[HN Gopher] Ask HN: Co-founder wants me to leave but won't enter...
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Ask HN: Co-founder wants me to leave but won't entertain a buy out
offer
I'm the technical co-founder of a pre-revenue startup. We were
51/49% to them and took a small round of pre-seed funding (~$100k)
so our cap table is approx 40% for me and co-founder, 10% option
pool and 10% investor. We have very standard shareholder agreements
for 4yr reverse vesting with 1yr cliff. My (non-technical) co-
founder spent $10k to create the initial website over a year ago
with the idea. I joined about 11 months ago and since then the idea
has changed a bit, we've built loads of products, grown from 2k
users to 60k users and continuing to grow due to dominating SEO for
our niche. Recently my co-founder said they wanted to work on it
themselves. I said I didn't want to leave. They suggested I go down
to 3% equity and they continue. I said they would need to buy out
my equity at a fair price. My co-founder doesn't have the money,
and the business only has around $40k cash in the bank right now.
My co-founder also won't entertain the idea of raising external
money to buy me out, or monetizing the site right now. To me this
seems ridiculous as I'm literally just giving away my equity after
spending 11 months building the tech and growing the business.
Right now if we stuck adsense on the site, we'd generate $5k/mo,
and we have inbound sales leads looking to spend upwards of $40k
with us. Basically, the business is primed to make money. They
will not entertain the idea of me buying them out for cash. What
are my options here? It's basically being presented to me as "Take
the 3% otherwise you'll own 40% of nothing". I don't really want
any equity in the company at this point if I'm not involved.
Author : fortydegrees
Score : 236 points
Date : 2020-12-22 14:34 UTC (8 hours ago)
| jmkd wrote:
| Could you privately find a potential buyer for your 40%? Then
| tease that info and magically they may prefer to buy you out and
| suddenly find a way to do so...
| tyingq wrote:
| I'd say first things first. You have 11 months and a one year
| cliff. Find a way to stall for a month and your position gets
| much stronger. This is a great environment to find a way to
| stall. Tell your co-founder to write up a proposal so that you
| can have a lawyer look at it. That's easy to turn into a month of
| stalling.
| Justin_K wrote:
| Stand your ground. A judge will not look favorably on a
| "partner" that is trying to remove you a month before your
| cliff expires. Especially since you have driven massive growth.
| cwkoss wrote:
| As a new startup, I'd assume that the technical co-founder is
| doing a lot of maintenance and automation to keep everything
| running smoothly. Why not let something break, and then they'd
| have a stronger negotiation position?
|
| I can't imagine (but would be very impressed with tech co-
| founder) if a year old system could run without any maintenance
| for a month. Seems also unlikely that tech co-founder could be
| replaced fast enough to continue reliable service seamlessly. I
| don't think non-tech co-founder realizes that if tech
| disappears, it will kill the baby.
| seppin wrote:
| > Why not let something break
|
| These responses, my word.
| pc86 wrote:
| > _Why not let something break_
|
| Because this is the professional equivalent of shitting in
| your hand and throwing it at the wall?
|
| The fact that an adult would suggest abdicating any
| professionalism and just letting a site with 60k users and
| investment backing start to break to prove a point is
| astounding.
| cwkoss wrote:
| The non-technical co-founder is trying to steal the fruits
| of OPs labor and slash his equity by more than 90%.
|
| This isn't sabotage, it's a labor strike until an equitable
| agreement is found.
| hjek wrote:
| > This isn't sabotage, it's a labor strike
|
| Exactly. Big difference between _breaking something_ and
| _letting something break_.
| pc86 wrote:
| You can frame it that way if you want but it's just not
| true.
|
| OP has been doing X for 11 months, for free (well, for
| equity). Right now - today - he owns that equity,
| regardless of what his partner is asking him to do. If he
| _stops doing X_ what is his argument against his partner
| and the investor - who own 50-60% of shares - saying that
| he 's abdicating his duties?
| cwkoss wrote:
| "This is a complex technical issue, and I'm still
| investigating to find the right solution"
| pc86 wrote:
| "Lying to your investors is fraud."
| cwkoss wrote:
| As someone who has managed production systems before, I
| think there are very few situations where my statement
| would not be factual.
| spottybanana wrote:
| Well technically no contracts are broken? Calling it a
| theft is overblown, there is no theft happening if all
| contractual obligations are met.
| PragmaticPulp wrote:
| This is very bad advice.
|
| OP definitely should not do anything that might give the
| impression that they are abandoning their duties or,
| worse yet, actively sabotaging the company. That would be
| a dream come true for the other person's lawyers.
|
| If the OP wants to keep his equity, he needs to continue
| fulfilling his duties and demonstrate that he is, in
| fact, still working for the company.
|
| Please don't follow petty HN comment section advice like
| this. Not only is it unprofessional, but it can quickly
| turn into self-sabotage. Play it clean and don't give the
| other side ammo to use against you in court.
| momokoko wrote:
| The reason this is happening right now is because the other
| founder is well aware of that cliff and losing 10% going
| forward.
| tyingq wrote:
| Sure. This is essentially calling that bluff in a reasonable
| way.
| pdonis wrote:
| _> You have 11 months and a one year cliff._
|
| The OP said _reverse_ vesting, not vesting. He owns _all_ of
| his equity now. The company has the right to buy it back if he
| leaves; the 1-year cliff is when the percentage they can buy
| back starts decreasing from 100%.
| mooreds wrote:
| What does your founder agreement state? When I founded a startup
| we discussed how an exit would happen (for either party) and
| documented it.
|
| That's the controlling factor here, and of course HN has no
| insight into those docs. Depending on what legal jurisdiction you
| are in, you might have some other rights/obligations.
|
| Either way, please consult a lawyer who has helped clients
| through this kind of situation before. Preferably a local one.
|
| After doing so, you may want to reach out to the investor and
| make sure that your co-founder isn't controlling the narrative
| with them. Again, the lawyer probably has some advice on this
| approach.
| jl87 wrote:
| If the other person is smart they will:
|
| Get your shares for free or cheap
|
| or
|
| Start over and own the entire thing
| rutthenut wrote:
| Definitely do not sell / give away that shareholding. It may well
| become 40$ of nothing, but it could also become 3% of nothing or
| almost-nothing, and the co-founder will have been paying himself
| a return when the company gets revenue.
|
| I suspect there may be other personal/personality issues here and
| he may well like the idea of hacking alone on this, now that it
| appears to be viable. However, he has an agreement with you, and
| you made commitment, put in effort too. That's why you have a
| shareholding.
|
| Do not just give that up, unless he makes it worth your while
| 'now'.
| 23david wrote:
| Are you the CEO? And does your vesting agreement have any
| provision for accelerated vesting if your employment is
| terminated without cause?
| [deleted]
| nullc wrote:
| A stable 5k/month cashflow is worth maybe 1.5 million dollars
| flat. Ignoring the phenomenally unethical effort to part ways
| with you one month before the cliff, you rightfully own about
| 9.16% of that-- or on the order of 137k. You could argue that up
| and down based on risk and operating cost vs the potential to
| increase it, but I think that would be a fair starting place for
| the present realized value that I'd hope to negotiate from.
|
| Have you talked with your investor? They may be more sensitive to
| the consequences of their reputation being damaged due to ripping
| you off than your cofounder is...
| e40 wrote:
| If he owns > 50% he can dilute you to whatever he wants. But, if
| he owns less than 50%, then he'd need to get voting control to do
| it. Is that possible? Do you own enough to prevent it? If so, I'd
| just tell him you're not interested.
|
| If he controls the Board, then he can do pretty much anything. He
| can create more shares and give them to himself (that would
| possibly create tax issues, so he might not want to do that).
|
| Also, I'm curious how the stock is valued. Do you know that?
| f6v wrote:
| Don't give anything away, worth case - you've lost 11 month.
| People have been working for nothing longer than that.
| danielovichdk wrote:
| This is not sound advice nor is it mentally sober. But this is
| what i came to conclude.
|
| I once had a partner where we had a good business. After some
| years he fucked me.
|
| What matter to me is personal values and virtue, and even though
| he took a shortcut, i am going to catch him one day and make him
| understand tht history will catch up and he will be sorry he ever
| fucked me.
|
| I am not in a hurry. The longer time goes by, the more i am
| looking forward to the encounter.
|
| Money is not just money. It's also about being cool and having a
| good heart.
|
| Fuck em
| fallingfrog wrote:
| Call his bluff. He's trying to cheat you.
| tschellenbach wrote:
| I'm not a lawyer, but depending on where you live it might take
| more than 1 month for them to actually succeed at firing your.
| For instance if you live in The Netherlands it would take months
| to arrange that if you don't agree.
| taylortrusty wrote:
| Your co-founder likely has no ability to just kick you out. What
| do the documents you signed say? Is there an operating agreement?
|
| Who brought in the investor? Who has that relationship? If you're
| friendly with them, you could ask for advice or feedback. Do you
| have business mentors near you who can help you navigate this?
| g42gregory wrote:
| My advice: wait 1 month and then leave with 10%.
|
| As people mentioned, you don't want to stay because the
| relationship is broken. It's not worth your time.
|
| In terms of getting fired before 1 month is over, get an
| employment lawyer and talk this over with him. Most likely, you
| will have a case if they fire you just to save 7%.
|
| Get the lawyer first, before responding to your cofounder.
|
| If you think this business is going places, that will change my
| advice.
|
| In this case, get a lawyer and negotiate a higher % or assurance
| that you will stay at the company and continue to get vested.
| Maybe you will get more than 10%?
|
| Remember, investors/executive team will dilute you by issuing
| extra shares to the people who stay.
| barefeg wrote:
| Why does your partner not want to continue working with you? Are
| your views on how to continue opposite? I understand how you see
| this as unfair but it also doesn't make sense if he/she builds
| the product alone and owe you 40% for 12 months of work
| jiveturkey wrote:
| keep 40% of nothing. do not capitulate. you have the upper hand
| here, and an honorable position.
|
| 3% of nothing is nothing also. i'd go with 40%.
|
| it's absolutely ridiculous because the other founder isn't
| prevented from working alone because you hold 40%. the 2 things
| aren't connected. so just agree to sell all your shares in the
| next raise. then it's his choice: take on debt now to buy you out
| (cheap) or pay later (expensive). the latter is likely far, far
| too expensive so more likely you can only sell half your stake in
| the next round.
|
| EDIT: it has occured to me that you are only 11 months vested.
| this is a bait and switch. make their lives hell, even after and
| if you get to keep 10%. he probably can't fire you so you'll just
| keep vesting. make it very clear you will make it impossible to
| fundraise unless he buys you out.
| Dumblydorr wrote:
| Negotiate up to 6%, get feedback, stay polite, then on to the
| next venture. If they're acting this way, I don't think the co-
| founder is worth the massive risk you'd be wasting another few
| months.
| dustingetz wrote:
| The problem with your ask is that early stage capital is for
| growing the business, not liquidating founders, and investors are
| not interested in giving anyone cash to liquidate a founder.
| Additionally, your valuation is currently underwater and even
| that is assuming a functional founding team.
| [deleted]
| jiveturkey wrote:
| It's not OP's ask!
|
| Please explain more what you mean about the valuation being
| underwater. I don't understand how that is, nor how that is
| even possible.
| defen wrote:
| The investment was at a $1 million valuation and the company
| currently has 40k cash + allegedly, the _possibility_ of 60k
| /year from ads. Unless there is significant growth potential,
| the net present value of the company is much less than $1
| million.
| [deleted]
| basseq wrote:
| Since you have a 1-year cliff and have only been there 11 months,
| sounds like as of today you have 0% equity. So the immediate
| question may be whether your co-founder can fire you.
|
| In 1 month, you've vested 25% of your grant, or 10% of the
| company. So I would try to get to that mark to strengthen your
| negotiating position. Any references to 40% are red herrings at
| this point.
|
| Unless there's a specific buyback clause in your stakeholder
| agreement, they're under no obligation to buy you out at any
| time. (They may have the _right_ to do so. That 's not uncommon.)
|
| Of course, you're under no obligation to resign, either. So this
| is a negotiation.
|
| So the way I see it, you have a few options:
|
| 1. You take your 10% and leave. You "don't want any equity", but
| better something you don't want than nothing.
|
| 2. You agree to a buyback, potentially at a discount to FMV. If
| you don't know what FMV is, it's hard to negotiate one way or
| another. It's v. likely not $1M. Sounds like this is a no-go.
|
| 2B. You agree to a non-cash buyback, e.g., in IP. You spent 11
| months building the tech: what if you took that with you?
|
| 3. You flip the script and buy your co-founder out.
|
| In any case, your relationship is over. You might walk away with
| nothing.
| clarkevans wrote:
| 10% might be a good target from another perspective -- the
| investor put in 100k to get to 10% -- is that about how much
| "sweat-equity" that the OP has put in? Alternatively, just
| pretend the vesting was happening monthly.. how much is that
| 9.16%? The surviving founder does need enough incentive to
| continue. The OP should make sure it is hard equity of the same
| class as the investor's shares, where there are tax liability
| distributions and other preferences. If the OP is before the
| vesting cliff and your co-founder is fixated 4%, then perhaps
| think about the balance as unpaid sweat equity, disbursed as
| deferred compensation at a reasonable interest rate, as a
| percentage of revenue, to be paid off before co-founder raises
| their owner draw? Critically, the OP should assume best intents
| and look for win-win situations. Finally, seek competent legal
| advice!
| robocat wrote:
| > the investor put in 100k to get to 10% -- is that about how
| much "sweat-equity" that the OP has put in
|
| Another way to look at it: their sweat equity is more like $1
| million e.g. $100k "time" invested with a risk of success of
| 1 in 10 means you need to get $1 million out to be "even"
| (ignoring Kelly Criterion).
|
| Obviously there is some Bayesian that goes on now that there
| is more information, but it seems like it has a better chance
| of success than when it started, which makes numbers more
| difficult to calculate than complete failure ($0).
| tptacek wrote:
| I think people should be careful with the "seek legal advice"
| thing. Obviously, you need to talk to a lawyer. But:
|
| (a) You need a lawyer who deals with this kind of stuff
| regularly and has a realistic and well-informed view of what
| the outcomes are going to be. Most lawyers aren't like this.
|
| (b) Legal gets expensive very fast, especially as it
| transitions from advice to negotiation and document review.
| At this scale of opportunity (the way the company is
| described), I'd stick to get getting advice!
|
| (c) Past the "can I be fired" question, which I agree is
| urgent (and probably predictable), a lot of the negotiation
| here isn't going to be about the law so much as it's going to
| be about what both sides are willing to accept. If you have
| friends who have been in founder disputes like this, their
| input is going to be just as valuable as the lawyer's.
| gojomo wrote:
| Agree completely that poster would want the right kind of
| lawyer - someone who specializes in this kind/scale of
| business, and that reaching out to acquaintances/etc who've
| been in relevant situations may be as valuable or more than
| legal advice.
