Tinder founder Sean Rad repeatedly clashed with Match and IAC, according to lawsuit

Tinder CEO Sean Rad has
been feuding with Match essentially since the founding of his
dating app company, according to a new
lawsuit.
bi

 

The legal dispute between Tinder and parent company Match Group
is new, but the bad blood between key figures at the two
companies apparently isn’t.

Three of Tinder’s cofounders, along with a group of current and
former key employees, believe that the management of Match Group
and its corporate parent, IAC, have repeatedly reneged on formal
agreements and shorted them of money and ownership since the
founding of the dating-app company in 2012,
according to a lawsuit filed on Tuesday. The bad-faith
dealing by Match and IAC culminated in the alleged scheme that
forms the centerpiece of the suit — Match Group’s alleged attempt
to undermine the value of the stock options held by Tinder
employees.

The Tinder founders and employees are seeking $2 billion in
compensation plus additional punitive damages in the suit.

Match Group and IAC “cheated the Tinder plaintiffs out of their
contractual right to participate in the future growth of the
company they built,” the Tinder founders and employees allege in
their suit. “Defendants willfully breached their contracts and
their legal duties, pocketing billions of dollars earned by the
Tinder plaintiffs and other Tinder optionholders.”

A Match Group representative denied the allegations in a
statement and suggested that the suit was the result of envy, not
bad-faith dealing.

Two of the plaintiffs in the suit are no longer with the company,
the representative noted in the statement. Sean Rad, Tinder’s
founder and former CEO, was “dismissed” more than a year ago; and
Justin Mateen, left “many years” ago, the representative said.

Rad and Mateen “may not like the fact that Tinder has experienced
enormous success following their respective departures, but sour
grapes alone do not a lawsuit make,” the representative said.
“Mr. Rad has a rich history of outlandish public statements, and
this lawsuit contains just another series of them. We look
forward to defending our position in court.”

Match and Rad repeatedly clashed

Barry Diller, chairman of
IAC, whose Match Group subsidiary repeatedly clashed with the
management of Tinder.
Drew
Angerer/Getty Images

Match and Rad and his team were at odds almost from the beginning
and repeatedly clashed, according to the suit.

Here are some of the key moments and allegations, as laid out in
the Tinder team’s legal complaint:

• Although Rad initially developed Tinder in 2012 while working
  for Hatch Labs, an IAC-owned incubator, and his basic concept won
  a hackathon contest Hatch sponsored, IAC and Hatch initially
  declined to foster the development of the app or to allow Rad to
  seek outside funding for it.
• Instead Hatch said Rad could develop it with a team he was
  already on that was working on a separate app — and only in their
  free time.
• Because of that arrangement, Rad proposed that the Tinder
  founding team get a majority stake in the app, with Hatch being a
  minority investor. IAC and Hatch agreed to those terms.
• But in 2013, after Rad and his team had launched the Tinder
  app and seen initial success with it, IAC reneged on those terms.
  When it incorporated Tinder, it didn’t assign any ownership to
  the founders, insisting that it owned all of the app and company.
  It only assigned the founding team “stock appreciation rights,”
  which the plaintiffs claim were worth far less than the value IAC
  had promised them. 
• In 2014, Rad and his team got Match to agree to grant them
  stock options in Tinder — but only after a bitter six-month
  negotiating battle.
• In 2015, Rad proposed that Match allow Tinder option holders
  to sell their stakes to outside investors. The options agreement
  allowed Tinder’s founders to do that, but Rad wanted to open it
  up to all Tinder employees. Match initially agreed. But then it
  changed the terms. It would either allow all employees including
  the Mateen and Rad to sell their vested options at a $1.75
  billion valuation for the entire company — or it would allow all
  employees except Rad and Mateen to sell their options at a $3
  billion valuation. Rad and Mateen chose the latter option,
  allowing employees to cash out.
• In mid-2016, Rad proposed that Match again allow Tinder
  option holders to sell their vested options — this time back to
  Match. Match agreed, but didn’t follow the terms under the stock
  option agreement for valuing Tinder. Match came up with a $1.6
  billion valuation — little more than half the valuation it had
  recognized nearly a year before, despite Tinder’s growth over
  that time. Rad and other Tinder executives advised employees not
  to take advantage of the selling opportunity.
• In December 2016, Match ousted Rad and several key executives
  at Tinder just months before the first scheduled option selling
  opportunity under the 2014 options agreement.
• In early 2017, Match proposed to value Tinder at $1.8 billion
  for the upcoming scheduled options sale. After Rad rejected that
  amount, Match then provided “false, misleading, and incomplete
  information” about Tinder’s finances to ensure a lowball
  valuation.
• Match ended up valuing Tinder at $3 billion for the option
  sale — the same valuation it had recognized two years earlier,
  despite the app’s growth in revenue and usage.
• After finalizing the $3 billion figure, Match merged Tinder
  into itself, effectively cancelling the future planned options
  sales.

“Defendants, acting in bad faith, breached the implied covenant
of good faith and fair dealing inherent in” the options agreement
and related deals, the Tinder executives and employees said in
the suit.