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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?

#91

Post by greglindahl »

j_s wrote: post #88
greglindahl wrote: post #83

Earlier quoted context omitted.

"protection against dilution" (beyond what the law already provides for minority shareholders) for founders/common shareholders is not standard, so you'll have a hard time finding a template for it.

Perhaps this is an opportunity then. I looked in YC's Startup Documents and didn't see anything at all related to legal agreements between cofounders; maybe they will put something together someday. The only protection from dilution I saw mentioned in this thread isn't doing so well (gray at this point): https://news.ycombinator.com/item?id=14357964 an agreement from the company that neither of the remaining founders…

Not sure how it's an "opportunity" when it's a red flag that would prevent the startup from raising money!

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

#92

Post by beat »

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,…

It doesn't matter whether or not they're greedy assholes (it's probably safe to assume they are). It only matters whether they're willing to invest. So a red flag is a red flag.

There are plenty of places for handwaving and hope in startups already. The ownership status of a departed founder should not be one of them. That should be crystal clear.

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

#93

Post by greglindahl »

empath75 wrote: post #89
anovikov wrote: post #74

Earlier quoted context omitted.

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'.

Or you might think that he got in over his head and decided to step aside and let the other guys manage the business.

Still a huge red flag.

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

#94

Post by TuringNYC »

caseysoftware wrote: post #76
nealbozeman wrote: post #67

Earlier quoted context omitted.

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.

Curious how you'd evaluate a 25% (or even 10%) owner who is an Angel investor. They provided capital, perhaps some contacts, but is not actively engaged in growing the business?

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

#95

Post by SkyMarshal »

empath75 wrote: post #89
anovikov wrote: post #74

Earlier quoted context omitted.

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'.

Or you might think that he got in over his head and decided to step aside and let the other guys manage the business.

That rarely happens. In that case the incentive is actually to stay on, let your co-founders drive the value, and pocket the equity/$ for it. Easy money. Takes a rare breed to self-sacrifice for the good of the company.

It's more likely what annovikov said, the one leaving has serious doubts about the strategy but got out-voted.

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

#96

Post by ivankirigin »

There is a way for the remaining founders to get exactly what they want. It's called "recapping".

Let's say that there are 30M shares now, and you each have 10M shares.

They can take that $500K and make it on a pre-money of $100K. That would mean the price per share was $100K / 30M = $0.0033 per share.

With $500K coming in, there are $500K / $0.0033 pps = 150,000,000 new shares.

Now there are 180M shares total, and each of you owns 1/18th.

Then the remaining founders can get a new grant to get around 75% of the company. The math to reach target percentage P with S shares is P * S / (1 - P). In this case, the remaining founders would each get 270M new shares.

The total number of shares would be 180M + 270M + 270M = 720M.

Let's look at ownership percentage now:

  - Investor = 150M / 720M = 20%
  - Founder 1 = 280M / 720M = 20% = 38.9%
  - Founder 2 = 280M / 720M = 20% = 38.9%
  - You = 10M / 720M = 1.4%
Another side to this is liability. The remaining founders and investors don't want a lawsuit. Then again, you aren't staying with the company, and investors will be reasonably wary of investing in a company with so much stock "wasted" on people no longer contributing.

The founders get get all this done and in agreement with the investor BEFORE the round closes. They should also talk to a lawyer, because I'm just someone from the internet :)

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

#97

Post by firloop »

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…

This is a big reason why YC requires founders to have vesting shares with a cliff (even as a solo founder!). Better to have some agreement than not, especially when cofounder disputes ruin many early startups.

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

#98

Post by greglindahl »

dustingetz wrote: post #24
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

Starting an employee stock option pool is another form of dilution.

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

#99

Post by SkyMarshal »

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,…

>I would say he should stick to 12%. It's derived from an industry standard.

What exactly is this standard? Haven't heard it before. (serious question)

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

#100

Post by bsterne »

logicallee wrote: post #43
Ntrails wrote: post #31

Earlier quoted context omitted.

The most common method of valuation for splits I've heard is the shotgun clause into "offer what you're willing to accept" methodology. As in, offer a price to buy me out - but you have to be willing to accept the same price for your share (which is the incentive to make a fair offer). Ofc i've only seen it in 2 person partnerships but imagine can be generalised.

I don't understand the "shotgun clause" at all. Suppose we simplify and the offer must be accepted using only money in a (private) bank account designated in advance, and each person knows the other person's balance because they're honest with each other. 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…

There are financing options for people facing a shotgun clause. e.g. http://www.shotgunfund.com/
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