The article examines the lessons entrepreneurs can learn from the legal dispute involving the founders of Moon's Dark Side, focusing on the early equity distribution, the potential consequences of sabotaging a startup's growth, and the importance of choosing the right investment partners. A case study that highlights the strategic, legal, and emotional considerations in venture capital.
A significant lesson from this case is that Yang Zhilin gave away equity too early.
Recently, Moon’s Dark Side, a rising star in the large model field, found itself embroiled in an unexpected controversy.
According to multiple media outlets, some investors from Loop Intelligence have filed for arbitration in Hong Kong, accusing Moon’s Dark Side founders Yang Zhilin and Zhang Yutao of starting the company and initiating a new round of financing without obtaining the required consent from all Loop Intelligence investors.
To provide context, Loop Intelligence was the company these two founders had previously co-founded.
Reports suggest that some of Loop Intelligence’s investors, as the main drivers of this arbitration, are demanding nearly $100 million in compensation.
The news quickly stirred the industry, with some lamenting that "a genius can't escape the capital game," criticizing the early investors for being overly greedy, while others worried whether Moon’s Dark Side could navigate this unexpected challenge.
In response to the "arbitration" matter, Moon’s Dark Side's lawyers clarified to the media, stating that the arbitration “lacks legal grounds and factual support.”
In fact, such disputes are not uncommon in regions with high concentrations of venture capital, like Silicon Valley; similar cases occur frequently in China as well.
Typically, these disputes are resolved quietly through negotiations, as public confrontations are costly for both parties. Investors aim for maximum returns, while the entrepreneurial team strives to protect their newly founded venture.
However, this case escalated to arbitration, even making its way to the media, revealing significant disagreements between the parties. It’s clear that the investors are applying “maximum pressure” in hopes of securing more benefits.
This incident has ramifications beyond the immediate parties involved, offering a profound warning and insight for the entire venture capital industry. I will analyze this issue from three perspectives: rules, reasoning, and industry trends, providing valuable lessons for entrepreneurs.
1. From a Legal Perspective: Yang Zhilin Gave Away Shares Too Early
Let's start by analyzing this case from a legal and regulatory standpoint.
The main dispute between the parties revolves around the investment agreement, equity allocation, and compensation for interests.
Generally, when a founding team secures investment from a venture capital firm, they sign an investment agreement that includes certain restrictive clauses. For example, if a founding team member starts a new company, they may need to seek the investor’s consent or offer compensation to protect the investor’s interests.
This involves what has been repeatedly mentioned in the news as the "Consent Waiver."
The five early shareholders argue that Yang Zhilin did not obtain the necessary waiver before founding Moon’s Dark Side. However, other reports indicate that Loop Intelligence’s CEO, Chen Qicong, had actually notified the early shareholders and had already received approval for the plan.
In my opinion, the "Consent Waiver" dispute is merely a superficial issue. The real dispute is about the investors fighting for more profit.
Moon’s Dark Side has become incredibly successful, reaching a valuation of over $3 billion in less than two years. Giants like Alibaba and Tencent have rushed in, and its product Kimi has become a favorite among young people—it's one of the most high-profile entrepreneurial projects in recent years.
Given such a high return on investment, it’s no surprise that early investors are dissatisfied. This is the true motivation behind the so-called “waiver” dispute.
One media outlet summarized the essence of this situation well: it’s “human greed amplified in the face of massive profits.”
But was Yang Zhilin wrong to the early investors? According to insiders, when Yang Zhilin went out to start Moon’s Dark Side, he gave nearly 10% of Loop Intelligence’s equity to the old shareholders. Loop Intelligence remains one of Moon’s Dark Side’s largest shareholders.
The old shareholders of Loop Intelligence have already benefited considerably, not counting the value of Loop Intelligence itself, by essentially backing a high-profile project. The window for startup financing is short, and the equity given to Moon’s Dark Side was in line with the agreement of all shareholders. Yet, now it has become a point of contention.
Yang Zhilin’s generosity shows his respect and gratitude toward the old shareholders. If Loop Intelligence had not sold the shares, their value would likely have surpassed the current valuation of the company.
The most profound lesson here, however, is that Yang Zhilin gave away shares too early. A safer approach would have been to temporarily place the equity in a third-party institution, such as a law firm or trust company, to wait until all shareholder agreements were finalized, then distribute the shares according to the agreed terms.
The advantage of this approach is that it prevents old shareholders from later using the "waiver" as leverage to hold up Moon’s Dark Side or demand excessive terms. It would also avoid any negative impact on future fundraising.
Had Moon’s Dark Side not been so successful, with such a high valuation, the “consent waiver” issue likely wouldn’t have been raised. But now, with the huge financial stakes involved, “procedural issues” have become bargaining chips.
In terms of equity compensation, Yang Zhilin gave too much too early—perhaps too generously. This is an expensive lesson.
