The Wildest Startup Story I’ve Covered: The Fight for Toptal

The story on CNBC.com

I moved to Silicon Valley just over a quarter century ago, and I’ve been covering it in some capacity ever since. This is probably the wildest startup story I’ve ever reported.

Taso Du Val is a high school dropout. In 2010, he founds a wildly successful startup, connecting companies with workers anywhere in the world. He structures it as an LLC that he controls.

Toptal is profitable from early on. But a couple of years into the journey, he gets financial backing in the form of loans that would convert to shares of Toptal if he does what the vast majority of high-growth startups do: raises an equity round from financial backers to fuel growth.

One of those financial backers is Denis Grosz, a Bay Area tech investor.

Grosz’s agreement with Toptal also said if the company converted from a limited liability company to a C-Corporation in the process of raising equity, this would convert Grosz’s loan into a stake in the company. Only Du Val never raises an equity round. He keeps growing the company on its own cash flow.

The agreement also contained a stipulation that said Grosz could convert his loan into equity beginning 15 days before the maturity date. But he never does this prior to the maturity date.

In court, Grosz argued that he had the right to convert his loan to equity after the maturity date, which would give him an 8.333% ownership stake in Toptal. Du Val argued that Grosz’s right to do so ended on the maturity date. The dispute over whether Grosz had the right to convert his loan to an ownership stake in Toptal eventually landed in front of the judge, who sided with Du Val.

Denis Grosz, court documents show, lent Toptal $1 million. In court he said he didn’t think he got a fair shake. He said he believed he was promised a stake in the company. So after consulting with some other investors, he attacked Du Val’s reputation, planned to start a secret competitor to Toptal, and poached Toptal employees, according to documents presented in court. In an email to Grosz, which was presented in trial, another investor labeled it a "cancer patient strategy."

Du Val sued him and videotaped the court proceedings. And so far, Du Val has won.

In a unanimous decision, an eight-person jury found Mechanism Ventures liable for intentional interference. The jury ruled Toptal met all its contractual obligations, while Grosz breached his, harming Toptal.

Grosz and Mechanism Ventures are appealing the jury verdict.

Over a decade after investing in what looked to be a big winner, Grosz not only never got his equity but may be forced to pay for his actions.

I teamed up with Paige Tortorelli , investigative producer at CNBC, to tell the story. (See the written version here.) Du Val sat down with me on camera and told his side. Grosz did not. But from court documents and video footage of the trial, we worked to sketch out what happened and represent both points of view, along with facts to help the audience understand the context.

For decades now, I've had founders and investors tell me how important it is that founders be careful who they take money from, and that their interests and expectations are aligned. But the Toptal saga piled on a whole different set of lessons and questions that rarely get discussed.

How important is a startup's ownership structure? How aggressively do founders have to manage the expectations of investors and employees? And when a company has a largely remote culture, does it make it harder to gauge their loyalty and morale – or conversely, easier for outsiders to convince them that something is wrong?

A previous version of this post incorrectly stated the status of Grosz’s loan to Toptal. According to a letter presented at trial, in 2020 Toptal offered to repay the loan with interest. In a response letter, Grosz’s attorney wrote that “Considering Toptal's immense success and valuation, for Mr. Grosz to theoretically receive merely principal and interest for that investment after 8 years is insulting and an absurd outcome.” So the loan was not repaid. The post also stated that Grosz had “executed” a plan to launch a Toptal competitor. The planned company never launched.