|
| Agree also that lawyer-billing-on-the-clock gets expensive
| fast. But unless poster already has a go-to trusted counsel
| - which seems not to be the case - the mere act of
| "shopping around" can get 15m-1h of unbilled pre-engagement
| discussion from a bunch of lawyers. Essentially, poster
| could type up a 1-2 page brief, in more confidential detail
| than the post here, and have _dozens_ of short
| conversations with lawyers (some of which would read the
| brief 1st) about key issues, tactics, & potential
| outcomes. The contrasts between what lawyers say, & what
| they ask about, will be as informative as any one
| conversation.
| [deleted]
| pdutt111 wrote:
| So you have every leverage in this scenario.
|
| > if he fires you that's wrongful termination(there's no
| performance issue until right before cliff). you can sue in that
| scenario
|
| > I'm guessing you have a board seat too. he doesn't have 51%
| voting rights so he probably needs the investors to side with him
| to oust you for which he needs a legitimate reason. (title of CEO
| doesn't really matter all that matters is the voting rights
| you're not an employee).
|
| > if there's a law suit and dispute between founders no investor
| will touch the company with a 10 foot pole, so if he goes for a
| fight he loses everything.
|
| > there's no reason to go down to 3% when you own 10% next month.
| and people think of 10 idea everyday all that matters is
| execution and if you wrote the code and gave around a year of
| your life that's worth around 100k for an entry level engineer so
| I'd say you put in more than the 10k he put in.
|
| > finally you have the code and you can tweak it and make it
| open-source there's no IP laws protecting code so at that point
| he owns nothing.
|
| > honestly the company is done, the investor is neutral cause
| he's already written the company off and I would say this is the
| point of no return no matter which side this goes the chances of
| running the company are rather slim.
|
| > the reason he doesn't want to monetize it is because he was
| probably planning on doing this to you, it'll be much harder to
| do it if the company is making money if you get out he'll
| monetize it the next day
|
| I'd stick to my guns and tell them if they don't buy you out then
| the company is dead. The only scenarios are - 1. he buys you out.
| 2. lets your equity remain ( he probably can't fire you ). 3.
| company goes down
| kesor wrote:
| You can keep holding the stock and every couple of months demand
| a dividend payout from the company revenue.
| yding wrote:
| Talk to a lawyer.
| droobles wrote:
| ^ This
| [deleted]
| justinzollars wrote:
| ^^^ agree.
| jacquesm wrote:
| Talk to (1) a lawyer, and (2) the $100K investor. Because when
| capitalized that loan will quite probably tip the scales as long
| as they agree with you to a > 50% stake in the company.
| bredren wrote:
| Just propose something you can largely feel comfortable with, but
| also gives the other founder strong incentive to continue, and
| won't hurt future raises.
|
| If necessary add hooks into revenue and a framework for a future
| buy out.
|
| But def don't waste time around someone who doesn't want to work
| with you.
| codethief wrote:
| > We were 51/49% to them and took a small round of pre-seed
| funding (~$100k) so our cap table is approx 40% for me and co-
| founder, 10% option pool and 10% investor. We have very standard
| shareholder agreements for 4yr reverse vesting with 1yr cliff.
|
| Could anyone tell me what this means in plain English
| (preferably, ELI5)? I have no idea what term sheets look like in
| detail but I would really like to learn.
| joeblau wrote:
| It's a breakdown of the ownership of the company
| Op - 40% Co-Founder - 40% Option Pool - 10%
| Angel Investor - 10%
|
| - The option pool for new hires means that if you're one of the
| first employees, your equity will come from that option pool.
| You may get 1% as an early engineer or 3% as an early executive
| for example.
|
| - The investor owning 10% of the company means that they think
| the company is worth $1,000,000 right now. ($100,000 x 10)
|
| - The 4yr vesting with 1 year cliff means the Op gets 1/48th
| ownership of the company every month over the course of 4
| years. BUT BUT BUT they only get the first 1/4 (12/48th) until
| they have been at the company for at least 1 year. If the Op
| leave before 1 year, they get nothing.
| teabee89 wrote:
| The company's ownership is divided in shares, also called
| equity. A cap(italization) table details the distribution of
| equity. In this example, 40.8% (= 51% * 80%) for founder 1,
| 39.2% (= 49% * 80%) for founder 2 (assuming it's OP), 10% for
| investor and 10% for something called options that may be
| granted in the future to new employees that allows them to buy
| shares of the company at a low price. 4-year reverse vesting
| with 1-year cliff means that if one of the founders leaves
| before 1 year of signing the contract, they are forced to sell
| at no profit (still, not $0) the entirety of their shares to
| the other shareholders. After 1 year of staying at the company,
| they may keep 1/4 of their shares and are forced to sell only
| the rest. Following that 1 year mark, they earn the right every
| month at the company to keep ~0.833% (= 40% / 48 as there are
| 48 months in 4 years) of their shares and forced to sell the
| rest. At the 4 year mark of staying, they are no longer forced
| to sell any of the initial set of shares. It does not apply to
| any future grants for which new conditions or new schedules may
| apply.
| exacube wrote:
| IIUC:
|
| OP is set to own roughly 40% in 4yrs -- 10% at the end of the
| 1st year (i.e the "cliff"), and the rest of the 30% across the
| remaining 3 years (probably more often than once a year). the
| "reverse vesting" means that everytime OP vests, OP's cofounder
| has the right to buy off the newly vested shares. this means
| that OP would get money but lose ownership if their cofounder
| chose to bought off the shares.
|
| OP has been working 11 months so far and is approaching the 1
| year cliff (so set to own 10%), so now their cofounder wants OP
| to leave the company and take only 3% ownership, and is
| threatening to leave and abandon the company risking any value
| at all. Presumably, cofounder also has the right to fire OP
| though OP hasn't stated anything about this.
| kfrncs wrote:
| Sounds like you need legal advice from an experienced business
| lawyer.
| markhelo wrote:
| What about the third option which is you building 100% of a
| competitor who knows how everything works and can compete
| effectively?
| andjd wrote:
| Hey. As a former lawyer, I'm going to echo the many comments in
| this thread to consult a lawyer. If you find a good one with
| relevant experience, it should only take a few hours at most to
| properly understand the exact situation you are in and know your
| options. Your rights could vary drastically based on the
| specifics of the company and the employment/equity agreements you
| entered into, in addition to where you and the other founder are,
| and where the business was incorporated or registered. If there
| aren't formal agreements to this, but you have emails or other
| documentation that's short of a formal contract, that can also be
| relevant. Regardless, the co-founder and the investor owe you, an
| equity holder, a fiduciary duty. The threat to tank the business
| if you don't surrender most of your equity is a pretty cut-and-
| dry breach of that fiduciary duty, and you are fully within your
| rights to demand relief, which could be monetary, but could also
| be equitable, such as requiring your co-founder to relinquish
| control of the company, or to transfer ownership of the company's
| source code, domains, and IP to you. Whether any of this relief
| would be practically available to you would require expert legal
| advice and would depend highly on the specifics of your
| situation.
|
| To others in this thread, if you're looking to join a startup as
| a technical co-founder like this, 'We have very standard
| shareholder agreements for 4yr reverse vesting with 1yr cliff.'
| is not standard in the same way it is for other early employees.
| In this situation, your equity should be in real shares from the
| get-go, not options that vest over time. You should also have a
| partnership agreement or similar document that outlines how
| board-level decisions are made, and for a business with a few
| mostly-equal owners, such decisions should typically require
| consensus of the owners, even if one person controlls 51+% of the
| equity. This is the most reliable way to protect your interest in
| the business, and this is what true co-founder status looks like.
| If the O.P. had asked for this before signing on, my guess is
| that the co-founder would have balked, and the O.P. would have
| known from the get-go what the dynamics would be, and could have
| walked or insisted on a higher salary to reflect the fact that
| he's being treated like an employee not a business partner.
| wpietri wrote:
| I strongly agree. Find a lawyer, find a lawyer, find a lawyer.
| To the OP, if you're in California, I'm happy to recommend
| mine. Adam Slote of Slote Links and Boreman, slotelaw.com. 20
| years back somebody was trying to screw me over; he charged me
| $500 for a solid "don't fuck around or you'll regret it"
| letter. They paid up instantly. Since then he's been great a
| dealing with my startup stuff both as an employee and as a
| cofounder. And much of his work is in litigation, so if you do
| end up suing, he's the right person for it.
|
| I also agree that the 1-year cliff is absolutely not standard
| for founders. Last time I did it, I had a 4-year reverse vest
| with no cliff at all.
| pdonis wrote:
| _> your equity should be in real shares from the get-go, not
| options that vest over time_
|
| The OP said _reverse_ vesting. Doesn 't that mean he _does_ own
| all his shares now? The company just has the right to buy them
| back if he leaves (and the cliff is when the percentage they
| can buy back starts decreasing from 100%).
| jashmenn wrote:
| Sorry to hear you're going through this. I went through something
| similar and it wasn't fun.
|
| As much as you have shareholder agreements etc. none of that
| matters too much if the business fails and so it's basically
| about what the two of you can negotiate.
|
| In my case, I've paid off a former business partner much like a
| loan. You can negotiate all sorts of parameters on this: monthly
| payments, grace period, cash triggers, funding triggers etc.
|
| Basically you set a valuation for the business (at least as set
| by the price of the round of the last investor, if not more
| because of growth) and then he buys your ownership.
|
| Idk what "reverse" vesting is, but if you had normal vesting it
| sounds like your 49%, after the 1 year cliff, would be worth e.g.
| 12%. So you can either keep that 12% or if he wants to buy you
| out he could pay you your 12% vested * last valuation * growth
| factor.
|
| It sounds like it's not going to work for the two of you to work
| together, so now it's just about negotiating the details before
| the conflict kills the company
| fortydegrees wrote:
| This seems like the most realistic and likely answer. My co-
| founder hasn't really been budging so far and I feel like they
| don't fully understand the situation. They think that because
| it was their idea that they are entitled to a lot more than me.
|
| One issue for me is that I don't have that much faith in them
| being able to execute on the company vision by themself, e.g.
| they don't want to monetize right now or do a revenue split for
| reasons I'm unclear about, which makes the practicality of
| monthly payments tricky.
| sjg007 wrote:
| Have them pay you with a loan and then start a competitor.
| rexreed wrote:
| Take it from me, a negotiated buy-out is the way to go. I had
| to buy out a former partner and negotiated a payment over 12
| months. It worked out for everyone.
|
| Current valuation should be valuation at the time of the
| investment multiplied by a small growth factor (1.5x
| perhaps).
|
| Your stake is the amount you would have owned as of the first
| cliff (and not any sooner), which is 10% after the investment
| round.
|
| if the company was valued at $1M at investment, then it would
| be worth maybe $1.5M at time of the 1yr cliff given the
| growth factor.
|
| Your 10% of that is $150,000. The company should pay you
| $12,500 per month for 12 months to fully buy you out. And the
| company should time the payments to reduction in your equity.
| If they speed up payments, it speeds up the buy out. If they
| slow it down, it slows down the buy out.
|
| You should also renegotiate any non-compete.
| jsonGobbler wrote:
| It sounds like he's trying to push you out before it blows up.
| Don't sell. If you end up with 40% of nothing hit me up. I'm a
| full stack entrepreneur who can build and sell.
| jedberg wrote:
| It sounds like you and the investor together control more than
| 1/2 the shares. Is the investor a friend of your cofounder or
| more neutral?
|
| If they're a neutral party, it might make sense to get them
| involved, or at least threaten to get them involved. You and your
| investor could potentially vote out your other cofounder, and
| knowing that might make your cofounder change their tune.
|
| On the flip side, if the investor is a friend of your cofounder,
| be aware that they have a lot of leverage here and could vote
| _you_ out.
| krrrh wrote:
| There's a good chance that the seed investment was made via a
| SAFE, which means the investor doesn't yet own shares, just
| convertible debt.
| wolco2 wrote:
| Use your time to find his weakness and leverage your way out of
| this.
| viztor wrote:
| Growth from 2k to 60k is an important tipping point.
|
| There should be a buyout at this point. Valuation based on income
| result in 5k * 12 * 15 * 40% = 360k, which should be a fair
| price. valuation based on funding would be around 400k, which
| would be similar.
|
| You can have that written down as a contract, not necessarily
| direct cash payment, but cash payable, and have your co-founder
| to sign as guarantor, which would not be a bad price for him, and
| not a bad price for you too. Deduct the 3% if you want.
| dxhdr wrote:
| PE of 15 is unrealistic; 2 to 3 for an unproven business at
| that scale is what you would likely receive when pursuing a
| sale.
| godmode2019 wrote:
| Visit a lawyer, this is the point in legal agreements. There is a
| thing called court that, no one wants to go to courts its time
| consuming and expensive.
|
| Also talk to the investor, I'm sure they would rather not see
| their 100k be worth nothing because of a founder breakup.
|
| Don't take any bad offers, you don't have to sell.
|
| On the other hand if you are the one that is worth firing and you
| know this, do the honourable thing.
| weeboid wrote:
| Seriously? If you are asking these questions, your understanding
| of the binding contracts belies the casual verbiage in your post.
| So which one is it?
| andrewstuart wrote:
| Why should you say anything except "no"?
|
| You own that equity even if you are not employed there.
|
| Hang onto it ..... there's no reason you should be bullied out of
| it.
|
| I've seen this situation come up a number of times. It's just
| bullying.... there's no legal reason for you to give up your
| stake.
|
| Go watch "The Social Network" movie.
| DoofusOfDeath wrote:
| Is it possible to play the long game? I.e., before your partner
| tanks the business, lay the groundwork for you alone to rebuild
| it from the ashes.
|
| E.g., make sure you have copies of all the source code, and any
| other intangible assets. After the business tanks and he too is
| short on cash, buy out all claims he has on those assets, and
| restart the business?
|
| Also consider including your investor in the planning. He/she
| might be more willing to help you save the business at your
| partner's expense, if the alternative is losing their entire
| investment.
| [deleted]
| jariel wrote:
| This is a terrible situation because you're probably working with
| a really terrible founder.
|
| Even if you end up holding on to the 40%, it's likely they'll try
| to screw you hard in the future so be wary of that.
|
| If it's possible in the very, very nicest of indirect terms make
| sure they know they can get sued for these kind of shenanigans
| and it will ruin the company.
|
| Long term though, it's hard to say, because they'll aggressively
| want to take everything.
|
| Also: get a lawyer. (I should have said that first)
| ockco3je wrote:
| Hold out. Keep working and keep proof you are working and do what
| is required to keep your stake. Don't give them anything that
| could be used to justify firing you or the upper hand in any
| legal battle. Keep any evidence of them violating the contract.
