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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?

#91

Post by ransom1538 »

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…

+ The difference in long term vs short term capital gains could be a factor - depending how long you held exercised shares (83b election etc). If those are held longer than one year it would fall into long term capital gains which is a large tax benefit [short term capital gains is calculated as regular INCOME]. E.g. if you have held shares for 10 months I would see if you could wait to sell your options for 2 months - your shares will probably time align with the other founders so it could be an easy sell.

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

#92

Post by hamburglar »

owens99 wrote: post #77
tyingq wrote: post #12

Presumably, someone values your 5% higher than that, based on your characterization of the valuation. People that know better than me: How nuclear an option would it be to ask the investors directly?

The investors will probably only do it if the CEO is on board. Assuming they value relationship with CEO

It also may be explicitly disallowed. I'm in a deadwood position on a company that's still private and the shares have a restriction that they can only be sold to the company or via a deal that the company brokers.

Humorously enough, while I was reading this thread, I got an email from the CFO of that company, who I haven't heard from in a couple of years now. My heart skipped a beat. :) Alas, it was not an heads up about a liquidity event...

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

#93

Post by throwaway21122 »

johnchristopher wrote: post #34
primedteam wrote: post #13

I would work out the difference between the salary at say Google vs what you took during your tenure at the startup then double it because of lack of upside. Aside: If the co-founder is an HN reader, then they probably know the throwaway account is you. That is going to skew this negotiation.

Might also be the other party testing the waters. edit: of course, parent's comment regarding the other party is still sound and valid :).

lol, it is.

for the record, i'd probably do it if i was offered $500k.

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

#95

Post by ScottBurson »

rhizome wrote: post #45
tommynicholas wrote: post #18

If that is less than 1/3rd what your shares would be worth if you sold them as part of the funding round you're not getting fair value. You have to decide whether you want fair value or not, but ~1/3rd the value of the shares in this funding round (assuming those investors got preferred shares, etc) is the low end. Investors in the round would probably buy your shares for 1/3rd - 2/3rds of their value and you should…

The lowest amount of "XX,000,000" is $10MM, which at 5% is $500,000. So yeah, less than 1/3.

We don't know whether that's pre- or post-money (I'm not sure the OP is even clear on the difference). What we need here is the pre-money valuation, which could be quite low.

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

#96

Post by ScottBurson »

drenvuk wrote: post #9

Set up a divesting schedule with regular payments based on the valuation of the company. The longer you're gone the less you have. If you've done work to get the company where it is then it's fair. I would not take a lump some in most cases.

"lump sum"

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

#97

Post by chrisgoman »

cthulhuology wrote: post #81

I've had this situation happen a few times in my career, my advice is take the money and don't look back. Invest the money, burn it, buy rental properties with it,or go on a trip. It is always better to have a successful exit.

+1. Most folks here don't understand that 5% equity is easily diluted to 0.005% equity in 6 months. So now you are going to spend $50k suing the company for the $10k they owe you. OP needs to listen to people who have experience (like you) instead of random strangers who think equity = cash

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

#98

Post by OliverJones »

First of all, you're not an ex-founder. You're a founder. You happen to have moved on to another project.

Second, you're a shareholder of the company. You're a big enough shareholder that they'll ask for your signature on the paperwork when they recapitalize ("raise money").

Third, any variant of "you suck. I don't want anything to do with you." is a poor opening gambit in a negotiation strategy, even it's true.

If I were you I'd ask to sell some, but not all, of your shares into this financing round. You can simply say you need some liquidity. This isn't a bizarre request. They may turn you down, but they won't think the less of you for asking.

If they're raising money on a $40 mill pre-money valuation, that pegs your 5% stake's paper value at 2 megabucks. Selling a quarter of your stake into the round will get you $400K even if you give them a stiff discount. That's more than the $100K. And, you still have some upside if you're wrong about their prospects.

That being said, you're probably right about their prospects. Been there. Done that. Didn't even get a Tshirt.

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

#99

Post by ScottBurson »

tyingq wrote: post #12

Presumably, someone values your 5% higher than that, based on your characterization of the valuation. People that know better than me: How nuclear an option would it be to ask the investors directly?

According to jacquesm upthread, who sounds like he knows what he's talking about, you could well get sued for damaging the company. Looks like the only reasonable option is to work with the CEO.

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

#100

Post by tyingq »

owens99 wrote: post #77
tyingq wrote: post #12

Presumably, someone values your 5% higher than that, based on your characterization of the valuation. People that know better than me: How nuclear an option would it be to ask the investors directly?

The investors will probably only do it if the CEO is on board. Assuming they value relationship with CEO

Seems curious, though, that a CEO wouldn't want that 5% available to the investors at a reasonable discount. Versus the pittance that's being offered. Makes you wonder what else is afoot.
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