Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

news.ycombinator.com

Post reply on HN
Print view View original

71–80 of 162 posts

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

#71

Post by nealbozeman »

koliber wrote: post #69
nealbozeman wrote: post #7

Keep the 1/3rd of the company you are entitled to today, and make sure the other two founders stick around by creating a new allocation of shares that will have a vesting schedule, and will dilute you down fairly over time. There's nothing to stop the other founders from doing the exact same thing you are doing - leave and retain the company. Give them a compelling reason to stay.

Let's say OP decides to play unfriendly hard ball and hold on to his 33% of shares. Could the remaining two partners force through a new allocation of shares, vesting over time but only to active members, which would dilute OP to near zero? I am asking about who gets to decide what is considered fair dilution. Assuming good will on all sides, I like the idea of your suggestion. Assuming non-cooperation, I am wonderin…

It's hard in this case not to argue that he owns 33% of the 1.5mm company that the three have built until today. Diluting him out to effectively zero would be cause for criminal charges against the company. It's theft.

In the same vein, they can't raise the $500k and then immediately dilute the investors. That's also theft, called fraud.

He seems to have shown a lot of good faith in this matter so far.

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

#72

Post by [deleted] »

sage76 wrote: post #70
lisper wrote: post #47

If you had done this the Right Way from the beginning you would have had a vesting agreement that specified what would happen in a case like this. A typical vesting agreement would have vested your stock over a 48-month period, so after 18 months you would have vested 33% x 18/48 = 12.375%. So 10% is not unreasonable. However: having 10% of the company owned by a non-particiapting founder is a big red flag for many i…

What's the point of a vesting schedule and having an orderly way to exit if it would still not be acceptable? I think it's odd that people would have a problem with him owning a stake. Should he not be compensated for the work he has put in? He was awarded shares for his work presumably. I would say he should stick to 12%. It's derived from an industry standard. VCs who have a problem with this are, pardon my french,…

[deleted]

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

#73

Post by BrentOzar »

logicallee wrote: post #65
BrentOzar wrote: post #58

Earlier quoted context omitted.

> 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. Not necessarily - for example, in my own company's case, the company itself paid out the other partners. The company can take on debt to buy out a partner's shares (or a portion thereof) if the existing partners are willing. I c…

Hey, this is very useful information. I would like to ask some more details, but not here. Could you throw up a contact on your profile or mail me at mine, if you'd have a couple of minutes for my questions around that? Thanks.

Absolutely, YGM.

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

#74

Post by anovikov »

nealbozeman wrote: post #67
lisper wrote: post #47

If you had done this the Right Way from the beginning you would have had a vesting agreement that specified what would happen in a case like this. A typical vesting agreement would have vested your stock over a 48-month period, so after 18 months you would have vested 33% x 18/48 = 12.375%. So 10% is not unreasonable. However: having 10% of the company owned by a non-particiapting founder is a big red flag for many i…

Investors will not see his 10% ownership as a red flag any more than they will see a non participating investor owning 25% of the business as a red flag. In this case, he/she delivered 18 months of value that led to a 1.5mm pre money val. The most fair option is already mentioned - to maintain your 33% that makes all three of the founders equal as of today, and then allocate a new share allotment to dilute you out ov…

If i was an investor, i'd see it as a red flag indeed. I'd think: 'so this guy left the boat being a founder, giving up most of his share, so probably he knows that the company is going to tank and don't want to waste his time anymore, and he definitely knows a lot more about it than i could potentially know being an outside guy'.

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

#75

Post by GnarfGnarf »

sage76 wrote: post #70
lisper wrote: post #47

If you had done this the Right Way from the beginning you would have had a vesting agreement that specified what would happen in a case like this. A typical vesting agreement would have vested your stock over a 48-month period, so after 18 months you would have vested 33% x 18/48 = 12.375%. So 10% is not unreasonable. However: having 10% of the company owned by a non-particiapting founder is a big red flag for many i…

What's the point of a vesting schedule and having an orderly way to exit if it would still not be acceptable? I think it's odd that people would have a problem with him owning a stake. Should he not be compensated for the work he has put in? He was awarded shares for his work presumably. I would say he should stick to 12%. It's derived from an industry standard. VCs who have a problem with this are, pardon my french,…

actually it's "trous de cul gloutons".

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

#76

Post by caseysoftware »

nealbozeman wrote: post #67
lisper wrote: post #47

If you had done this the Right Way from the beginning you would have had a vesting agreement that specified what would happen in a case like this. A typical vesting agreement would have vested your stock over a 48-month period, so after 18 months you would have vested 33% x 18/48 = 12.375%. So 10% is not unreasonable. However: having 10% of the company owned by a non-particiapting founder is a big red flag for many i…

Investors will not see his 10% ownership as a red flag any more than they will see a non participating investor owning 25% of the business as a red flag. In this case, he/she delivered 18 months of value that led to a 1.5mm pre money val. The most fair option is already mentioned - to maintain your 33% that makes all three of the founders equal as of today, and then allocate a new share allotment to dilute you out ov…

> a non participating investor owning 25% of the business

That is absolutely a red flag. If someone owns 25% of the business, they better be working to grow, improve, or otherwise assist the business on a daily basis. If nothing else, out of self-preservation to protect and grow their investment.