| Try to get the upper hand in any negotiations. You'll get a
| better deal at the very least
| ockco3je wrote:
| Sorry you had this happen to you. I had something similar just
| when the startup looked like it was going to take off the other
| co-founders tried to shake me down for my shares, threaded me
| with complete theft of my shares if I didn't accept some
| insulting, contract breaking amount. The company went on to do
| unsuccessful ICO scam and things worked out well for me getting
| out
| LarvaFX wrote:
| "Work on it yourself; I'm keeping my equity".
| [deleted]
| tptacek wrote:
| Lots of really bad advice on this thread. Something to keep in
| mind is that people venting about how unfair this is and how you
| shouldn't give an inch as a matter of principle are writing that
| to gratify their own emotions more than they are honestly trying
| to help you in this situation.
|
| You need to talk to a lawyer, strictly to figure out, given the
| structure of the company, what your partner has the authority to
| do. It sounds like they have an edge in ownership and are likely
| set up as the firm's CEO, in which case it's very likely that
| they can sever you from the company.
|
| You can probably get a cost-effective answer to that question,
| especially if you're willing to accept the most straightforward
| answer (ie, if you're just using the lawyer as a sanity check,
| and not tasking them with pursuing weird theories of why you'd be
| impossible to fire). You probably _cannot_ get cost-effective
| answers to the rest of your questions from a lawyer; be prepared
| to sink 5 figures into legal, speculatively, to pursue anything
| past that. On the firing, figure high hundreds of dollars. On the
| equity negotiation, figure $10,000.
|
| At 11 months in to a 12 month cliff, you are going to get 0 if
| you're terminated. Maybe you can slow roll past the cliff?
|
| Even if the paperwork is locked down on their side, your partner
| is likely going to offer you that 3% just to avoid the drama;
| your argument may be doomed legally, but you can easily inflict 5
| figures of legal expense on them. So there's a negotiation here.
| It may be that as soon as you start to sound reasonable --- not
| asking to assume control of the company yourself, not expecting
| to walk away with all your shares vested --- they quickly become
| amenable to improvements in the deal, just to get this over with.
|
| While you think this through, remember that it is also very early
| in the life of this company to have a departed founder with a
| huge equity stake. A lot of reasonable people in that situation
| would just wind down the company and restart it; why plow forward
| while encumbered the way they are now? You're (justifiably)
| thinking about the 11 months you just spent, but if the company
| has legs, those 11 months are not much compared to the
| person/years that are going to be invested down the road.
|
| Nobody is going to raise money to liquidate your position in the
| company.
|
| Nobody is going to court. Lawsuits that actually get litigated
| take years and cost more money than anybody in this story have.
|
| It also doesn't seem realistic to expect investors at this stage
| of the company to buy out your partner. How would that even work?
| You'd end up working for the investor. Probably nobody wants that
| outcome, including the investor, but also: with the low revenue
| you're talking about, your investors are unlikely to waste their
| time.
|
| I've been a party to some similar situations and my advice is
| just to keep things simple. A good mental model of the legal
| services you have available here is a complicated divorce: only
| the lawyers win, and they know it. Your time is worth a lot, and
| dragging this out will eat a lot of your productive time. You
| suggest downthread that you're not all that interested in the
| equity and think your partner is going to fly the company into
| terrain. I think you answered your own question with that. You
| can fight a little bit, especially if it makes you feel better,
| but it sounds like you'd be kind of crazy to fight a lot.
| tus88 wrote:
| > What are my options here?
|
| Maybe you should be asking, what are _their_ options? They can 't
| force you to give away something you own.
| hluska wrote:
| You have some options:
|
| 1. Hire the best lawyer you can afford. This is easier said than
| done because there are relatively few lawyers who are qualified
| to do this kind of work. The ones who are qualified will be very
| expensive and unless I'm missing some key details, I don't think
| you have much chance of coming out of litigation with a profit.
| You might come out with a W, but I don't think it will be worth
| the cost.
|
| 2. Assume that this startup is fucked, leave and keep a good
| relationship with the seed investor.
|
| 3. Assume that this startup is fucked, stall for a month until
| you actually own stock and then you have some leverage. BUT,
| depending on where you live, you may/might/likely will incur a
| tax liability on those shares. If you already assume that the
| startup is fucked, talk with an accountant to figure out what
| this strategy will do to your 2020 taxes owing.
|
| 4. Assume that the startup is fucked and name the company/your
| cofounder. It would be damned nice to avoid this toxic piece of
| shit in the future.
|
| Outside of those options, I don't see any other good choices.
| hvaoc wrote:
| You got nothing to lose all on your own (except time wasting with
| this person), but if that's worst enough. You have two options
|
| 1. 40 % of Nothing, other part gets the same deal. 2. You get 40
| % of whatever this business is worth for. The other party gets
| the same.
|
| You lose together or gain together. That's a fair game in a
| Startup as founders.
|
| Don't accept anything else, if you do they just managed to
| bulldoze you out of your equity.
|
| Stand for fair deal.
|
| Don't get bullied by these negative tactics.
|
| Remember "Two broccoli or Four broccoli" from your mother. - Call
| the bluff and fake dichotomy of choices. I would say - No
| Broccoli.
|
| Meantime, keep everything documented and be professional - do not
| let them have any choice to get you out.
| rexreed wrote:
| Why do so many people on this thread not understand how a one-
| year cliff works?
|
| The OP _already_ has 40% of nothing. He has to earn that 40% over
| 4 years but if he leaves within the first year he gets nothing.
| All he has within the first 12 months is the promise of
| potentially 40% of something if he sticks around for 4 years.
|
| But honestly, as the lawyer in this thread said, this was a
| crummy deal from the get go. FOUNDERS (rather than employees)
| should get Founder shares, which are immediately vested. There
| can be conditions for "claw back" which allow the company to buy
| back / vest back shares for an early departure, but founders
| shouldn't have to "earn in" their share into a company that they
| start. After all, they started it. It's an odd idea indeed if all
| the founders have a 1-yr cliff because then in the first year no
| one technically owns anything!
|
| When they say "otherwise you'll own 40% of nothing", it's not
| even clear what they mean. Do they imply that they will dissolve
| the company and form a new one without you leaving you to hold an
| empty shell company?
|
| At best you can argue for your 1 yr cliff value, which is 10%.
| You're not in the position to negotiate between 40% or 3%. You
| can only negotiate between 3% and 10% because there's no way
| you're going to earn the 40% over 4 years.
| pdonis wrote:
| _> He has to earn that 40% over 4 years but if he leaves within
| the first year he gets nothing._
|
| The OP said _reverse_ vesting, not vesting. AFAIK that means he
| owns 40% now, but the company has the right to buy it back if
| he leaves. The cliff is when the percentage the company can buy
| back starts decreasing from 100%.
| friedman23 wrote:
| You own 40% of the company, tell him to sod off it's as much
| yours as it is his
| samfisher83 wrote:
| Everyone here is saying hire a lawyer. If OP actually has to go
| into litigation, It seems the cost of a good lawyer > value of
| the company.
| protomyth wrote:
| Lawyers are very useful before and often prevent litigation.
| tootie wrote:
| Ask for a fair buyout in the form of an IOU. They can pay it when
| they have more cash or default when they fold. You've locked them
| in to sticking with the work that you have done by dint of the
| SEO juice. If they want to reap the benefits of that, they have
| to compensate you commensurate to what was agreed.
| evanwolf wrote:
| Debts are usually paid before equity in bankruptcy, maybe even
| in an acquisition.
|
| but, seriously, get a lawyer.
| Foober223 wrote:
| Your co-founder wants to profit from 11 months of your life and
| leave you in the gutter. 11 months is about 2% of your entire
| adult working life.
|
| Don't give in to anything. The guy is a crook.
|
| He should have proposed the paltry 3% _before_ you dedicated 11
| months of your life on the business.
|
| At the very least he should offer to pay you a market salary for
| the 11 months you worked. He could take out a loan to pay you.
| mattmaroon wrote:
| You need to talk to a lawyer, not a bunch of internet randos.
| Ignore literally everything else you read here. The lawyer is
| going to need to see your contract with the company and look at
| applicable case law to advise you here.
| hedgehog wrote:
| Find two people to advise you, an attorney and someone with
| founder or angel experience. Gather up copies of all employment
| agreements etc + directly related correspondence for them to
| review. Don't sign anything, don't discuss this issue more with
| your cofounder until you get advice. Also don't read too much
| into anonymous internet commenters who don't know the details of
| your situation. You can be fired but you have some leverage
| because this kind of dispute is a red flag for any prospective
| investor. Feel free to e-mail me.
| dwt204 wrote:
| They are bluffing. Keep negotiating until you get what you want.
| guytv wrote:
| If you're willing to buy out his share, I would approach the
| investor, explain the current dead lock, and get his support to
| force your partner to do a BMBY (Buy Me Buy You), where you offer
| him a price per his shares, which he either accepts or have to
| pay the same sum to you and buy your part.
| jtchang wrote:
| This is commonly referred to as a shotgun clause.
| fortydegrees wrote:
| I can't imagine my co-founder accepting this as they don't have
| the cash to buy my shares, so they would be forced to sell?
| rutthenut wrote:
| Well that's the situation the co-founder is creating by
| making these unreasonable demands...
| sbinthree wrote:
| Agreed with this. Retain your own counsel and do this.
| gwbas1c wrote:
| I think this works if fourtydegrees has some bucks in the bank.
|
| Reading between the lines, I suspect fourtydegrees is young and
| doesn't have the kind of money to do this.
|
| (I also suspect that lawyers may be out of fourtydegrees'
| budget.)
| fortydegrees wrote:
| Suppose I did have some bucks in the bank and did get a
| lawyer - how would they help? So far my co-founder has been
| pretty unreasonable with regards to compromising and/or
| negotiaton.
|
| The investor so far has also been very neutral and I think
| will remain so.
| sage76 wrote:
| I have worked with lawyers. Once litigation is threatened,
| everyone suddenly loses all the neutral stuff and becomes
| reasonable.
|
| If you can afford it, find a good lawyer.
| wpietri wrote:
| 100% true. The non-technical cofounder is doing this
| because he thinks he can get away with it easily. The
| investor will go along because he's in it for the money.
| Involving a good lawyer makes it clear that you won't go
| down without a fight. A fight that could destroy the
| business. It's amazing how reasonable people can be when
| they realize that it's in their best interest to be
| reasonable.
| gwbas1c wrote:
| Basically: Were you negligent?
|
| Assuming you weren't, it's very strange to force someone
| out right before their equity vests.
|
| Basically, your lawyer can understand the situation better
| than an internet message board can. Then, a phone call from
| your lawyer to your co-founder could help make your co-
| founder become a lot more reasonable.
| folkhack wrote:
| > it's very strange to force someone out right before
| their equity vests
|
| If the business-minded folk don't fully value the tech
| solution I can easily see this happening. This "devil's
| advocate" hypothetical is not an unheard of occurrence.
| gwbas1c wrote:
| Which is where the lawyer can help.
|
| If this is the case, (and we don't know the details,) it
| means that the other founder was acting in bad faith.
| Hopefully the threat of a lawsuit is enough to solve the
| situation.
| Kalium wrote:
| That was my thought. This is exactly what you would do if
| you thought you needed a little tech work up front but
| that it wasn't actually all that important to the future
| of the thing.
| fizx wrote:
| The typical tech lawyer has seen this exact scenario ~20
| times. You probably have some leverage, and spending $1-2k
| to figure out how much and how best to apply it, given the
| lawyer's experience, makes tons of sense.
| ufmace wrote:
| Exactly what you should do depends on a lot of details
| about exactly what your business setup looks like, what
| your personal situation is, and what the other parties to
| the situation think. Way more detail is needed than you'd
| provide to any of us internet randoms. A good lawyer who
| understands these kinds of contracts is somebody you can
| actually give all of the important details to and who can
| give you accurate advice for your situation. This is not a
| good time for some weird quirk of your contract or any
| related laws to surprise you. If your co-founder is being
| unreasonable, you need to know what your escalation options
| are, and you may need to communicate that you are prepared
| to execute on them promptly if they don't give you what you
| feel is a reasonable deal.
| notahacker wrote:
| Whilst the investor might consider that taking sides in
| personal aspects of the dispute looks unprofessional and
| might not see your compensation as a priority, surely the
| only way they could actually be truly 'neutral' on the
| future of the business is if they've already written the
| investment off as a bad one. (Which in itself would be
| useful to know)
|
| Otherwise I would expect them to be (i) interested in
| ensuring the underlying tech was maintainable in future,
| which if nothing else might result in more reasonable
| earnout possibilities for you and (ii) concerned that one
| of the founders apparently wishes to cut others out of the
| business to turn it into his personal cash cow,
| particularly if the other founder is the one with
| monetisation ideas.
|
| It's not guaranteed that the investor is your friend
| (another possibility is that replacing you and taking the
| business in a different direction is something they quietly
| encouraged) but I wouldn't expect them to be 'neutral' on
| whether the business has a chance of generating them a
| return or not.
| digitaltrees wrote:
| It feels like there is something not being said. Your cofounder
| just randomly woke up and said you should resign? Nothing
| triggered it, no prior conflict, no warning? Seems odd to me.
| kevinstubbs wrote:
| @fortydegrees, if you would make $5k/mo with Adsense, then you
| can make $10-40k/mo if you worked with my company instead.
|
| I'm not sure if that helps your leverage with equity negotiations
| or raising external money, but it will definitely help your bank
| accounts.
|
| My link's in profile.
| [deleted]
| tmakks wrote:
| Get a lawyer or at least someone who deals (talks) with them,
| asap, you are in a war.
|
| Important question: If they gave notice today would the notice
| period "help" with staying longer than 1 year and hence, not
| falling into the 1 year cliff?
|
| All further advice depends on above question, so once we know the
| answer we can give proper advice.
| mooreds wrote:
| Can't emphasize this enough. This is a year of your life.
|
| Find someone with a fiduciary duty to you who has seen this
| before.
| jpm_sd wrote:
| A year isn't such a long time, in the grand scheme of things.
|
| This company sounds pretty doomed, regardless of the outcome
| of this conflict. Take lessons learned, cut and run.
| mooreds wrote:
| I think the OP should investigate how much time and effort
| it will take them to get the first vest (or an equivalent
| agreement). Then they can make an informed choice.
|
| I agree that the partnership is wrecked and that he should
| walk away after determining if they can get the 10%
| ownership (heck, maybe the right number is 3% or 7% or
| something else, only the OP knows what feels least wrong).
|
| But it's not clear to me that the company is doomed (from
| the little we know). In fact, it sounds like it might do
| great.
| boulos wrote:
| Everything is a negotiation. But you'll probably need an employer
| to push for that. Firing you just before your cliff is obviously
| not a particularly defensible action.
|
| More importantly, your last statement ("I don't really want any
| equity in the company at this point if I'm not involved.")
