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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?

#141

Post by greglindahl »

stale2002 wrote: post #46
ouid wrote: post #43

Earlier quoted context omitted.

Selling existing shares does not raise money for the company. They have no more incentive to take this offer than to buy him out now.

Well, it makes an investor happy, because they received a 10% discount. Also, although it doesn't help the other founders that much, if one investor sells stock to another investor, it also doesn't HARM them at all. Why should they care if two investors trade shares between each other? If you own 5%, thats what you are. An investor.

Investors are happy with a 10% discount from preferred when buying common shares with no liquidation preferences?

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

#142

Post by trapperkeeper79 »

bentlegen wrote: post #129
late2part wrote: post #101

Don't be a shmuck. Don't sell. Get an attorney, talk with the CEO only through the attorney. Find someone like jacquesm or I can refer you to someone to help you negotiate. 5% of XX,000,000 is at least $500k; you're a fool to take less.

The valuation of $XX,000,000 is typically based on investor purchase price, which almost always includes a liquidity preference likely not factored into OP's shares. If an investor buys 10% of the business with a 2x liquidation preference for $2,000,000, it's not accurate to say "the business is now worth $20,000,000". But TechCrunch and other news outlets will omit this all the time. (And let's not leave out that hi…

What does "2x liquidation preference for $2,000,000" mean?

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

#143

Post by greglindahl »

late2part wrote: post #101

Don't be a shmuck. Don't sell. Get an attorney, talk with the CEO only through the attorney. Find someone like jacquesm or I can refer you to someone to help you negotiate. 5% of XX,000,000 is at least $500k; you're a fool to take less.

I'm surprised how many people are so firm in comparing the value of preferred shares to common in these comments.

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

#144

Post by rdlecler1 »

ouid wrote: post #43
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…

Selling existing shares does not raise money for the company. They have no more incentive to take this offer than to buy him out now.

Moreover, you're handing over more control to this new investor. If he guy doesn't want to take it then he can still sit on his shares.

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

#145

Post by late2part »

trapperkeeper79 wrote: post #142
bentlegen wrote: post #129

Earlier quoted context omitted.

The valuation of $XX,000,000 is typically based on investor purchase price, which almost always includes a liquidity preference likely not factored into OP's shares. If an investor buys 10% of the business with a 2x liquidation preference for $2,000,000, it's not accurate to say "the business is now worth $20,000,000". But TechCrunch and other news outlets will omit this all the time. (And let's not leave out that hi…

What does "2x liquidation preference for $2,000,000" mean?

Liquidation preference means they are preferred when there is a liquidation. So if the company is sold the person with the liquidation preference gets their money out first at the liquidation preference ratio. In this case, $2Mx2 means if the company is sold for $10M even though they only own 10% they get the first $4M.

http://www.investopedia.com/terms/l/liquidation-preference.a...

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

#146

Post by jdmichal »

trapperkeeper79 wrote: post #142
bentlegen wrote: post #129

Earlier quoted context omitted.

The valuation of $XX,000,000 is typically based on investor purchase price, which almost always includes a liquidity preference likely not factored into OP's shares. If an investor buys 10% of the business with a 2x liquidation preference for $2,000,000, it's not accurate to say "the business is now worth $20,000,000". But TechCrunch and other news outlets will omit this all the time. (And let's not leave out that hi…

What does "2x liquidation preference for $2,000,000" mean?

It means that if the company liquidates -- IPO, sale, or dissolution being the more common forms -- the investor is first in line for $4,000,000. Then, any remaining money gets split among the other share holders. If there's less than $4m in the pool, then the investor gets it all and everyone else gets nothing.

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

#147

Post by siegel »

jacquesm wrote: post #113
horsecaptin wrote: post #26

What about waiting until the funding round is over, and then sell the shares yourself?

The good point about this strategy is that there will be a per-share valuation that is probably much higher than the previous one. The bad point is that the OP will then have to do all the hard work on the transaction whereas right now there are willing buyers.

100% correct. Is there any reason to think there will be a secondary market for these shares? Going through a sizeable VC funding round does not imply the existence of a secondary market.

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

#148

Post by toomuchtodo »

to3m wrote: post #136
abalashov wrote: post #102

Earlier quoted context omitted.

I dunno. $100k as a lump sum, here, in cash, now would solve a lot of serious financial problems in my life that $100k over 12 months doesn't even move the needle on. Some problems in life require lump sums. Cash is king.

I dunno too. How rich do you have to be to sniff at $100K? Perhaps you'd have to know something about the US tax situation that I don't. (I'm in the UK, so what do I know.) Maybe you end up with $10K in your pocket afterwards, or something, so it's kind of barely worth it, comparatively speaking.

Even at the highest marginal tax rate, you walk away with about $60k after tax.

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

#150

Post by sova »

5% of 50M = 2.5M 5% of 20M = 1M 5% of 10M = 500k 5% of 1M = 50k

$100k liquid good if their valuation is less than 2M, otherwise it makes fiscal sense to hold onto it (or sell once it hits open market), unless you think that it is not a reasonable investment.

Really, though, if you are not interested in the future of the company, sell it to someone who is working on it. Figure out what it's worth at valuation and take 20-70% of that, if you need some range parameters. And like I said sentence one: $100k liquid good.

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