’ll assume unless they say otherwise, are probably resigned to a capital gains writeoff. It may be that the founders made a valiant effort at making Buxfer work, and simply took other jobs when it was clear that it wasn’t. And there’s no real reason to shut the site down as long as people’s financial information isn’t jeopardized, I guess. But, generally speaking, you don’t walk away from a startup, and your investors, when there’s still a pulse. It’s just bad form.

This looks like (it might be) another example of a trend we’ve been seeing for some time – Facebook and Zynga “acquiring” startups for their engineers, giving those engineers rich stock options but leaving investors with little more than their money back. Investors don’t balk publicly because they want to maintain an entrepreneur-friendly reputation. But behind the scenes they’re livid.

I described the issue recently:

Most investors won’t balk publicly at deals like this, they’re way too concerned that they’re seen as entrepreneur-friendly so that they can get access to future deals. But privately they gripe (in general, nothing specific to this deal). Putting money to work for only a 1x or 2x return is a great way to go out of business for startup investors, when so many of their deals never pay anything back at all.

In fact some of these deals could theoretically be a violation of various corporate and securities laws that require shareholders of a given class to be treated equally in an acquisition. But without investors actually complaining, it’s unlikely any lawyers will ever get involved.

Also, stock options are clearly being granted for future services of the acquired employees, not for past work done at the acquired startup.

Another way investors can “complain” is by simply scuttling the deal – they usually have veto rights over an acquisition baked into their deal agreements when they invest. But that, again, would be seen as completely anti-entrepreneur and would kill future deal flow.

So for now investors will simply grin and bear it. But as these types of deals become more and more common we may see changes to various state corporate laws in the future that put limits on how much consideration might be given in cash to investors in an acquisition v. how much is given to active employees in stock options on an acquisition.

Entrepreneurs need to remember that they have a reputation, too. They need to treat investors fairly, or the next time they go to raise a round for their shiny new startup they may find nothing but closed doors. At least one recent Facebook acquisition almost erupted into a lawsuit when investors said they didn’t like the deal, we’ve heard. Sometime soon we may see things turn ugly.