If they're a 1% investor, that's a different story.

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

#77

Post by javajosh »

lisper wrote: post #47

If you had done this the Right Way from the beginning you would have had a vesting agreement that specified what would happen in a case like this. A typical vesting agreement would have vested your stock over a 48-month period, so after 18 months you would have vested 33% x 18/48 = 12.375%. So 10% is not unreasonable. However: having 10% of the company owned by a non-particiapting founder is a big red flag for many i…

Interestingly, those numbers are the same order of magnitude cost of a coder for 18 months. That feels right to me, that you'd get ~$100k, and perhaps retain .5%, basically demoting yourself to a (fully vested) second gen hire, and moving on with your life. No investor would see that as "dead weight".

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

#78

Post by beagle3 »

logicallee wrote: post #64
beagle3 wrote: post #59

Earlier quoted context omitted.

Yes, I have raised successfully at the seed stage several times. If the company is worth $3.5M and no vesting schedule, no investor will touch it (and the 3.5m valauation was reached either out of thin air, or on the back of a sucker). If you cannot raise (with e.g. 20% discount for the trouble), the valuation is wrong.

I think we're saying the same thing. The example wasn't of raising a round - it was raising money for a shotgun buyout, so you can leave a company completely while the company tries with other principals and other investors. Using your money - but not using the guy you're giving your money to, who will go home. That's the scenario that I don't think is very realistic. As a result the poor founder will not be given a…

No, we are not saying the same thing.

I say that the situation you described is so far fetched as to be irrelevant to a discussion of "shutgun buyouts" in general.

How did the company reach a $7M valuation? They might have sold 1 share out of 7M shares for $1. That, technically, would make it worth $7M. But practically, it isn't.

Let's say company raised $3M at $4M pre-money => $7M post money. That's not unreasonable. At this point in time, the company has $3M in the bank, so it is indeed worth at least $3M.

Let's say "cash poor founder" only has $100K in the bank. If "cash rich founder" offers to buy 50% for $500K (five times what "cash poor founder" can afford), then it is extremely easy to raise $500K, for a promise to pay $550K from company coffers the next day, because in fact those $500K will buy control of $3M.

And that's exactly why investors insist on vesting schedules, first rights of refusals, tag-alongs, bring-alongs, etc - because the investor who put $3M into that company is likely to lose it in a variety of real world cases without those clauses.

I say your cases are not impossible, just extremely improbable. In practice, it is easy to borrow against a grounded valuation with some.

The poor founder will likely get an "unfair" offer, but "unfair" here is within 10-20% of a fair offer, not a 50% or 90% as in your examples.

I assume poor founder is a smart founder, of course - he might not have access to lenders/investors, which could get him treated unfairly; But of course, that's also the case for having illness, immigration problems, disability, etc. Money is an advantage, lack of money is a disadvantage -- but it is not fatal in these cases in general.

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

#79

Post by omginternets »

GnarfGnarf wrote: post #75
sage76 wrote: post #70

Earlier quoted context omitted.

What's the point of a vesting schedule and having an orderly way to exit if it would still not be acceptable? I think it's odd that people would have a problem with him owning a stake. Should he not be compensated for the work he has put in? He was awarded shares for his work presumably. I would say he should stick to 12%. It's derived from an industry standard. VCs who have a problem with this are, pardon my french,…

actually it's "trous de cul gloutons".

actually, it's "trous du cul gloutons" ;)

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

#80

Post by marcus_holmes »

dustingetz wrote: post #22

i have a vesting agreement with my co-founder, 50/50 split vest 25% per year, if he left at 16 months he would keep 12.5%, is this agreement naive given that at some point in the future we will be raising vc?

not really. As other people have said, you have lots of options.

If they leave before the VC gets on board, you can just issue more shares to dilute them down to nothing.

You can declare a new class of shares with better voting rights, or better preferences, and issue yourself those. The actual numerical value of the shares may be within agreements, but they'll give you more control/entitlement.

You can form a new company, sell the assets of the existing company into the new one (or lease them if there are reasons why you can't sell). The old company will be left with some cash, the new one with the business.

You can just liquidate the old company, and pick up ownership of the assets post-liquidation.

Basically, private companies are worth whatever a clever accountant says they're worth. As soon as your co-founder stops being a director or an officer of the company, there are lots of ways to manipulate their claim on the company.

If they leave after the VC is on board, then the VC's advisors will have a suitable vesting schedule put in place. It's basically their problem after they get involved.

However, if you knew your co-founder intends to leave, and fail to disclose this during Due Diligence, you could be vulnerable to getting your arse sued to buggery.

Of course, some of this is ethically dubious. But (imho) so is claiming a stake in a company that you left while it was still worthless. YMMV.

Also, I'm not a lawyer or accountant, you definitely need to check with a qualified advisor not some random dude on the interwebs.

Post reply on HN