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Ask HN: Founder claims I never purchased options, but I deposited checks

news.ycombinator.com

11–20 of 34 posts

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#11

Do you have proof they cashed them? If so, talk to a lawyer.

Yes I have bank statements that show the check was cashed. > talk to a lawyer The amount of the acquisition was not disclosed. I don't know if my options are worth more than lawyer fees. What kind of lawyer do I need to look for?

Any lawyer worth talking to will give you a free, confidential, initial consultation and discussion of potential costs that will be help you decide if it is worth going after. Most likely the lawyer sending a letter will cost like $500 and get their attention.

As for what kind of lawyer, one that does work for startups should know the ins and outs of this.

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#12

Earlier quoted context omitted.

Yes I have bank statements that show the check was cashed. > talk to a lawyer The amount of the acquisition was not disclosed. I don't know if my options are worth more than lawyer fees. What kind of lawyer do I need to look for?

If it is a public company, their SEC filing should reveal how much they paid for the acquisition.

The transaction won’t be disclosed if it is immaterial (small enough). Ask a friend from the company or maybe an investor depending on who you have a relationship with. You just want to know the per share valuation of common stock.

Frankly I’m surprised the founder isn’t being more candid with you. Messing about and prolonging this stuff helps no one.

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#13

Do you have proof they cashed them? If so, talk to a lawyer.

Yes I have bank statements that show the check was cashed. > talk to a lawyer The amount of the acquisition was not disclosed. I don't know if my options are worth more than lawyer fees. What kind of lawyer do I need to look for?

It's worth it to at least consult one. You can often get affordable or free initial consults that will get you an idea of what you are up against, odds and how much it might cost. It might be a situations where it won't take many billable hours. Sometimes a lawyer chiming in on an email thread is all it takes to completely change the conversation.

I've yet to be in a situation where I've thought "Maybe I should talk to a lawyer" and I did and regretted it.

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#14

Talk to HN user grellas. Ask what they’d charge to do a consult and engage the acquirer’s counsel. https://news.ycombinator.com/user?id=grellas

It’s not really the acquirers problem as I understand it, it is the acquired company’s problem to distribute proceeds, and usually they have an agent to do it like SRS because it is so messy.

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#15

Talk to HN user grellas. Ask what they’d charge to do a consult and engage the acquirer’s counsel. https://news.ycombinator.com/user?id=grellas

It’s not really the acquirers problem as I understand it, it is the acquired company’s problem to distribute proceeds, and usually they have an agent to do it like SRS because it is so messy.

It's the acquirers problem. They will deal with it.

Just send a letter to their legal counsel. They will pay you your money owed out of the escrow'd funds.

Do it quick before the escrow is released.

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#16

Talk to HN user grellas. Ask what they’d charge to do a consult and engage the acquirer’s counsel. https://news.ycombinator.com/user?id=grellas

It’s not really the acquirers problem as I understand it, it is the acquired company’s problem to distribute proceeds, and usually they have an agent to do it like SRS because it is so messy.

[deleted]

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#17

Do you have proof they cashed them? If so, talk to a lawyer.

Yes I have bank statements that show the check was cashed. > talk to a lawyer The amount of the acquisition was not disclosed. I don't know if my options are worth more than lawyer fees. What kind of lawyer do I need to look for?

An initial consult with a lawyer usually costs somewhere in the range of $0 to $500, usually closer to (and often exactly) $0 for individuals walking in from the street. Furthermore, some might take the case on contingency, but you're getting way ahead of yourself if you're thinking that far ahead. Figure out what you don't know, first.

And don't worry about finding the right lawyer. Lawyers regularly make referrals. Any lawyer who handles contract disputes should be able to refer you to someone else if they're not comfortable pursuing the case themselves, much like a medical doctor would be comfortable referring you to another doctor.

But if you're confident the value likely wouldn't even be worth the consult fee for a high-end, specialized firm, then why would you even care? In this industry you need to learn to cut your losses and never look back.

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#19

Find an attorney. Don’t give us any updates. Consider deleting this. This posting could be considered legally discoverable. Not hard to figure out who you are from your submission history. Best of luck.

Why would it matter if this was discovered?

Re: Ask HN: Founder claims I never purchased options, but I deposited checks

#20
You need a lawyer to take action. And that lawyer would need to get the terms of the sale (generally as part of discovery).

But before you do any of that, you need to do a bit of math, this is because your shares were likely 'common' shares rather than 'preferred' shares, so they will have different rules by which they were treated in the event of a sale.

When a company is acquired, everyone has their hand out. So typically those hands are paid in order of preference until the money runs out.

A general rule is banks (debt), investors (preferred), and then common (everyone else), in that order. How that works out in practice is that unless the company is acquired for more than two times the amount of money that was raised, it is unlikely that common stock will be worth anything at all.

So step one is trying to figure out how much the company was purchased for. If that purchase price was 'material' (which is to say that the buying company was investing serious cash and it could swing the buying company's value by enough) then the company has to announce the amount and terms of the sale. If it was a non-material impact on the company then the terms of the deal can be kept reasonably private. (sometimes if you know someone who knows someone you can get a board member to disclose it to you, off the record of course).

So this is what typically happens, the money from the purchase first pays off any debt. And sometimes (at least in the Bay Area it was not uncommon) there is a vendor who exchanges capital equipment (chairs, office furniture, computers, etc) for a debt obligation. It is structured so that it turns into either stock or a debt on acquisition depending on which gets the company the most money back. If you're startup kept asset tags on everything they probably did this sort of deal. So the debt gets paid off.

Now, with what is left, the preferred shares have something called a 'liquidation preference' and a 'seniority' order. Each round of funding re-writes the rules so you have to have a copy of the last round of funding terms to understand what is what. In good days the liquidation preference is 1 for 1, so for each dollar invested the investor gets back one dollar. Sometimes when things were going badly at the end and the company is scrambling they will do something called a 'cram down' round where the people who provide funding for the round have an outrageous liquidation preference like 3 or 4 to one. And everyone else comes behind them. In any event all of those pre-spoken for dollars comes out of the purchase price first.

And now, if there are any dollars left, the 'conversion' happens. There are two common things that can happen here, one all shares including preferred and common can convert to a single share type, and then the remaining money is divided up by the ratio of the total each share block holds. (this is when preferred shares are 'participating' which means they convert to common after their liquidation preference is met) Sometimes preferred shares will not be included in the final round (non-participating).

In my experience, and for those deals where I knew all of the numbers, unless the acquisition price was at least twice the amount of money raised, it rarely trickled down any value to common shares. This is the basis for my advice for new hires to treat any equity grant in a non-public company as $0 regardless of what the CEO tells you.

This reality, that you have to be acquired for 2x of what you raise to have any hope of generating wealth for the employees, helps experienced founders push back on taking too much venture money.

Good luck on your quest, if you have some amount that would satisfy you then you might get away with just writing the general counsel (that is their head lawyer and their contact information should be on the 'legal' part of the company's web site) with the amount of money you want, your evidence that you own shares, and an offer to sign a release for any and all future claims. If it is reasonable they might just pay it out of a fund they reserve for such things (and by reasonable I mean < $100K).

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