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Ask HN: How to leave a startup when you own a third of it?

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Re: Ask HN: How to leave a startup when you own a third of it?

#21

Post by ghshephard »

I'd be curious as to what the difference is between the theory of equity ownership and the reality.

The theory, is that you have a certain percentage of the company (whether that is 10% of whatever), that is somehow "yours". But this is a private company, and you are a minority shareholder who presumably hasn't put much in the way of cash equity. What's to prevent the shareholders, after you leave, simply from dealing you out? There are all sorts of ways of doing this. The existing shareholders can get a liquidation preference in later rounds. The remaining co-founders (who presumably hold common), get paid out with a consulting bonus that acts as a drawdown on the equity, resulting in nothing for any of the minority shareholders after the preferred gets taken care of. If there are employees during a liquidation event, they can be taken care of with "Retention" or "Continuity" bonuses, and not rely on their holding of common.

Once you leave a company, I wonder how often (in the real world, versus they way we all want it to be) you simply end up with, completely legally, nada.

YC would likely know very well the answer to this - I bet it is north of 98% of the time.

Re: Ask HN: How to leave a startup when you own a third of it?

#23

Post by obstinate »

ghshephard wrote: post #21

I'd be curious as to what the difference is between the theory of equity ownership and the reality. The theory, is that you have a certain percentage of the company (whether that is 10% of whatever), that is somehow "yours". But this is a private company, and you are a minority shareholder who presumably hasn't put much in the way of cash equity. What's to prevent the shareholders, after you leave, simply from dealin…

Can you really deal certain shareholders out because you don't like them? I was under the impression that there is still a fiduciary duty to non-employee shareholders.

Re: Ask HN: How to leave a startup when you own a third of it?

#24

Post by dustingetz »

neximo64 wrote: post #3

Use a vesting schedule, so you keep equity but your other founders effectively dilute you depending on how much work they do and for how long. So you wouldn't get to sell anything just keep your equity in a fair way.

> your other founders effectively dilute you

concretely how does this work? I understand dilution to be a function of premoney/postmoney valuation when raising, and nothing else. So all common stock holders get diluted equally

Re: Ask HN: How to leave a startup when you own a third of it?

#26

Post by austenallred »

Do you have a vesting agreement in place? If not your investors will likely require one.

What that agreement should say is something along the lines of "each founder gets 1/48th of their shares for each month of having been at the company." There's usually a "cliff" of 1 year, but it looks like you're past that.

That being said, you need to realize that you bailing may put everything in jeopardy, as investors are likely to be spooked, and will likely be unhappy with the significant dead weight of .33 * 18/48 of the company. If I were you I would strongly consider taking a smaller piece in order to give the company more room to grow.

The fact that you're currently selling 25% of the company for 500k indicates to me that the company has a long way to go before spitting off serious profits, so I'd opt for whatever makes the company most likely to be successful, or you'll end up with $0 anyway.

Also realize your "percentage" will change as more shares are issued, an options pool is created, more dilution comes in, etc.

Re: Ask HN: How to leave a startup when you own a third of it?

#27

Post by DamonHD »

obstinate wrote: post #23
ghshephard wrote: post #21

I'd be curious as to what the difference is between the theory of equity ownership and the reality. The theory, is that you have a certain percentage of the company (whether that is 10% of whatever), that is somehow "yours". But this is a private company, and you are a minority shareholder who presumably hasn't put much in the way of cash equity. What's to prevent the shareholders, after you leave, simply from dealin…

Can you really deal certain shareholders out because you don't like them? I was under the impression that there is still a fiduciary duty to non-employee shareholders.

Typically if you are under 10% you can't block the company doing from things that may in the end tend to disadvantage you, ie you can't obstruct legitimate business unreasonably, though shareholders generally have to be treated equitably. YMMV depending on local laws.

Re: Ask HN: How to leave a startup when you own a third of it?

#28

Post by joshuaellinger »

Industry standard is 4 years vesting with a 1 year cliff. You are vesting, right? You should own 8.25% at a year and then 0.6875% for each month after that.

Sometimes there are differences because different founders contributed different amounts. For example, this schedule wouldn't be fair if one of you had a side job.

Ultimately, it won't really matter. If they think you have too much ownership, they can issue themselves additional stock grants to get you down to what they want you at.

Re: Ask HN: How to leave a startup when you own a third of it?

#30

Post by amorphid »

There's no great solution here. Some thoughts...

- The more you try to hang onto, the less the other founders will have an incentive to keep going on this startup

- If you are a jerk, they may decide to start another company that does the same darn thing, and it'll be expensive to sue them

- If you quit before the money is raised, you might tank the raise

- If you quit before the money is raised, you might find yourself without an ability to defend your piece of the pie

I like the "is it reasonable for me to keep 10% of it"? I say yes, but you're not me, and I don't have all of the details. Again, there's no great solution here. However it goes down, if you want to win, you'll have to maintain the trust of your cofounders to avoid getting screwed.

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