| suggests you don't want the most obvious settlement: you retain
| your equity plus some acceleration (since you aren't leaving on
| your own terms, it's standard to request more than your currently
| "vested" amount).
|
| You can't likely "force" them to pay you for those shares above
| the price you paid, unless you have another buyer willing to do
| so.
|
| Like others here, I'd suggest you involve your investors and
| almost certainly a lawyer (assuming you think that would even be
| worth it).
|
| I can't tell if you want to take over the company (you buy them
| out), you want them to buy you out, or you want to walk away. Do
| you have a clear preference?
| rat9988 wrote:
| Do NOT sell. keep 40% of nothing, matter of pride first and for
| all. Secondly, they are more than likely bluffing. They don't
| want to put advertising that would generate 5k/mo means they are
| trying to make things look artificially worse so you leave and
| keep the rest for themselves.
|
| Don't fall for the 40% of nothing once you are close of making
| money. They just don't want to share the pie.
| phkahler wrote:
| If it really were 40 percent of nothing, the other party
| wouldn't want it so bad ;-)
| gabereiser wrote:
| This. 100% this. No sell, no deal, that's not in the
| contract...
| mywittyname wrote:
| Try turning the tables and offering _them_ a buyout.
| g051051 wrote:
| OP said "They will not entertain the idea of me buying them
| out for cash."
| mooreds wrote:
| Unfortunately it doesn't sound like an option:
|
| > They will not entertain the idea of me buying them out
| for cash.
| gojomo wrote:
| That's a negotiating position.
| chris_wot wrote:
| Then they are in lots of trouble, assuming the OP has a
| rock solid legal agreement...
| phkahler wrote:
| Then they have established a lower bound on the value of
| their shares.
| gabereiser wrote:
| Bingo! Now you know it's BS. This really sucks. It's not
| a good place to be. The fact that they won't take a
| buyout from you means they are pulling a fast one and
| someone probably said "You know, it would look better if
| it was just you" somewhere down the road.
|
| Don't sell, don't give, don't walk away. Stand firm. This
| was a binding agreement _they_ can't get out of. You have
| all the power here. You know you have something. They
| have established a lower bounds on its value. It's way
| more than 40% of 400k.
|
| Best of all. Don't let your customers know it's founders
| are going through this. It's obvious, but make sure you
| keep your cool and composure. It will pay off in the long
| run.
| whymauri wrote:
| >the other party wouldn't want it so bad ;-)
|
| Value to a founder does not imply value to the market.
| jacquesm wrote:
| Agreed. And also: if you give up that 40% then for sure there
| will be a play to give up the rest.
| [deleted]
| dheera wrote:
| Hmm... a few objective points here:
|
| - If OP keeps 40% and doesn't do work for the company, the
| company is highly unlikely to succeed. The company needs to be
| able to dish out equity to future employees and likely
| investors to succeed, and having 40% locked up in an entity
| that doesn't do anything for the company is not going to be
| attractive to those future participants.
|
| - If OP keeps any equity, they should be doing it with the hope
| that the company succeeds, so that the equity will be worth
| something. Don't keep equity to spite your co-founder. It's not
| going to benefit you in any way if that causes the company to
| fail and your equity ends up being worth $0.
|
| - If OP wants a fully cash deal, it's not realistic if the
| other co-founder doesn't have a ton of personal cash (most
| don't). Raising a round to buy out a co-founder at 40% of
| valuation isn't something ANY investor is going to want to do.
| That's almost half of an investment thrown in the trash, from
| their perspective, and they'd probably rather invest in a less
| complicated competitor.
|
| - It sounds like the human relationship between OP and co-
| founder is broken and it is not worth pursuing working
| together, as that alone would likely lead to the failure of the
| company even if everything else works out.
|
| That said, my thoughts would be:
|
| (a) Stall for a month to get to the cliff so you have slightly
| more leverage.
|
| (b) Work out a deal where you're not keeping _that_ much
| equity, but you 're keeping an amount such that the company is
| still bound for success, and that your smaller amount will
| actually be worth something. Owning 40% of $0 is still $0.
| Owning maybe 5% of $1 billion is something.
| spottybanana wrote:
| Good analysis. It sounds in principle that for OP there isn't
| really much options to win big, sometimes that happens in
| startup land - mentally it is good idea to admit that this
| project wasn't personally very successful and start thinking
| about next moves.
|
| Most important here, I think, is to act in polite and
| professional manner. It is not uncommon in these situations
| for everyone to lose because things get personal. Just try to
| find some kind of deal where you are likely to get some
| value.
| ericd wrote:
| Vesting schedule means he has 0% right now, 10% in a month, and
| then 1/48th of 40% every month thereafter.
| visarga wrote:
| What if the other party switches activity over a new company in
| the meantime?
| moomin wrote:
| I'll just add: write down everything. Guy is trying to run a
| bait and switch on you and there's a very good chance this ends
| up in court. Be ready.
| jxm262 wrote:
| This is pretty interesting to read through. I'm aware of a thing
| called "ERISA" , where (I think) there's law forbidding
| termination before vesting (retirement funds though).
|
| Are there any similar legal protections in place to prevent
| termination based _solely_ on equity vesting?
|
| And to all the comments here saying to just walk away and keep
| your peace; ie - just take it as a learning lesson. Which
| learning lesson is that exactly? Sounds to me like this is a
| pretty typical situation we engineers can get ourselves into.
| What other protections (learning lessons) could they have done to
| mitigate what's happening here?
| tptacek wrote:
| Don't work for randos.
| stanrivers wrote:
| My assumption is that the co-founder would need the investors to
| vote to fire you? As in, he can't do so himself? So is his threat
| that he will leave if you don't leave?
|
| If he leaves, can you run it yourself and do you want to do that?
| My guess is that you would have to bring in someone to do
| whatever the co-founder was doing.
|
| Your equity ownership is worth something if you have 60k users.
| You have a subset of them paying something already it sounds
| like. This is a great thing, if you enjoy it and believe in it.
| If that is correct, then if your partner has a problem, and you
| think he is replaceable, then you don't seem to have to do
| anything related to his demands.
|
| I think this is also a good lesson in needing to have a really
| good relationship with the investors as well. If it is correct
| that they are the swing vote on decisions, you want them to
| appreciate you, know you well and understand the value you add.
| simonswords82 wrote:
| You need to ask for lots of advice but ultimately you need to
| make your own mind up about the situation.
|
| This is a hot potato, everyone is going to have an opinion. So
| for this reason you need to make your mind up.
|
| Source: this thread - there's some very strong opinions here. Get
| some 121 advice instead, this thread is just guidance only.
| wakeywakeywakey wrote:
| What do your corporate agreement and bylaws say? They may be in
| violation of your stated roles/responsibilities, or in breach of
| fiduciary duty.
|
| Get a lawyer right away. Keep records of everything.
| CodeWriter23 wrote:
| Have you read your partnership agreement? Are there duties
| assigned to each partner? If so, let him play his "40% of nothing
| card" right into breach of contract then sue for ownership of his
| shares and then hire someone to do what he refused to do. But
| probably, speak to a lawyer. You do need to respond to this offer
| in writing, even if rejecting it.
| d33lio wrote:
| Walk away or get a lawyer.
| s1artibartfast wrote:
| Can you expand on why they want you out and what happens if you
| stay?
| fortydegrees wrote:
| We've spoken a fair bit and they don't have anything specific
| to say. It's mainly that they don't like or want the stress of
| working on a startup, and want to run it more as a lifestyle
| business.
| jiveturkey wrote:
| lol! too late for that! he took seed money.
| rutthenut wrote:
| That's tough. I think they will need to realise that the
| commitment to having seed funding and a co-founder are not
| the same as a lifestyle business - especially when they do
| not have funds of their own to fall back on and revenue is
| not presently hitting the numbers that would be needed.
|
| Even a lifestyle business requires more than just 'coding'.
| That person at least is likely to have an unpleasant
| awakening. I just hope it doesn't hurt either of you too much
| mmastrac wrote:
| If they want to run it as a lifestyle business, that might be
| some leverage with your investor. Lifestyle businesses are
| great, but they do not return the same as high-growth venture
| businesses.
| cultus wrote:
| They are trying to kick you out a month before you vest!
| These guys are not acting in good faith. Do not trust them.
| Wait a month and vest. Then quit.
|
| You were the technical lead. More than anyone, you built it.
| Don't let these suits steal it from you or bluff you. So
| often business types take advantage of financially
| unsophisticated technical people.
| elmerfud wrote:
| Did they really pose it to you that way of take the 3% or they'll
| torch the company? Was it just a bluff because they'll own
| nothing too? I would talk to a lawyer and possibly the seed
| investor, but the lawyer first.
| [deleted]
| fortydegrees wrote:
| The seed investor is remaining neutral.
|
| It's not so much that they'll torch the company. They're just
| saying they don't have the cash so need to reduce my stake.
| They will budge on the 3% I'm sure, but I don't value the
| equity much if I'm not involved.
|
| I'm not too sure what a lawyer would recommend at this point? I
| also can't really afford one personally - especially as I may
| be out of work soon haha..
| maccard wrote:
| You need a lawyer, not internet advice.
| shankspeaks wrote:
| If you're not valuing the equity if you're not involved, then
| honestly you need to look at this from an opportunity cost
| perspective.
|
| The trust is fundamentally broken, so it's not really
| worthwhile to pursue this as collaborators. Unless you're
| keen to run the business yourself, there isn't much point in
| fighting this beyond getting your 1st year vesting.
|
| It's honestly not worth your time and energy fighting for
| something you're not keen to do. And it's definitely cheaper
| for them to give you 7% more than the 3% offered, and avoid
| all this hassle and potential legal expense.
|
| If you do want to persist, then you need the investor on your
| side, as otherwise you can't force the other person out
| (they'd still keep their 10% but that's the price you pay for
| that move).
|
| I have to say I find it really odd that someone who's
| invested $100k is being silent on this, or isn't worried
| about this situation, especially if the future of the
| business is now more of a lifestyle business. I fail to see
| how they'd get a return they'd expect. I'd assume they're
| actually on the other side, but want to appear neutral.
|
| FWIW if you end up leaving, I'd advise not agreeing to a non-
| compete or a non-disclosure. It's not about you starting a
| competitor, but more about them not being able to restrict
| your future options as they're forcing you out, and they will
| have to potentially consider the threat of you competing with
| them at any point in the future.
|
| It's a credit to your efforts that you've built the tech of
| business that's gotten such good traction and numbers, so
| you've got learnings and experience that will serve you in
| good stead in the future.
|
| It's just unfortunate that you ended up with such shitty
| partners.
|
| Good luck, and I assume quite a few of us will be hoping you
| bounce back from this, and rooting for you.
| friedman23 wrote:
| Don't give up a cent.
| adrr wrote:
| I don't understand how "the need for cash" and "reducing your
| stake" are connected. If they need cash, they can raise
| another round and everyone gets diluted like normal.
|
| If you don't value the equity, offer to sell it to the seed
| investor at a discount.
| davmar wrote:
| I've been in tough founder situations. What I'd like to add to
| this conversation is: leaving is the right choice, find a way
| out, don't stay.
| stockholm wrote:
| Maybe start a competing business with the same idea and take 100%
| of the equity.
| jimboyoungblood wrote:
| Walk away and start a new company that does the same thing.
| ohyes wrote:
| It sounds like you own 40% of something fairly valuable and now
| that it's 11 months into your contract other founder who needed
| your help is getting greedy and trying to push you out before you
| are owed anything.
|
| You said it yourself, you've grown hugely, you're dominating SEO
| since you joined, and built loads of products. This is your
| 'partner' getting greedy after you've done a lot of hard work. It
| wouldn't have happened without you. Don't undersell yourself.
|
| Your 40% is worth $400k based on that initial funding valuation,
| right? Assuming it's as successful as you seem to be implying, it
| is almost certainly worth more now.
|
| Everyone is telling you to roll over but seriously, fuck them.
| This other toxic guy is the one who should be getting pushed out,
| not you.
|
| The other investor ultimately has power in this situation, not
| you or him, so whoever convinces them that they are the person to
| go with gets the seat and gets to continue with the project.
|
| If he has a good relationship there you're probably fucked, but
| results matter... and if you can prove you've done great stuff
| since joining and and have great plans for the future, he can be
| replaced.
|
| To be clear: this guy has decided to blow up the project so he
| can get a bigger share, if it all fails now he can only blame
| himself.
| drtillberg wrote:
| Not clear who actually owns the equity outright. If its the OP,
| based on what's written and nothing more it sounds like a
| racket the non-technical founders are running. I personally
| would identify the laziest path for you to exercise your rights
| to extinguish the entire venture, ideally with counsel, and
| then tell the other people what you've decided to do, let them
| name their price.
|
| If things roll your way, maybe you resurrect the business later
| buying its assets out of bankruptcy. Either way, think lazy;
| this looks like a scam for your time; the more you put into it
| at any price, the worse off you are.
| nickff wrote:
| Where are you getting the idea that the tech co-founder (TCF)
| owns "40% of something fairly valuable"? It seems the TCF
| currently owns 0%, and will go to ~10% (25% of 40%) if they
| don't get laid off/fired in the next month.
| theptip wrote:
| > I'm the technical co-founder of a pre-revenue startup. We
| were 51/49% to them and took a small round of pre-seed
| funding (~$100k) so our cap table is approx 40% for me and
| co-founder, 10% option pool and 10% investor. We have very
| standard shareholder agreements for 4yr reverse vesting with
| 1yr cliff.
|
| Note the "reverse vesting" bit, this caught me out too. This
| is not the standard employee "you have zero until your 1yr
| cliff" deal, it's the opposite in some sense, the founders
| own their shares unless they leave, in which case they are
| clawed back, and the clawed back amount goes by the 4yr
| period.
|
| In this case if the investor has voting rights, neither
| founder has a controlling share, and the investor is the
| tiebreaker. So OP can fire the other founder with the
| investor's vote.
| nickff wrote:
| The non-tech founder is likely CEO (as they started in, and
| likely got the investor on-board), so they can likely fire
| the TCF without a vote. The board, likely made up of NTF,
| TCF, and investor could then fire the NTF.
|
| In any case, this is not going to end nicely, and I would
| recommend walking away with whatever equity can be had
| without setting the counter-parties against TCF. If NTF and
| investor get really mad, they can easily dilute or destroy
| TCF's equity, so I'd try to avoid that.
| ohyes wrote:
| It's not clear the other founder actually owns any more than
| TCF does. What makes you think TCF can be so easily pushed
| out or that the other founder has significantly more
| leverage? It isn't clear to me that they have different
| deals.
|
| Honestly, if non-technical thought he could fire this guy, he
| probably would have already. That's why TCF is being bullied
| into resigning.
