They are bluffing. Keep negotiating until you get what you want.
Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
71–80 of 435 posts
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#72Do 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.
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Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#73The 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.
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.
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.
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#74Earlier quoted context omitted.
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.
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.
> 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.
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#75I 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…
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?
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.
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#76Get 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.
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#77Everything 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?
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#78What 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.
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#79It'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…
he is a cofounder not an employee
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.
Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer
#80Tell 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.