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Ask HN: Ex-Founder. Should I take lowball buyout offer?

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Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#51

Post by jacquesm »

csallen wrote: post #11
charlesdm wrote: post #5

Sell at the valuation, e.g. 5% of $XX,000,000. Maybe offer them a 20% discount on the shares if you really want to sell. Otherwise don't sell. Not selling is your leverage, as they clearly want you to sell.

It doesn't sound to me like they clearly want the OP to sell. It actually sounds like the opposite. The OP wants to get out, and they responded with a lowball offer which, if anything, would motivate the OP not to sell.

No, they responded with a lowball offer because they feel the OP is motivated to sell at any price.

His best bet is simply not to sell and to wait for them to make an offer.

OP is confused about the shareholder and employee roles, they are not linked other than through vesting and the shareholder agreement (which they have presumably signed).

He can easily quit as an employee while remaining a shareholder in the company. Those roles need not be connected forever and there usually are - vesting excepted - penalty free ways of stepping out of a company while you keep whatever shares you already have. Clawbacks in a situation like that are very rare.

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#52

Post by venture_lol »

You need hard numbers and intelligence available to only you. Once you have the data, talk to people you trust, then make a decision. If you hold 5%, you have rights, rights to information. Obtain the information, then decide.

As far as a rabbit in your hand now versus 10 in the bushes provided the hunt goes well, consider your own situation and what the 100K would mean. Would you be able obtain a better ROI with 100K in your own hand versus say, staying with the company? Are you young young or young at heart?

Good luck!

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#53

Post by brfox »

throwaway21121 wrote: post #3
icedchai wrote: post #2

Ask for more.

CEO refuses. How do I apply leverage?

If you are skeptical of the company's future, and the CEO is not to be trusted (and it is clear he is trying to take advantage of you), then ask yourself if you had 100k, would you invest it in this company? If the answer is no, then maybe you should take the buyout. On the other hand, how well do you live with regrets - if for example you were wrong and the CEO does not run the company into the round? If you really think the company will fail, then 100k is better than nothing.

How will the investors feel if they know that you would sell 5% of the company for $100k? Maybe this is your leverage: the investors will know the price of the buyout and since the investors know that you are very familiar with the company, then they will invest less. Therefore, the CEO should offer you a fair price for your shares.

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#54

Post by stale2002 »

tommynicholas wrote: post #19
thruflo22 wrote: post #17

Earlier quoted context omitted.

You could say that if the CEO doesn't improve the offer, you're going to write directly to the board / new investors. I'm not saying you should do this. Nor am I suggesting it's a good tactic. But it may provide leverage if you need some.

No reason to do this - you have the shares and the CEO wants to buy you out. Remember - the CEO wants to buy you out for a reason, and I guarantee you the investors want you bought out. Don't underestimate how much leverage "them wanting you bought out" is. It may even be a stipulation of the funding round.

Sure, but the investors would probably want to buy you out ALSO.

Equity is a market. The CEO is offering a price. Maybe the investors are willing to offer a higher price.

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#55

Post by dsacco »

penpapersw wrote: post #36
nilved wrote: post #33

Earlier quoted context omitted.

This is bad advice.

My advice was to have perspective that things could be worse. To have that perspective is never bad advice. ;)

Sure, but they could also be better, maybe significantly so. Where does that leave us?

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#56

Post by rhizome »

throwaway21121 wrote: post #3
icedchai wrote: post #2

Ask for more.

CEO refuses. How do I apply leverage?

Who started the conversation? If the CEO did, you can sit back and tell him, "it's not enough." Rinse and repeat, and don't respond to "well how much should I be offering?" entreaties from their side. "It's not enough." Practice it in a mirror.

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#57

Post by jacquesm »

If the company is raising money at a valuation in excess of 10 million then your stake is worth at least 500k and possibly much more. If you know the amount that they will raise simply roll your sale into the transaction. If you need to sweeten the pot then do so but as far as strategy is concerned you don't need to sell at all.

The lowball offer is a good indication of how they estimate your negotiation skills.

Waiting a little longer will likely get you a (much) better offer, also consider selling only a part of your shares in case the company strikes it big down the road (made that mistake myself with something that became huge long after I left).

You might get pushback on that last point but that gives you some leverage to raise the price for all of your shares.

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#58

Post by louisswiss »

jacquesm wrote: post #50
eldavido wrote: post #10

Ask the CEO whether the investors would buy your shares as part of the funding round. I've seen a company do this. It's a win for everyone. Offer a moderate discount (10-20%) to make it worth their while. - Company gets to re-concentrate their ownership among active investors/employees, and remove "dead wood" ex-founder with small stake from the cap table. This alone might make it worth their while. - Investors get s…

Excellent advice and worth suggesting, but talk to the CEO first to make sure the company speaks with one voice otherwise you might imperil the funding round.

This. Ex-employees appearing out of the woodwork just before a funding round and wanting to divest all of their shares is definitely a scenario which (best case) gives the investors an extra weapon with which to put pressure on the valuation/terms of the deal and (worst case) could even get the deal called off completely.

Even if you're not on great terms with your ex-cofounders, think of your ex-employees (and your own share value)

EDIT: I was thinking from the perspective of the company and not the individual. Getting sued is indeed the worst case (if we're being pedantic then also assuming you lose the suit of course).

Re: Ask HN: Ex-Founder. Should I take lowball buyout offer?

#60

Post by stale2002 »

My advice: Talk to the board/investors.

The CEO is offering you a price. Other investors will probably be willing to offer you a better price.

I mean, why wouldn't they? They've paid good money to get the shares that they bought. Why wouldn't they want to buy other shares at a cheaper price?

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