|
| What is non-technical going to tell the investors when he
| fires the guy who keeps everything running, built everything,
| and did all the SEO?
|
| Think of it this way, take the deal and you get 3% of nothing
| because it'll get driven into the ground.
|
| Don't take the deal and either you keep working on it, and
| get 40+% of something decent, or you get N% of nothing
| because other guy drives it into the ground but you got a
| better buyout.
|
| There's very little downside for TCF in actually sticking to
| his guns, and it's not like he's going to look like the
| asshole here.
| nickff wrote:
| Non-tech founder (NTF) started it, so I'm guessing NTF is
| CEO. NTF is probably on similar vesting schedule, but won't
| fire himself. The fact they're having these conversations
| means that NTF has probably made up his mind, and decided
| this is not going to end on mutually amicable terms.
|
| It's possible that TCF can hang on until the cliff, but I
| doubt that'll happen, and it's not going to be pretty if
| they do. There are all kinds of ways NTF can reduce/destroy
| NTF's equity; I'd take 3% and move on with my life.
| [deleted]
| fossuser wrote:
| Yeah - I don't see how people can tell them to just give up.
|
| Go scorched earth - what do you have to lose? Know the other
| guy is hostile and don't trust them to do the right thing.
| Consider your options outside of that and talk it over with the
| other investor.
|
| If you're the technical cofounder here you're probably in a
| stronger position to negotiate.
|
| If you can get the other investor to see what's happening here
| (your cofounder pushing you out one month before the cliff
| after you've helped to build things up) you may be able to get
| them on your side.
|
| As I see it without knowing details:
|
| - Either your contributions are real and your cofounder is a
| miserable person trying to screw you out of it and risking the
| company in order to do that.
|
| - _Or_ you haven 't done anything substantial and the cofounder
| wants you out. Even in this case it's still wrong of them to do
| this one month before vesting (and the way they're approaching
| it sounds dishonest, they should be direct).
|
| If it's truly the former I think getting the third investor to
| understand this is key, if the non-technical cofounder is
| risking the entire business at this stage they're going to be
| bad going forward - you probably need to get rid of them.
|
| If it's the latter (which seems unlikely since the other
| cofounder is non-technical) you'll still want to negotiate a
| reasonable exit, but it may be harder to do so (and you'll
| probably need a lawyer).
| digitaltrees wrote:
| This advice will almost certainly result in no deal and leave
| all parties worse off.
|
| Instead, I would have an open, honest conversation, listen
| from a place of empathy and generosity and seek a compromise.
|
| The truth is, unless your cofounder has the right to
| terminate your employment, then continue working and try to
| create as much harmony as possible.
|
| Co-founder disputes are awful and usually result in the death
| of the company. But being aggressive will only speed up the
| Demise not prevent it, and if the company implodes that
| equity is worth nothing anyway.
| doonesbury wrote:
| Whatever the root reason this is now conflict over control.
| Therefore you need to know your legal contractual options and
| obligations and his plus whatever poison pills or repercussions
| for out of contract behavior. Who owns the IP is key. What is
| that? No need to necessarily write here but to bolster your
| resolve. Now if the contract allows bad actors without downside
| risk ... There are no good answers except experience. Watch out
| for attrition by tying you up on legal fees. But then call BS
| on him not having buyout proceeds. Finally, maybe you need to
| press him and not let him set the context. Saying no is but one
| play his side. You can put him in a box too All this assumes an
| adversarial process. Good luck to you.
| andy_ppp wrote:
| Set up a meeting with the investor Andy UT partner and say you
| want to be as transparent as possible. Explain the situation and
| suggest to the investor that you and the Cofounder need to find a
| way of working together, otherwise one of you is going to have to
| leave with 40% of the company. This is a great example of where
| vesting for founders sorts all of this out clearly and makes it
| more difficult to get greedy. Of course this makes some
| assumptions about the legal agreements you have with the company.
| Do these agreements allow cofounders to be sacked usually,
| because I'm sure as hell writing into any I sign that I can't be!
| burpee wrote:
| Negotiate for converting your equity into debt that needs to be
| paid off at certain events. Easiest way to get the most money out
| of him. Lawyers can help you set that up in a contract, you just
| have to negotiate on the value of the debt.
| monkin wrote:
| I will say something immoral to many: Leave him, walk out, and
| build a business in the same niche with contacts and know-how you
| already have.
|
| There's one advantage of this: You can start from scratch, build
| it faster, and better without starting with a baggage. And, have
| fun doing it. I've done this, and couldn't be happier.
|
| Business I left is nonexistent anymore.
| gojomo wrote:
| Find a lawyer/negotiator with experience in this area you can
| talk to directly, high-bandwidth. They'll echo many of the themes
| here, but be able to get (& give) more depth/detail.
|
| This is a negotiation that's already started. Any communication
| about what they are or aren't interested in is a negotiating
| stance, or opening offer, which may be very far from what's
| possible if you properly understand your position/needs.
|
| Too bad there wasn't a 'shotgun clause' from the beginning.
| (Then, even if you didn't have cash-on-hand, you could seek other
| financing/investment to win a fair/orderly divorce process. There
| are many investors who specialize in SaaS businesses.) Still,
| insisting on a bilateral agreement that whoever is able to pay
| more gets to buy the other out might be a reasonable negotiating
| goal for you, depending on other factors.
|
| Your vesting cliff is very important. After the 1 year, there's
| zero justification for not delivering a full quarter of your
| shares (~10% of total equity). So I'd see retaining 10% equity
| (or at the very least 11/12th prorated if you do them the favor
| of leaving ASAP) as the absolute baseline you should consider.
|
| It's unclear if your use of 'they is for gender-neutrality or
| indicates your co-founder & investor share this desire to get you
| out. But if the investor is neutral, or swayable, or cares about
| their reputation for treating technical cofounders, they may be
| all-important to a fair & amicable resolution.
|
| That the co-founder would try this indicates some combination of
| real difficulties in the working relationship, differences in
| your perceived values of each other going forward, and/or a
| willingness to play hardball in grabbing more of a success in
| contravention of earlier agreements. To the extent it's that last
| factor, there are other ways you can still be edged-out, via
| dilution/re-orgs/etc, later on even if you resolved the current
| negotiation amicably. That's not a reason to run or give up, but
| something to keep in mind: a seemingly attractive result that's
| not ironclad could be further reneged. So you might give a little
| more, _with the right protections_ , so that the result is more
| aligned/sustainable/enforceable in the future.
|
| Good luck!
| gojomo wrote:
| Also: if company has 'standard' vesting documents & has taken
| outside funding, is the lawyer who set those up still a trusted
| neutral resource for both founders? Even in their role as
| "company's lawyer", they could talk to you both about how the
| existing agreements affect the resignation, firing, or
| mutually-agreed exit of a founder, and discuss ideas that help
| the company survive & thrive past that event.
|
| Though, to actually negotiate (& legally execute) a durable
| exit agreement, you'd likely want a separate lawyer on your
| side. (And, given the values implied by the outside investor's
| price-paid, & your estimation of future revenues, spending a
| few $thousand here could save $tens-of-thousands or more
| later.)
| danielrhodes wrote:
| Equity is property. The company must pay you to buy back the
| shares you have vested.
| memossy wrote:
| It's important to see if you are before or after the cliff.
|
| If before then depending on your employment agreement and other
| docs there could be a scenario where you are fired/let go and get
| 0% shares.
|
| Your last round valuation was $1,000,000 post so that price would
| be $141,000 or so for your 14% stake, can include some triggers
| on when that occurs that doesn't impede the business (ie $xm
| raised, $y profits).
|
| If not then your ownership of the company is basically 10% on
| good leaver terms and that is the floor you should accept.
|
| To illustrate assuming 100 total shares
|
| Now: 40.8: him 39.2: you 10: option 10: seed investor
|
| Goes to new cap table of: 40.8 him (57.6% ownership) 10 you (14%
| ownership) 10 option (14%) 10 seed investor (14%)
|
| You're not going to get bought out now although you could say
| that your stake is purchaseable in the future at the last round
| valuation, which is very reasonable and keeps the cap table
| clear, probably $140,000 per the above with some sort of trigger
| for that (eg $xm raised, $y profits)
| techsin101 wrote:
| he is a cofounder not an employee
| tptacek wrote:
| That may not matter here, depending on how the company is
| structured. If his partner has the right to sever him from
| the company, for ex. by dint of his share advantage, and he
| hasn't cliffed, he'll get 0.
| manuelflara wrote:
| Just because your co-founder just now feels like "working on it
| alone" doesn't give him/her the right to force you out, specially
| if he or she doesn't have any leverage (as you say, the investor
| is remaining neutral). So what is preventing you from just saying
| "no, thanks, I'll keep my 40% and keep working on this". What
| would he/she do, then?
| tartoran wrote:
| What keeps the OP from saying they'd rather work alone on it
| and the other cofounder leave instead, then see what the co-
| founder want to leave. If they come with some amazing demands,
| the same demands can be used by the OP to leave.
| mewpmewp2 wrote:
| Why does your co-founder want you to leave?
| fortydegrees wrote:
| They're not enjoying working on the company together. It's
| mainly that they don't like or want the stress of working on a
| startup, and want to run it more as a lifestyle business.
| hiimtroymclure wrote:
| That is so bizarre and seems unbelievable. Feels like there
| is another reason they arent telling you. If you didnt want
| the stress, why boot the cofounder? If I didnt want the
| stress I'd try to maintain some ownership and have you step
| up more.
| gogopuppygogo wrote:
| Sounds like you are in a good position. This is not legal advice
| so go seek your own licensed legal counsel.
|
| If they don't pay you the equity then they would not own your
| tech. Any revenue/profit they derive would be unjust enrichment.
|
| Not to say that I'd even leave them with working tech. I'd
| disable everything I built today until we had a more equitable
| agreement.
|
| No chance I'd let them profit from this tech alone anymore. At
| best I'd offer them a license to use it.
|
| Then go start your own company with it and be the majority owner.
|
| No need for the bad business partner.
| anm89 wrote:
| If you are at your cliff you might want to buy time saying you
| will take a bad deal but need to run it past lawyers or whatever
| to make it past the cliff. Then you can have a change of heart
| after they can't take it by force.
|
| Also this goes to show why you should not take a cliff if you see
| yourself as a founder.
| meddlin wrote:
| I'm just a country-bumkin managing to build and secure software,
| but uh...someone wants to push me around without having the money
| to do so? Let 'em, my kind are stubborn anyway.
|
| Then again, maybe I just enjoy fire a bit much.
| gwbas1c wrote:
| I worked with someone for about a year without making any money.
| We had to part ways without anything to show for it. I can
| empathize.
|
| You didn't say why your co-founder wants to fire you. I suggest
| digging deeper into those reasons before you haggle on your exit
| terms.
|
| Assuming you weren't negligent: I would try to point out that
| pushing you out one month before your equity vests is bad faith
| on your co-founder's side. Offer to leave voluntarily after your
| one-year cliff. Otherwise, if your co-founder just wants you gone
| now, request that you keep your 1-year equity and some severance.
|
| Furthermore: Sometimes it's cheaper to just close the company and
| use the "lessons learned" to restart a very similar company...
| And that very similar company won't owe you anything.
|
| [Edit: Deleted some text that, after reading the discussion,
| isn't relevant.]
| [deleted]
| mtnGoat wrote:
| some advice i got years ago that has proven its value time and
| time again... when dealing with ____heads, you gotta be a
| ____head too.
|
| if your co-founder wants to take something from you without
| compensation, do not go lightly.
|
| for no other reason, IMO, than to teach the other party a lesson.
| if he does this to you it will embolden him to do it to others.
| greedy people need to be stopped in their tracks.
| underseacables wrote:
| Sell nothing. Do you want to leave? It doesn't seem like you want
| to leave.
| nolite wrote:
| Keep 40% of nothing, and tell him to fuck off for trying to
| strong arm you
| rubyist5eva wrote:
| Tell them to shove it. Something tells me your 40% is worth a
| hell of a lot more, otherwise they wouldn't be trying to screw
| you out of it. Lawyer up.
| colinmhayes wrote:
| It sounds like op currently has 0%, so I'm not sure this is a
| winning strategy.
| meeech wrote:
| they could just be deluded.
| lmeyerov wrote:
| Bad news: If the CEO wants you out, by default, you should leave.
| It won't work to stay wrt high-pressure collaboration & trust,
| and is a warning sign against continued growth. Worse, they are
| likely about to fire you over the equity + performance, and
| unless you have single-trigger, you get 0 equity. Even if you
| keep equity after you leave, 40% equity is too much 'dead weight'
| for professional investors to not pressure them to wipe you out
| after you leave.
|
| Question is how replaceable are you. (Sadly, most people are.) If
| the plan is a funding round, they'll need you or a new technical
| cofounder (they may be replacing you anyway?), they'll need
| equity to represent that. good news there is they want someone
| proven or harder to raise. The founder may also be wanting to
| keep > 50% after funding dilution.
|
| I'd stretch it out 1mo till you got your cliff, so you get your
| 5% or whatever vested locked in. Then I'd try to figure out why
| the reln is broken, and if you truly want to stay / can fix it.
| Negotiation wise, I'd assume you are leaving, and maybe they are
| playing hardball. Asking for a buyout doesn't work as they are
| cash poor, and keeping too much equity doesnt bc they can just
| fire you. they may also decide to wipe you out after you leave by
| issuing more stock to remove dead weight on cap table.
|
| Maybe: Offer to stay on until you help get a good replacement at
| 90% efficacy, and keep vesting at high rate, then leave. Say you
| are good for partial buyouts during the next rounds.
|
| if you have single trigger, you have way more leverage. if a
| success 10yrs / 1000 employees / $1B from now and you leave now,
| you'd have contributed little of the ultimate work, and your
| equity & departure more of a hindrance during fundraising, so
| leave it w even 5-10% now is fairish.
|
| edit: I would discuss w a _startup_ lawyer. if you break the reln
| now w money still in trust of the untrustworthy ceo, like equity
| to sell at next rounds, you may want extra protections on it,
| like conversion dates to something more liquid.
| lmeyerov wrote:
| People are downvoting this, and I'm guessing because they
| interpret it as saying it's fine that the technical co-founder
| is being forced down + out like this, or that they don't
| "deserve" their shot at vesting that 40%. Not my intent - it's
| immoral, and probably, illegal. Pulling this 1mo before the
| cliff is especially evil.
|
| The difficulty is the CEO has a lot of flexibility in
| equivalent legal actions like firing the co-founder, issuing
| 10X more shares, and diluting the 40% to 4%. Even if the
| technical co-founder does successfully walk away with 40% today
| and things go well, investors in funding rounds years from now
| will still pressure them to do so ("why is 40% of the company
| shares dead weight? That should go to new employees!"). The
| situation stinks, as does the negotiation position.