2. From a Logical Perspective: Sabotaging Moon’s Dark Side Would Lead to a Loss-Loss Situation
After analyzing the legal aspects, let’s turn to the reasoning behind this and the potential long-term consequences.
Those familiar with ancient Chinese courtyards would have seen a plaque reading “Heaven’s Law, National Law, Human Feelings,” reflecting how, in Chinese legal thinking, law should not be cold and rigid, but must also consider human emotions.
In Western legal systems, natural law also plays a role—law must align with the public’s sense of fairness.
First, we must recognize that the success or failure of Moon’s Dark Side, as an innovative project, is not just about the dreams and efforts of founder Yang Zhilin and his team, but also about the interests of many investors.
From a logical perspective, any deliberate sabotage will lead to instability in the entire ecosystem, creating a “loss-loss” situation.
Such actions violate the basic principles of trust and win-win collaboration that should exist in business partnerships and show a lack of respect and understanding between collaborators.
Old investors, as backers of Loop Intelligence, initially saw the project and the entrepreneurial team as promising, hoping to receive returns from their investments.
However, if disagreements arise during the development process, resolving them through reasonable methods is key. Choosing to sabotage the other party, though, is a betrayal of cooperation and respect, and will be emotionally damaging.
Reports suggest that early investors such as Zhenge Fund and Sequoia China were among the first to invest in Moon’s Dark Side, offering continuous support. When Yang Zhilin started Moon’s Dark Side, these investors knew about it, but not all of them believed in the new venture or were willing to continue supporting it.
Now, with Moon’s Dark Side’s skyrocketing valuation, it’s understandable that early investors might feel dissatisfied. However, it must be pointed out that Yang Zhilin had already given them considerable equity. If they fail to acknowledge their own judgment errors and instead focus on undermining Moon’s Dark Side to gain more profit, it would deeply hurt the entrepreneurial team’s morale.
Some actions might secure short-term gains for one side, but in the long run, they will lead to a vicious cycle of no one willing to invest or create, eroding the credibility and vitality of the industry as a whole.
Ultimately, these early investors backed Loop Intelligence—not Moon’s Dark Side. They have already benefited handsomely, not counting the value of their equity in Loop Intelligence, which is worth far more than the initial investment.
In the business world, the instinct is to maximize profits, but how to achieve mutual benefits while maintaining a healthy ecosystem is a question every participant must reflect on.
In the end, true victory in business is not about defeating your opponent, but creating greater value together. Only then can you gain more partners and bring positive impacts to the venture capital ecosystem.
3. From an Industry Perspective: Entrepreneurs and Investors are Both Playing the Game
Finally, let's consider the situation from the broader entrepreneurial and investment environment.
Yang Zhilin is a tech entrepreneur, and the founding team of Moon’s Dark Side consists of technical experts. The reality is that if they had consulted with legal and investment experts at the outset, they could have avoided some of these risks and perhaps not been taken advantage of by the old investors.
If this situation continues to drag on, it will certainly be detrimental to Yang Zhilin and Moon’s Dark Side. Not only will it divert the team’s attention from product iteration and market expansion, but it may also damage the company’s brand and future development prospects.
But conversely, is it beneficial to the five early investors? Certainly not. This public tug-of-war will deplete both sides' resources and patience, potentially damaging the trust-based relationship and affecting future collaboration opportunities.
More importantly, this event serves as a reminder to entrepreneurs about the other side of securing investment—the strategies, tactics, and extreme pursuit of profits by investors.
For entrepreneurs, this is a sobering lesson. It warns every entrepreneur about to embark on the fundraising journey to carefully select investment partners. They must consider not only the financial strength of the investors but also their investment philosophy, industry reputation, and attitude toward supporting entrepreneurs.
I know a well-known investor who has supported an entrepreneur, despite many failures, for several years. This investor showed warmth and empathy, demonstrating the human side of venture capital. In return, the entrepreneur did not disappoint and later gave this investor a fair equity arrangement and significant returns. Their relationship is considered a success story.
Yang Zhilin’s experience is costly, perhaps a lesson worth at least $100 million.
However, if there is any benefit to this incident, it is that it reminds entrepreneurs to master not only their technical expertise but also legal knowledge and equity distribution strategies. They must learn to navigate the capital world without being overwhelmed, and understand the importance of finding like-minded investors.
In the long run, a partner who understands and supports the entrepreneur’s vision, and is willing to fight alongside the entrepreneur, is often more valuable than just a cash injection.
Such partners not only provide essential funding but also offer valuable advice and resources in strategic planning, market expansion, and team building, promoting the healthy growth of the enterprise. At least, when facing disputes over利益, they will prioritize collaboration over sabotage.
The relationship between entrepreneurs and investors is both a partnership and a game of strategy. In this game, entrepreneurs need to continuously improve, maintaining their passion for technology while also learning to protect themselves in the waves of capital, seeking out truly like-minded partners who can work with them to create value.
Only then can they travel further and more securely on their entrepreneurial journey.
