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

If OP wants to, OP can not agree to any vesting agreement, keep his whole stake, and likely do significant harm to the company in doing so (of course I'm making some basic assumptions here, but I think they're fair, and about as good as we can do considering the lack of information). If OP does that he or she is actually shooting him or herself in the foot, and destroying the value of his or her own shares.

I can certainly see many scenarios where it's actually in OP's best interest to give up more of a stake, though it's impossible to know without knowing what type of company it is, revenue and growth rates, etc. If we assume it's a software startup raising at a $2m valuation I would strongly encourage OP to play the long-term game, as the likelihood the stake will be worth nothing if he or she takes 33% off the table right now is remarkably high.

Then if one person has $27,000 in their private bank account and the other person has $14,000 then the person with $27,000 can offer $14,001 and the person with $14,000 is forced to accept.

If one of the parties happens to be overdrawn on that account and have net -$3.70 then the other party can ofer $5 and the overdrawn party would be forced to accept.

Now granted in the real world people can raise buyout capital from their private network on short notice -- but doesn't this show great unfairness, if the parties aren't both independently much richer than the value of the business they're discussing?

For most startup founders who own, say, 50% of a startup whose last valuation was $7 million, that is nearly all of their net worth. The vast majority probably could not so much as raise $50,000 on short notice. So, if one of the parties already has a hundred thousand, they can offer $55,000 and the more cash-strapped party would be forced to accept it.

So what gives. I just don't get it at all. Like, I don't even get the theory of why this is supposed to be fair... it just seems "obviously" broken to me -- so I must be missing something.

It doesn't matter what they think. They're your shares.

If they think you shouldn't own 10%, then perhaps they should fork out whatever price it is that you deem to be sufficient for your 10%.

If they want to buy you out and they're raising 500k at a $2.5 million post-money valuation, I'd tell them to pay $625,000 for your post-raise 25% or $375,000 for the 15% you're prepared to sell. They should be grateful for your gift to them, if you were to sell your shares for less than a rate of $25,000/1%. Keeping 10% for your future, after having sunk 16 months into the company, is definitely not unreasonable.

The above is only my opinion and is not financial advice.

However: having 10% of the company owned by a non-particiapting founder is a big red flag for many investors, and would be a significant obstacle to the company's success. So you might want to consider settling for significantly less than 10% simply because you may end up making more money in the long run. 10% of zero is still zero. If I were setting up a company today I would have a back-loaded vesting schedule: 10% the first year, 20% the second, 30% the third year and 40% the fourth year. On this schedule, your share at 18 months would have been 4.95%. If I were you, I would offer to take that.

If you're raising $500k for 25% of the company, that means you think that the company is worth $1.5M now (because the company now plus the $500k would be worth $2M). So your share on a flat vesting schedule is about $180k, on the back-loaded schedule it would be about $74k. If you want to cash out you should offer to sell for significantly less than those numbers because you want everyone to think they've gotten a good deal. You never know when you'll want to do business with someone again in the future. A reputation for being reasonable is worth a lot more than $180k.

You need to decide what you're doing before you approach investors because you need to achieve clarity on what you're selling them: is this a company with three founders, or a company with two founders and one ex-founder (and is the ex-founder willing to sell and if so for how much)?

Forget what's contractually agreed upon and forget what's fair. The cap table affects the company's ability to raise money. That is a reason that founding shares should always include a vesting schedule or expiring "right of repurchase" so that premature departure of a founder does not result in a strange looking cap table.

It's reasonable for investors to say: "Who is this guy who owns X% and what value are they delivering?"

You'll have been there 18 months: 18/48 = 3/8 = .375. .375 * 33 ~= 12.

Your owning 12% is explicable. "He was early, he delivered stuff, that's his initial equity proportional to the time he was in the boat."

Best wishes with it.