| momokoko wrote:
| I don't know if you can still delete this, but this is way too
| specific and way too many people read HN for your co-founder to
| not see this.
|
| I would email dang at hn@ycombinator.com to see if they can at
| least delete the body of this post.
|
| Please seek legal advice and the personal advice of contact you
| can trust that has angel investment experience if you have one.
| vmception wrote:
| that's the point lol
|
| puts a variety of other perspectives in public
|
| worry about yourself
| Ecstatify wrote:
| What difference would it make if the co-founder seen it? Maybe
| they would see sense...
| gkoberger wrote:
| Can I give you some advice that really sucks?
|
| Walk away. It's not fair, but starting a company isn't like
| getting a job. It's a relationship and a risk that doesn't always
| work out. Sometimes you find more money and success than you
| could ever dream of, and other times you waste 11 months.
|
| Here's my thought process. You and your cofounder aren't going to
| be able to work together after this. The company has no money and
| no value, so you're trying to get your portion of something that
| doesn't exist. Them raising money to pay you just kills their
| chance at ever being successful... plus, who would give a company
| money just to pay someone out? Same goes for accelerating vesting
| on the 40%... there's no way they can build a company when
| someone not involved owns a huge stake.
|
| You could spend time and money trying to right this injustice.
| And yeah, it is an injustice. But the worst thing you can do is
| tie your identity to this. There's not much upside to fighting
| it; all you'll do is spend more time, money and energy you could
| be using to start something new.
|
| I've had this happen to me before, so I completely understand
| what it's like. You feel helpless and shitty and like you wasted
| a ton of time. Rather, do your best to put it behind you, and
| focus on what benefits you got out of it.
|
| Did you learn about a new space that will make you extra valuable
| to another company? Even just having a founder mentality will
| raise your value to a startup. Did you learn things you would do
| differently? You can start another company, and do it better this
| time.
|
| I know it sucks. But I'm 99% confident you won't get anything out
| of this, so it's best to just walk away. It's cheesy, but
| "success is the best revenge." Your relationship with this
| company failed, but you haven't. Don't tie your personal journey
| to this one company.
|
| Good luck, and my emails in my profile if you want to talk!
|
| (Also, a few years ago I wrote about going through it:
| https://medium.com/@gkoberger/five-years-time-6a6ae1157a66)
| yudlejoza wrote:
| I'm sorry but this is a ridiculous advice.
| tptacek wrote:
| It's the plot of a movie that nobody on this thread wants to
| watch, but that doesn't make it bad advice.
| xwdv wrote:
| It's meek advice that feels good to people who are scared
| of loud voices shouting at them.
| rayiner wrote:
| I LOL-ed.
| senko wrote:
| Advising to give up while there's still room to negotiate
| sounds like bad advice. At the worst, OP could turn this
| into a learning excercise on how to negotiate in a tough
| situation, with zero downside compared to the advice given
| here.
|
| This doesn't have to be a protracted legal battle, but
| reading up on documents they signed, figuring out their
| proiories (continue in biz? get at least some value out?
| etc) and negotiating in good faith is something that might
| come very handy later, in another startup, with much more
| to lose.
| tptacek wrote:
| I think negotiation is good, if you're realistic about
| it, and if you actually value what you're likely to get
| from it. And I agree, they should quickly find an answer
| to whether they can be fired by their partner (they
| probably can, for reasons stated elsewhere on the thread,
| but it's very much worth getting a solid answer).
| senko wrote:
| Agree completely.
|
| It's not me, but if it were, I'd approach the getting
| fired problem with "look, I build this. You can fire me,
| but you don't have money for adequate dev and average Joe
| will run it into the ground in two months. Your greed
| will make you lose everything", and also approach the
| investor (if they're hands on) with the same rationale.
|
| Also agree with the point you made elsewhere - this can
| get gut wrenching (even without any lawyers getting
| involved) and if you're prone to dwell on negative
| thoughts, pretty damaging to your morale through the
| duration. Money spent fighting is not the only downside.
| s1artibartfast wrote:
| The downside here is what happens after trust is
| broken... You end up working for another 12 months at the
| company pro-bono, then get canned 1 month before your
| next cliff vesting.
|
| I would take 10% for the first year of service and walk
| with it, not expecting anything. The angel put in 100K
| for 10%, and you worked for a year for 10%. very simple.
| MisterBastahrd wrote:
| I would burn the entire thing to the ground and piss on its
| smoldering ashes before I would allow someone to take
| advantage of 11 months of my work just because he thinks he
| can make more money for himself if he positions himself as a
| solo founder.
| tptacek wrote:
| "I would spend $15,000 of my own money and 8 more months of
| my life during which I deed control of my adrenal system to
| this stupid controversy and get little else done, and
| ultimately reach at best the same outcome as I'd have
| achieved walking away amicably, less expenses, before I
| would allow someone to take advantage of 11 months of my
| work".
| newen wrote:
| People talk about how a startup being successful is 90%
| luck and you want OP to walk away from a successful
| startup and try again.
| idlewords wrote:
| Their main claims to success based on OP's description
| are that they show up in search engine results and are
| only $60K in the red. If that's success in 2020 then I
| can launch a dozen successful startups by January 1.
| ownagefool wrote:
| Greater good/game theory argument. If we're all
| spineless, we just make it easier to be taken advantage
| of. Burning it to the ground is akin to MAD, but it only
| works if it's a likely outcome.
|
| I'm not sure what I'd do but I'd view a 51/49% split as
| suspect from the start.
| artemonster wrote:
| on a side note: what is the amount of karma required to be
| able to downvote on HN?
| ayewo wrote:
| It's a karma of 501 not 500 to downvote.
|
| https://github.com/minimaxir/hacker-news-
| undocumented/blob/m...
| artemonster wrote:
| Thanks for the link. Genuinely confused about the
| downvotes for the parent comment, because such info
| should be present somewher on the YC site, IMHO.
| TenJack wrote:
| 500 I believe.
| jxm262 wrote:
| Think I got mine around 500, iirc
| dbnoch wrote:
| the sad part is that they are right. I was in a similar
| situation and there really is nothing you can do. They don't
| own the majority share of the company to make the decision.
|
| It's honestly a terrible situation
| elpatoisthebest wrote:
| Why do you say that?
| lifeisstillgood wrote:
| I disagree - keep the 40%, this will at least force them to
| come to you with _why_ they want you to leave.
|
| The obvious answers are
|
| - they are a jerk to work with and they won't admit it - you
| are a jerk to work with and they won't tell you - something
| else
|
| If it's something else and there is real money at stake both of
| you should be able to work something out.
|
| Otherwise it's one of the first two - which is much harder to
| deal with
| gkoberger wrote:
| Just to clarify, this person doesn't have 40%. They currently
| have 0%, and their agreement states they only get 40% if they
| work there for 4 years.
|
| Also, I don't know for sure, but I imagine they know the
| reason (even if they don't agree with it).
| spottybanana wrote:
| The OP however didn't say who has the power to fire and on
| what kind of terms. If the other founder can fire him, the
| 3% was offer for him to leave on good terms. Because they
| could just fire and OP would get actually 0% and no
| discussions or negotiations needed.
| dgacmu wrote:
| It's a little more complicated than that. As they described
| it, they own 40%, but if they leave early the company has
| the right to buy back certain numbers of the shares at the
| original price. The one year cliff suggests that at this
| point, the company can buy back everything, but in another
| month, they will have 10% that's not touchable.
| gkoberger wrote:
| Yeah, but each share is valued at a fraction of a cent.
| The company will have to cut a check for a few dollars.
| (Happy to explain more if you're interested!)
| thomasahle wrote:
| If the company has already taken investor money, say x
| dollars, for 10%, doesn't thst mean the company is worth
| 10x dollars?
| mamon wrote:
| No, that means that this one investor THINKS they are
| worth 10x dollars. Other investors might value the
| company differently, based on number of customers, cash
| in bank, their own subjective opinion on the product,
| etc.
| gkoberger wrote:
| It's complicated! I'll do my best to explain it simply,
| but there's a lot of nuance.
|
| There's a few different valuations. There's how investors
| value it, which can be different between investors.
| There's also a 409a valuation, which is what the
| government deems it to be "actually worth".
|
| But since the OP hasn't vested, the number that matters
| here is the strike price at the time the OP got their
| shares, which is likely ~$100. At some point the OP wrote
| the company a check for $49 (or so) to "legally buy"
| their shares (49%). But they haven't vested, so these
| shares are in a sort of "limbo".
|
| So, the company can't just take them back, since it would
| be stealing $49. The OP also hasn't earned the shares,
| per the vesting contract.
|
| This means the company has to pay back the $49 if they're
| going to take the shares back. It might seem silly to be
| talking about so little money, but that's all the OP
| means (even if they don't realize it) when they say the
| company has the right to buy back the shares.
| tptacek wrote:
| What "40%"? The entire point of the vesting agreement, bog
| standard in every competently run startup, is that he doesn't
| have 40%. In fact, if he's leaving less than a year in and
| his partner has the contractual authority to sever his
| employment, what he actually has is zero.
| CodesInChaos wrote:
| Depends on the terms of the agreement. In my case the
| unvested shares had to be returned if I terminated the
| employment or the company fired me for cause, but not if
| the company terminated the employment without cause.
| tptacek wrote:
| I've had clauses like that too, as part of M&A, but
| haven't seen them in company formation docs. This seems
| like a thing you can discover quickly and relatively
| inexpensively.
| jacquesm wrote:
| "Accelerated vesting".
|
| Typically: in the case of a liquidity event or if there is
| a termination without cause in order to gain control of the
| co-founders shares. Those terms are pretty common, and
| without having seen the vesting agreement we shouldn't make
| any guesses as to what is in there. Leaving can be many
| things, and co-founders typically don't have the authority
| to fire each other at will without grave consequences.
| Alex3917 wrote:
| > If he's leaving less than a year in and his partner has
| the contractual authority to sever his employment, what he
| actually has is zero.
|
| FWIW that's only true if he was being paid at least minimum
| wage. Otherwise he would be entitled to some equity even if
| he didn't hit his cliff.
| tptacek wrote:
| Interesting. Say more? Thanks!
| Alex3917 wrote:
| IANAL, but my understanding is that in order for the
| company to keep ownership of your designs, code, and
| other IP, you'd need to get some sort of consideration
| for that work. If you've been paid at least minimum wage
| then that counts as consideration, but if you haven't
| then you need to negotiate something reasonable in
| situations where a founder leaves the company before
| their 1-year cliff. 3% is fine, 0% wouldn't be fine
| though, unless again he had been getting paid. This is
| the reason why startups are always supposed to pay each
| founder at least minimum wage, even though normal
| employment laws usually don't require an owner of a
| business to pay themselves anything.
| spottybanana wrote:
| I understood "walk away" meant walking away without any kind
| of papers signed. That would mean, that if the other
| stakeholders want something from OP they have to approach him
| and make a clear offer.
|
| And I think that is also the best option. Just mentally
| evaluate the ROI of this project to zero, and try to focus on
| something else now. With startups you got to get used to the
| fact that failures and misinvestments happen.
| joeblau wrote:
| They don't have 40%, they have 0% and will get to 10% in 1
| month. Then have to accrue 1% for the next 36 months after
| that.
|
| Wasting 3 years is not worth the time. The Op should eject
| and focus on building something else or the same thing with a
| new co-founder.
| jacquesm wrote:
| Disagree. Normally I would agree, but this is such an
| outrageous situation that the OP should just dig in and tell
| the other side to GFT. Let's not set precedent that a-hole co-
| founders get to cut out their technical co-founders after
| almost a year for zero compensation without a fight.
| gkoberger wrote:
| Well, we don't know the other side of the story.
|
| But knowing what we know, what's the best case scenario for
| the OP? Even if he's 100% right and the cofounder is the
| worst human being on the planet, what's ultimately the best
| outcome they'll get out of a startup with $0 revenue, maybe a
| potential $60k ARR with ads (but maybe not), and has $40k in
| the bank?
|
| I get the impression this is all happening because things are
| going badly, not because things are really about to take off.
|
| My point is that it may really really suck, but I just don't
| see a path, even if everything goes perfectly, where the net
| gain is worth it.
| jacquesm wrote:
| > Well, we don't know the other side of the story.
|
| This is such a tired line. No, we don't know the other
| side. But the OP is here and asking for advice, so rather
| than sliding into some kind of false balance you could
| simply assume that they are telling the truth and basing
| your advice on that. The obligation to inform is on them,
| and speculation on your part what the other side may or may
| not be is pointless.
|
| > But knowing what we know, what's the best case scenario
| for the OP? Even if he's 100% right and the cofounder is
| the worst human being on the planet, what's ultimately the
| best outcome they'll get out of a startup with $0 revenue,
| maybe a potential $60k ARR with ads (but maybe not), and
| has $40k in the bank?But knowing what we know, what's the
| best case scenario for the OP? Even if he's 100% right and
| the cofounder is the worst human being on the planet,
| what's ultimately the best outcome they'll get out of a
| startup with $0 revenue, maybe a potential $60k ARR with
| ads (but maybe not), and has $40k in the bank?
|
| That's all speculative.
|
| > I get the impression this is all happening because things
| are going badly, not because things are really about to
| take off.
|
| Alternative point of view: if it was worth nothing the co-
| founder wouldn't be making such a play to own it all.
|
| > My point is that it may really really suck, but I just
| don't see a path, even if everything goes perfectly, where
| the net gain is worth it.
|
| But that's exactly why the OP is here: to ask people if
| they _do_ see such a path. If you can 't see such a path
| then maybe just stay out of it rather than trying to talk
| the OP into something that they may regret gravely?
| bryanrasmussen wrote:
| I think the idea that they will not be able to work with the
| co-founder again really depends on the type of person that co-
| founder is. If the co-founder is just doing this as a strategic
| move, expecting things are going to become quite valuable soon
| and considering the 10% cliff it may be that if their strategy
| does not work they will not have any problem continuing the
| partnership - although if that is the case I would (when things
| became profitable/ much improved) negotiate for some kind of
| exit because obviously the co-founder is not trustworthy.
| okokwhatever wrote:
| You know, I like your position here dude. Keeping out of
| discussion the money (everyone of us work to pay bills) I think
| sometimes to give up maintaining a high profile is better.
| Anyway, the personal situation of the founders is unknown to me
| and dont want to talk too fast. But i get your point here.
| Nowado wrote:
| Got to agree, this advice sucks.
| lostsoul8282 wrote:
| I agree. They can fight this and drain energy but they will
| only get what they deserve up to this point. Which might be
| worth fighting for but if you believe that that you can do
| better, I would walk away - no agreement/liability to the
| company and if they are passionate about the idea rebuild it
| with a stronger team quicker.
|
| The difference this time is they is more knowledge, clearer
| path and knowledge of what a competitor is doing. Consider it
| draft 2..if that's a direction you want to go.
| silexia wrote:
| This comment and the parent comment are absolutely right, but
| they are not decisions I would have ever thought of myself.
| Kudos to both of you!
| isatty wrote:
| I am not a founder but this does not seem like sound advice. In
| a month, that 3% pittance becomes 10%. Also, it does not seem
| that the company has no value at all, if it is primed to make
| money. The extrinsic value on the 40% is worth negotiating over
| and not giving it up and walking away. Nobody should do that
| unless there is gross misconduct or negligence involved.
| bipson wrote:
| _Potential_ worth != real money in the bank.
|
| Also, seen from the other side: They made a contract offering
| 40% _in four years_ (conditionally) - most importantly only
| relevant when the company /idea survive that long and are
| thus profitable/worth something. Why should they suddenly pay
| this (or a meaningful fraction?) out after one year? Or give
| an "outsider" 40%, which will most certainly be difficult to
| explain to future investors?
| mijoharas wrote:
| a standard vesting schedules is 4 years with a one year
| cliff. That means that after one year the person will have
| vested options worth 10% of the company. they will then
| accrue more options every month until they've fully vested
| their 40%.
|
| That doesn't mean they'll only get 40% after 4 years.
| jacquesm wrote:
| And typically when you are terminated without cause a
| good vesting contract will foresee in that and trigger
| the 'accelerated vesting' portion of the contract. Ditto
| with an early sale and possibly other trigger conditions.
| mikeryan wrote:
| I'm spitballing here but maybe a middle ground is to convert
| some percentage of shares to equivalent to the seed investor
| shares. Assume, for the sake of argument, he was at one year
| and due 10%. Convert those share to the same terms as the
| seed investors.
|
| No cash upfront, equity is somewhat preserved and the rest
| becomes a source of potentially passive income.
|
| Note. He has to leave. The situation is now untenable.
| jacquesm wrote:
| > He has to leave.
|
| Depending on how the investor looks at this that is not a
| run race, it may very well be the investor that sides with
| the OP and together they may be able to kick out the
| aggressor.
| pdonis wrote:
| _> In a month, that 3% pittance becomes 10%_
|
| The OP said _reverse_ vesting, not vesting. Reverse vesting
| means he owns _all_ of his equity now, but the company has a
| right to buy it back if he leaves; after the 1-year cliff,
| the percentage the company can buy back starts decreasing, to
| zero in 4 years.
| the_cat_kittles wrote:
| if you can emotionally check out but legally remain, thats
| ideal. you are mostly likely getting pushed out, so recognize
| that you are in a 100% adversarial relationship and separate
| yourself from any kind of personal emotional investment. a
| completely detached self interested approach is totally
| warranted given the circumstances, and would significantly
| increase the probability that you will be compensated more
| fairly.
| unreal37 wrote:
| IMO. No serious investor will give money to a company where
| someone who owns 40% of the equity is no longer involved
| and/or left on bad terms. Having him around but not active is
| going to limit how the business raises money in the future.
| jelliclesfarm wrote:
| i agree. you are not left with a lot of options. walk away.
| having been in somewhat similar position, i can tell you that
| it's not worth it. good luck.
|
| having said that, you can walk away. and still piss on their
| cake.
|
| but this a toxic partner. you cannot work with them. that's for
| certain. you will have to walk away.
| stale2002 wrote:
| > Them raising money to pay you just kills their chance at ever
| being successful
|
| > there's no way they can build a company when someone not
| involved owns a huge stake.
|
| So what? That sounds like their problem, not his.
|
| > But I'm 99% confident you won't get anything out of this, so
| it's best to just walk away.
|
| Possibly. But is that is the case, why not just keep the 40%?
| He's got nothing to loose. So in that case, there is no need to
| give in to someone else being unreasonable.
| gkoberger wrote:
| From a purely legal perspective, this is incorrect.
|
| He's on a vesting schedule, and currently has 0% (his
| cofounder also has 0% currently, assuming they started at the
| sam time). They both entered this agreement to only get ~40%
| if they work there for 4 years (and at that point, they'll
| likely have to revest).
|
| Vesting schedules were created for this exact situation.
| stale2002 wrote:
| I mean, maybe. But that is not a reason to follow your
| advice and just "give up".
|
| If the choice is between "giving up" or getting as much
| equity as possible, for example by stalling for a month
| until he vests, but also causing those other problems that
| you mentioned, then the choice should be clear.
|
| Stall, and get the larger amount of equity. He's got
| nothing to lose, right? If you have nothing to lose, then
| there is no reason to _not_ take as much as you can.
|
| I don't think it is some costly effort to simply stall for
| a month, and refuse any deal. He doesn't need a lawyer or
| anything. He can simply refuse a deal, and continue
| "negotiating" until he vests and gets his guaranteed 10%.
| gkoberger wrote:
| They can't stall; that's now how this works. There's no
| such thing as squatters rights when you're terminated.
|
| Like tptacek said a few times in this thread, they should
| read the contracts and see if they can be fired, but it's
| very likely they can be.
| tptacek wrote:
| This is a partner we all agree is ruthless enough to
| terminate a productive partner prior to a cliff, but
| somehow either lacks enough clue or holds on to just
| enough ruth not to be able to simply fire the partner
| before the cliff elapses. They probably don't have to
| accept a deal in order to be terminated.
| stale2002 wrote:
| Ok, but he already has nothing to lose, right? I had the
| choice between accepting a pittance, or forcing the other
| person to take actions that would make them possibly
| legally liable, then I'd choose to force the other guy to
| take on the legal liability.
|
| Because if they were to fire him, then they'd basically
| have to fire them like a week or 2 before his vesting
| cliff, with an establish history of an attempted
| negotiation.
|
| Firing someone a week before they vest, in order to claw
| back the shares, because the other person refused your
| offer, is likely illegal, and not "good faith".
|
| If he is already in a situation where he has nothing to
| lose, you may as well force the other person to engage in
| the possibly illegal action against you.
|
| Or, at the very least, get them to make the illegal
| threat in a way that you can document it.
|
| Even the bluff, or threat of legal action, against a
| questionable practice, is a huge problem for a company,
| that most founders do not want to have to deal with. And
| he doesn't have anything to lose anyway...
|
| That doesn't mean you have to sue them right now. Even
| the _threat_ of mentioning that this might be illegal,
| and that you are at least considering legal action, could
| force the other person to give in, and not do the
| possibly illegal thing.
|
| Or even beyond that, if there is a documented evidence of
| these illegal actions, what you can do is simply not sue
| now, and only sue later on, if the company is actually
| worth something in the future, and it makes sense to do
| so. All upside, and no downside. Don't pay the court
| costs, unless there is something to gain.
| tptacek wrote:
| He has a lot to lose:
|
| * The 3% he's been offered, which while paltry compared
| to the 40% he had if things had gone better is still not
| a small amount of equity to hold in a successful company.
|
| * Many thousands of dollars in legal fees.
|
| * Many months of effort and stress.
|
| People on message boards have weird ideas of what does
| and doesn't constitute lawful termination. Hiring in the
| US (I'm assuming this is the US, because there was a
| $100k investor) is at-will, most especially so in
| companies documented carefully enough to have 4/1
| vesting. There is likely no such thing as a "bad faith"
| termination; there is only termination authorized by
| contracts establishing who manages the company, and
| termination that isn't.
|
| Again, by all means, pay a small amount of money to get a
| competent lawyer to verify that's the case. Everybody on
| this thread will likely say "go ahead and fight" if it
| turns out this person can't be fired, so you can just
| stick a pin in that thought and we can continue to
| discuss the more realistic scenario.
|
| Threatening to sue: also often a bad idea! If it's not
| credible, and everyone knows you don't have the resources
| to litigate, and that even if you did it would be
| economically irrational to do so, then the threat does
| the opposite of gain you leverage; meanwhile, threats can
| trigger other legal problems for you. Advice I'm pretty
| confident in giving: don't trust a message board post
| that tells you to threaten legal action.
| stale2002 wrote:
| > There is likely no such thing as a "bad faith"
| termination
|
| Sorry but this is simply not true regarding vesting
| specifically. There are laws that prevent someone from
| being fired 1 day before vesting for the purpose of
| clawback.
|
| EX: This source is about retirement vesting. Not exactly
| the same, but close.
|
| https://jimgarrityonline.com/2014/10/08/fired-just-
| before-ve....
|
| This source says the following "assuming this termination
| is made for good-faith reasons, such as business
| downsizing or poor work performance.", implying that if
| it is _not_ for good faith reasons, and just for getting
| back the shares, that this is illegal.
|
| Also from this source: " In general, to avoid costly
| lawsuits, companies consider future vesting dates when
| terminating employees. They may delay the termination
| date, extend it by using "paid time off" days, or
| accelerate the upcoming vesting to avoid appearing to
| terminate an employee merely to forfeit soon-to-be vested
| shares."
|
| So companies specifically try to avoid this situation,
| because they know it is illegal.
|
| https://www.mystockoptions.com/content/can-company-fire-
| me-o...
|
| Here is a source that says the following:
|
| "These cases provide very powerful ammunition to
| employees who are either negotiating for additional
| severance or engaged in litigation with their employer.
|
| First, Kelly and Newberger provide an employee who was
| wrongfully terminated with a legal basis to become fully
| vested in any options that were previously granted."
|
| https://sebastianmillerlaw.com/fired-employee-entitled-
| accel...
|
| And here are a bunch of lawyers agreeing with me that
| this is illegal:
|
| "AT will is one thing, this is quite another. This is an
| obvious scam by the employer to avoid having your stock
| vest, which is not only not fair, its illegal in my view"
|
| "In Mass., if an employer terminates an employee for the
| purpose of preventing a right to compensation to vest,
| the employee has a claim for the compensation. "
|
| "There are certain kinds of showings that you need to
| make in order to be able to collect in this circumstance.
| The short answer is that you may very well be entitled to
| the stock."
|
| https://www.avvo.com/legal-answers/i-was-terminated-one-
| day-...
|
| Thats why I am saying that this threat needs to be
| documented. It is quite clear, that there are many cases
| where terminating someone, for the purpose of getting
| back shares or retirement or bonuses, is very illegal.
| tptacek wrote:
| Some of these cases are based on unlawful terminations
| --- for instance, Kelly was pregnant when she was fired.
| If this person is a member of a protected class or has
| other reasons to believe that they've been fired for a
| statutorily invalid reason, by all means, pursue that.
|
| Here's a Santa Clara Law Review article (take that for
| whatever it's worth) on almost exactly this scenario, in
| the context of Zynga, citing Newberger, and suggesting
| that "company determines employee is not worth the equity
| they were originally allocated" is a valid reason to
| terminate an at-will employee (even if it is, as I'm sure
| we all agree, bad business):
|
| https://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?ar
| tic...
|
| But look, I'm not saying that this person shouldn't talk
| to a lawyer; in fact, I'm saying the opposite. Find out
| if the termination is valid. But be clear-eyed: when you
| get a straightforward answer to whether you can be
| terminated, and it confirms that the termination is
| valid, _stop there_ , and don't spend a fortune in money
| and time fighting a foregone conclusion.
| ghaff wrote:
| Yeah. Probably neither the 3% nor the 10% is worth
| anything-- _especially_ if this turns into some nasty
| litigation. And, as you say, in the eventuality that this
| company actually has a successful exit, 3% is less than
| 10% but it could still be a decent sum of money.
| [deleted]
| mattmaroon wrote:
| I know you mean well, but this could not possibly be good
| advice because there isn't enough information in that post for
| even a lawyer to give good advice. You don't know what's In his
| contract. Maybe his cofounder can't fire him. Maybe He could
| but that would trigger the vesting. Maybe he could put it to
| the board and fire his cofounder.
|
| Maybe his cofounders threat that it's 3% or nothing is
| bluffing. It doesn't really make sense for his cofounder,
| because that guy maybe is in the same situation if OPs contract
| is favorable. Maybe It's 40% or nothing for him.
|
| The only acceptable advice here is to go talk to a lawyer.
| That's it. Internet advice about things like this is always bad
| even when it is meant well
| gkoberger wrote:
| I agree we don't know the whole story. But this is the
| version of the story that puts the OP in the best light, and
| still, my overall impression is it just seems like it's not
| worth it.
|
| What's the best case scenario they could get out of it? Maybe
| 6% equity, or maybe a $10k severance. But going after a
| company with no revenue and only $40k in the bank doesn't
| really seem like the best use of anyone's time, energy or
| money.
|
| There's minimal available short-term value, and
| litigation/fighting will sharply blunt any potential long-
| term value.
| pdutt111 wrote:
| I agree to the point that the company is probably done at this
| point, but of the off chance that it succeeds I'd get the 10%
| and then walk. if he raises another round etc. then that's a
| bargaining chip to get something (probably would amount to 0
| but better to have it)
| Aunche wrote:
| Maybe it's just because I'm an outsider, but startup finance is
| complete nonsense to me.
|
| >Same goes for giving you the 40%... there's no way they can
| build a company when someone not involved owns a huge stake.
|
| This actually happened to one of my professors, which
| represents the opposite end of the absurdity. He started the
| company with a friend. The company pivoted to a completely
| different direction and the friend left because it was outside
| his expertise. My professor wanted to "do the right thing" and
| preserve their friendship, so he let the friend keep all the
| equity. In the end, the friend ended up getting millions of
| dollars despite producing 0 value to the company.
|
| There has to be some middle ground here, like offering options
| to the company to buy back OP's shares at the current valuation
| plus interest. If company still can't afford a buyback a few
| years later, then they didn't grow the company enough to
| deserve to own those shares anyways.
| tootie wrote:
| Yeah, that is the option. They buy his equity for what it's
| worth. Currently that's not much, but apparently still more
| than they can afford.
| tptacek wrote:
| They only have to buy his vested equity. His unvested
| equity, for all practical purposes, reverts back to the
| company. In standard 4/1 vesting, you get 1/4 of your
| equity on your first anniversary, and then equal-sized
| chunks every month thereafter for 4 years. Prior to that
| first anniversary, the idea of 4/1 is that you get nothing;
| the whole idea is to avoid allocating equity to people who
| don't last a whole year.
| im3w1l wrote:
| To me as an outsider too, it seems one middle path is to pay
| people doing the work in equity thus gradually diluting away
| people who left. In the beginning, the guy who left owns a
| large piece of a small pie, as time goes they will own
| smaller and smaller piece of a larger and larger pie.
| intricatedetail wrote:
| Shares are not connected to the work done. Why would they?
| It's an investment. That friend got rewarded for making right
| choices and meeting right people
| wpietri wrote:
| I don't think it's really a solvable problem. There's a very
| wide range of hard-to-predict outcomes, from total failure to
| massive wealth, with a lot of just-bumping-along-for-years
| scenarios. The value of money varies drastically over time.
| The people involved are generally novices. Labor and skill
| contributions are impossible to predict in advance. Social
| conventions and ties add more layers of difficulty. What
| everybody is doing is essentially buying lottery tickets. And
| any serious dispute resolution can be more expensive than
| makes sense early on.
|
| So what the industry has mostly converged on is a pretty
| basic, simple-to-understand solution that has a small enough
| number of dials that people can work it. It covers the main
| outcomes reasonably well if people are not too terrible. And
| if people are terrible, well, no mechanism is really enough.
| spottybanana wrote:
| The professor probably had other options, but decided that
| this is the route to go. And once the decision is done, there
| is no turning back.
|
| In the early phase of a startup it quite often happens that
| equity is given on very relaxed way on good terms. For
| example someone can work only short time in the company and
| still get nice piece of equity, just because other founders
| are lazy or careless.
|
| A lot related to startups is "play stupid games, win stupid
| prizes". Sometimes you can get lot of equity & money if you
| just happen to be in the right place at the right time. Other
| times you end up working a lot and get nothing.
| chuckus wrote:
| Agree with this, 3% of something is better than 40% of nothing.
| I was a technical co-founder was that left a startup early on,
| and because we didn't have a vesting agreement from the very
| beginning, I was entitled to my 40%, even when I left the
| company. While it was to my advantage, I didn't want my co-
| founder to give up when I left, so I gave most of it up. For my
| next startup, I'll make sure to have a goals-based vesting
| agreement from the very beginning i.e. co-founder gets x% on
| first sale, x% on first raise
| itronitron wrote:
| I don't have any confidence that the other founder would ever
| honor the 3% arrangement in any form given their past
| behavior.
| xwdv wrote:
| Wish I had downvote powers to downvote this because it's
| horrible advice.
|
| You literally have nothing to lose by just waiting for the
| equity to vest and keeping your 40%. Fuck the co-founder. Fuck
| 3%.
|
| Worst case you end up with 40% of nothing. Walking away you end
| up with 0% of nothing. If you don't stand up for your equity no
| one will. And if you let him get away with this, down the line
| he'll do the same shit to someone else. Stop this guy now in
| his tracks, don't let him swindle you and everyone else.
|
| Don't be an idiot.
| cm2012 wrote:
| Exactly this. You don't let bad actors walk all over you.
| tptacek wrote:
| Your theory of the case here being that this company has
| managed to find a set of contracts that establishes 4/1
| vesting and enabled a seed funder to invest $100k, but
| somehow didn't designate any officers of the company or any
| authority to terminate members of the company.
|
| It could happen! They might reasonably spend $400-$500
| figuring that out.
| xwdv wrote:
| Let them do it then, so the blood can be on their hands.
| Otherwise the story is "tech co-founder walked away because
| he couldn't keep up".
| tptacek wrote:
| The funny thing about this is that it isn't even good
| advice in the chest-puffing status-seeking model in which
| its proposed, because a big controversy with a former
| founder might mostly just makes you someone reasonable
| people might not want to work with.
| ghaff wrote:
| If there's a pattern it's one thing. But for a single
| event when it's hard for an outsider to figure out who
| was in the right and who was in the wrong, it's probably
| easier just to avoid both of them.
| tptacek wrote:
| I'm 100% avoiding on principle ever working with a
| founder who ruthlessly terminated a partner in month 11
| of a cliff without simply accelerating the cliff, so
| there's not much need to litigate that point.
| MoJoPokeyBlue wrote:
| It's too late for this idea in this situation, but it might be of
| interest to others thinking about getting into a partnership.
| Because most partnerships eventually go south, there is something
| known as the "Shotgun Clause". (I don't know who named it this,
| but this is what I've always known it as.) If your partner wants
| you out and comes to you with a lowball offer, you can invoke the
| Shotgun Clause, which gives you the right to buy him/her out at
| exactly the same terms, and THEY HAVE to accept. It's the risk
| they take by making an offer. It's designed to get them to make a
| "fair" offer, or one that they would accept.
| [deleted]
| cultus wrote:
| This is a bait and switch. Talk to a lawyer. Wow, just absolutely
| scummy.
| andrewmcwatters wrote:
| Stories like this make me wonder if there's a form of pre-
| business counseling much like premarital counseling where you
| discuss with your cofounder expectations going into the business
| and talk about worst-case scenarios like this and how each party
| would handle it at the time of the counseling (considering people
| change over time).
| gwbas1c wrote:
| I thought that's what involving a lawyer in these kinds of
| negotiations is supposed to do?
|
| That requires having the bucks in the bank to pay for a lawyer.
| If fourtydegrees is young with a thin wallet, I don't think
| lawyers were involved.
| codegeek wrote:
| Not all lawyers will cost 100k. You can get a good lawyer for
| 2-3K for basic consultation and if you don't even that type
| of cash, then it is tough for sure.
| gwbas1c wrote:
| > You can get a good lawyer for 2-3K for basic consultation
|
| Maybe it's just my style, but that's a lot for me to shell
| out on "day one" of working with someone. I prefer to trust
| the people I work with.
|
| But, in a situation like this I'd happily spend that kind
| of money to get something straightened out.
| nashashmi wrote:
| Not experienced in this by any means at all, but I still am
| interested in what are the legal, social, and professional
| responsibilities here.
|
| Legally, you are entitled even though the market is no longer the
| same as which you were brought to help in. Professionally you
| have put in lots of un-tallied TLC. Socially, there seems to be
| no effort for an amicable resolution.
|
| On the business side it doesn't make much sense for you to
| continue with the company if this is not your area of expertise.
| So you should taper off the position of founder and become a
| silent investor. Do not budge on percentage. It is your right.
|
| If the other person does not accept this, then the option is to
| dissolve the company. Keep all assets as is. And license to new
| entity for royalty or one time debt.
|
| If you want to continue with the company, negotiate a position
| that is optimized for what you can do. And remain shareholder.
| And board member.
|
| Either way, assess the true value of the company in terms of
| current potential revenue, future growth, and future risks. Use
| that as as premise for negotiation. And set aside a BATNA. A best
| alternative to negotiated agreement.
|
| Don't focus on the torch and burn scenario even if the other
| person insists is a possible outcome.
|
| (All this comes from someone who doesn't know a single thing
| about this other than how businesses merge, split, and dissolve.)
| jiveturkey wrote:
| > Legally, you are entitled
|
| He's not. He's 11 months into a 12 month cliff.
| pbiggar wrote:
| This is a delicate and nuanced matter that's hard to know the
| right answer without all the details. I've gone through this 4
| times, and also recently talked to 20 people who went through it,
| specifically about this topic. Feel free to email me and we can
| have a call and talk you through the options
| (paul.biggar@gmail.com)
|
| First thought: You don't have 40%, you have at most (11 months /
| 48 months vesting) * 40% = 9%. But, at 11 months you haven't hit
| your cliff, so you actually have 0%. That is, if they can fire
| you. It sounds like they're the CEO so they probably can, but if
| not the board can.
| talkingtab wrote:
| Don't agree to anything. That is all you have to do. When the
| company tries to raise money later, they will be asked about any
| other people who have an interest. At that point your company
| will need to address your issues and they will have
| money/incentive to do it. You don't need to be mean spirited,
| just say "Okay, I have my 40% and let me know if in the future
| you want to buy me out." And be fair.
|
| Don't walk away, don't sign anything that isn't fair to you,
| don't be mad, just be patient.
| staticman2 wrote:
| Almost all the advise here is bad. Without legal review of what
| you signed how can anyone know what your negotiating position is?
| TameAntelope wrote:
| "Lawyer up" feels like the best direct advice we could give.
| The other comments are good information to have, but OP's co-
| founder is clearly executing a comprehensive strategy, and OP
| doesn't seem knowledgable enough to avoid falling for it on
| their own.
|
| Hire an expert to help you navigate this, or you'll probably
| regret it.
| mmastrac wrote:
| First of all, in a case like there where you have founders at
| odds so early on, your company is basically on life support and
| probably dead already.
|
| You have very little to lose by digging in and waiting for your
| co-founder to fold. If your co-founder has done this at this
| point of the business where the stakes are so low, they will
| absolutely try to screw you out of the 3% through other nefarious
| means.
|
| It sucks that a single founder can tank a promising startup, but
| that's how it goes (unless you've already got a shotgun clause or
| equivalent in your shareholder agreements).
| Grustaf wrote:
| If you insist on keeping your share and they shut the company
| down, I suppose they also wouldn't be able to stop you from
| copying the idea?
| teabee89 wrote:
| Is there a legal framework that allows company to convert OP's
| shares into debt to OP and essentially by the debt for $0? The
| debt would only have to be paid if certain conditions are met.
| epa wrote:
| If they dont have cash, tell him to issue you a convertible
| promisory note for $X amount that you think is fair. If the
| Company does well then they can pay you out or you can convert
| your stock into shares for cheap. If the company goes under, then
| you all lose. Lawyers can draft these for cheap, just make sure
| you put a timeline in there and make it one sided so you can
| convert at any time with anti-dilution provisions.
| newbie578 wrote:
| Definitely first talk to a lawyer, and take each comment in this
| thread (including mine :)) with a grain of salt.
|
| A lot of us have zero idea about your situation and we are
| speaking from the gut. That said, fuck that cofounder, I would
| rather burn it to the ground than let him get his way and regret
| it for the rest of my life.
| MartianSquirrel wrote:
| Genuine question: Have you considered buying out your co-founder
| instead? You seem to have a general undestanding of the figures
| you can make through advertisement. I'd suggest doing more
| research on that, maybe meeting with a consulting/advisor CFO who
| could help you make a case for it. Then you could go for a loan
| to buy your co-founder out, or meet with the investors to have
| him removed/replaced with someone who's gonna put the business
| first.
| jonfromsf wrote:
| Slow play to your cliff. Then offer to accept your current vested
| equity, and let them negotiate you down a small discount on that.
| Like you will own 10% of the company, be OK with going down to 8%
| or whatever.
| docflabby wrote:
| Alternative view, ask if they will consider a unrestricted
| licence to the IP in lieu of payment rather than any ownership.
| dcolkitt wrote:
| I would propose structuring the buyout in the form of convertible
| debt instead of a cash buyout. You give up your equity today, but
| the LLC gives your a convertible note to cover your valuation
| conditional on some future funding event.
|
| Set a specific valuation target, at which point the note will pay
| in cash equivalent to a certain percent of the company's equity.
| That defers the issue of liquidity until if/when the company gets
| sufficient funding. But it gets you out of the equity today,
| particularly with regards to voting shares. Which is probably
| what your co-founder cares about the most.
| fortydegrees wrote:
| This makes a lot of sense. An issue I have with this is that
| one reason my co-founder wants to split is that they don't
| really want the pressure of running a startup, and so are
| unlikely to go on to raise additional money.
|
| Could a situation where I get a cash payout, say $20k from the
| company to sell a certain %, and then the convertible debt to
| sell more in the future work?
| bravura wrote:
| "An issue I have with this is that one reason my co-founder
| wants to split is that they don't really want the pressure of
| running a startup"
|
| Whereas it sounds like you have a solid plan to grow the
| business and generate revenue. As @jedberg says, this makes
| your interests aligned with the (neutral) investor, and the
| other founder at odds with the investor.
|
| a) You and your cofounder can't work together
|
| b) One must leave
|
| The investor and one founder can push out the other founder.
| Who do you think the investor thinks should leave if you
| reread your quote above?
| dcolkitt wrote:
| If the co-founder doesn't think there will be a need for any
| new funding, then that would imply that he expects the
| company to be cash-flow positive in the near-term.
|
| I'd sit down and work out what are the cash flow forecasts
| and milestones. Contextualize what's a reasonable rate of
| return for implicitly funding the company by foregoing an
| immediate cash buyout. If/when the company achieves certain
| profitability milestones, then the note will pay back in
| installments.
|
| Each successful milestone draws down the principal, each
| missed milestone increases the principal. If profitability
| isn't sustainably achieved, the note converts back into
| common equity. If/when there's a major funding event, the
| note converts to common equity or cash equivalent of the
| common equity valuation.
|
| Essentially you're planning for three scenarios. 1) The
| business becomes profitable without further funding. You're
| paid off over time from the profits. 2) The business goes the
| fundraising route. You're paid off at the liquidity event. 3)
| The business succeeds at neither route. Your share of the
| equity reverts back to you, so you receive your fair share of
| the scraps.
| icedchai wrote:
| Have you been paid anything for your work?
| honkycat wrote:
| I'm not a lawyer and don't know what I am talking about, but even
| if the other co-founder fired them, couldn't they file a wrongful
| termination suit since them being fired at this point would
| clearly not be due to performance, but due to the co-founder
| wanting to fuck them out of their shares?
|
| I may be vindictive but I would not walk away, and would rather
| see the whole venture tank than get blackmailed into giving away
| a year of my work for free.
|
| To be clear, I wouldn't do anything illegal that would be dumb.
| But I wouldn't roll over just because a bully tried to bully me
| out of my cut.
| poulsbohemian wrote:
| I'm trying to understand how your non-technical founder plans to
| continue supporting the product as they "work on it themselves".
| Is the intent to simply replace you with cheaper labor who won't
| expect equity? Have the investors asked for you to be replaced by
| someone of their choosing? This feels like a key point to the
| decision making, IE: knowing what the future leadership of the
| company will actually be and whether there really is a future
| here or best to walk away.
| jsonGobbler wrote:
| Do not sell. He's trying to push you out since it's primed to
| blow up. If it becomes 40%of nothing let me know and I'll build
| it with you. I'm a full stack entrepreneur who can sell and
| build. The only real threat that I've seen brought up is if he
| can fire you.
| richardlblair wrote:
| For readers - This is a lesson in having an actual shareholder
| agreement. Incorporating isn't enough, outline how situations
| like this go down before hand. Get a lawyer, pay the fee, you
| will be thankful later.
| cyphertruck wrote:
| You must get a lawyer now. Below us my thoughts given several
| decades experience As founder-
|
| You have a strong position here, since you built the products.
| Don't walk away. The ultimatum is counting in you being non-
| confrontational and wanting to cave.
|
| This cofounder has betrayed your trust at this point, so some
| sort of exit is needed. Non-technical is a lot easier to hire-
| you can get marketing or whatever expertise he has easily.
|
| He should be the one leaving. Maybe offer to buy him out at
| current equity value paid over 20 years at %6 interest, secured
| only by company stock.
|
| If he forces the issue he will destroy the company in the ensuing
| lawsuit. So this is a mutually assured destruction situation.
|
| What is the ownership of the software? Did you retain rights to
| it? If you are forced out can you recreate the company quickly
| using the software you already created?
|
| Get a lawyer, now. You need an advocate who is ready to play ball
| and who can be the "bad guy" for you.
|
| Your cofounder will likely try to spin it, try to portray any
| resistance from you as evidence of bad faith, etc. Don't let him.
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