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Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

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Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#51

Post by fortydegrees »

jashmenn wrote: post #8

Sorry to hear you're going through this. I went through something similar and it wasn't fun. As much as you have shareholder agreements etc. none of that matters too much if the business fails and so it's basically about what the two of you can negotiate. In my case, I've paid off a former business partner much like a loan. You can negotiate all sorts of parameters on this: monthly payments, grace period, cash trigge…

This seems like the most realistic and likely answer. My co-founder hasn't really been budging so far and I feel like they don't fully understand the situation. They think that because it was their idea that they are entitled to a lot more than me.

One issue for me is that I don't have that much faith in them being able to execute on the company vision by themself, e.g. they don't want to monetize right now or do a revenue split for reasons I'm unclear about, which makes the practicality of monthly payments tricky.

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#52

Post by rutthenut »

fortydegrees wrote: post #37
guytv wrote: post #12

If you're willing to buy out his share, I would approach the investor, explain the current dead lock, and get his support to force your partner to do a BMBY (Buy Me Buy You), where you offer him a price per his shares, which he either accepts or have to pay the same sum to you and buy your part.

I can't imagine my co-founder accepting this as they don't have the cash to buy my shares, so they would be forced to sell?

Well that's the situation the co-founder is creating by making these unreasonable demands...

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#53

Post by fortydegrees »

dcolkitt wrote: post #27

I would propose structuring the buyout in the form of convertible debt instead of a cash buyout. You give up your equity today, but the LLC gives your a convertible note to cover your valuation conditional on some future funding event. Set a specific valuation target, at which point the note will pay in cash equivalent to a certain percent of the company's equity. That defers the issue of liquidity until if/when the…

This makes a lot of sense. An issue I have with this is that one reason my co-founder wants to split is that they don't really want the pressure of running a startup, and so are unlikely to go on to raise additional money.

Could a situation where I get a cash payout, say $20k from the company to sell a certain %, and then the convertible debt to sell more in the future work?

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#54

Post by sage76 »

fortydegrees wrote: post #33
gwbas1c wrote: post #23

Earlier quoted context omitted.

I think this works if fourtydegrees has some bucks in the bank. Reading between the lines, I suspect fourtydegrees is young and doesn't have the kind of money to do this. (I also suspect that lawyers may be out of fourtydegrees' budget.)

Suppose I did have some bucks in the bank and did get a lawyer - how would they help? So far my co-founder has been pretty unreasonable with regards to compromising and/or negotiaton. The investor so far has also been very neutral and I think will remain so.

I have worked with lawyers. Once litigation is threatened, everyone suddenly loses all the neutral stuff and becomes reasonable.

If you can afford it, find a good lawyer.

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#55

Post by clarkevans »

basseq wrote: post #34

Since you have a 1-year cliff and have only been there 11 months, sounds like as of today you have 0% equity. So the immediate question may be whether your co-founder can fire you. In 1 month, you've vested 25% of your grant, or 10% of the company. So I would try to get to that mark to strengthen your negotiating position. Any references to 40% are red herrings at this point. Unless there's a specific buyback clause…

10% might be a good target from another perspective -- the investor put in 100k to get to 10% -- is that about how much "sweat-equity" that the OP has put in? Alternatively, just pretend the vesting was happening monthly.. how much is that 9.16%? The surviving founder does need enough incentive to continue. The OP should make sure it is hard equity of the same class as the investor's shares, where there are tax liability distributions and other preferences. If the OP is before the vesting cliff and your co-founder is fixated 4%, then perhaps think about the balance as unpaid sweat equity, disbursed as deferred compensation at a reasonable interest rate, as a percentage of revenue, to be paid off before co-founder raises their owner draw? Critically, the OP should assume best intents and look for win-win situations. Finally, seek competent legal advice!

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#56

Post by rutthenut »

fortydegrees wrote: post #43
s1artibartfast wrote: post #15

Can you expand on why they want you out and what happens if you stay?

We've spoken a fair bit and they don't have anything specific to say. It's mainly that they don't like or want the stress of working on a startup, and want to run it more as a lifestyle business.

That's tough. I think they will need to realise that the commitment to having seed funding and a co-founder are not the same as a lifestyle business - especially when they do not have funds of their own to fall back on and revenue is not presently hitting the numbers that would be needed.

Even a lifestyle business requires more than just 'coding'. That person at least is likely to have an unpleasant awakening. I just hope it doesn't hurt either of you too much

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#57

Post by CodeWriter23 »

Have you read your partnership agreement? Are there duties assigned to each partner? If so, let him play his “40% of nothing card” right into breach of contract then sue for ownership of his shares and then hire someone to do what he refused to do. But probably, speak to a lawyer. You do need to respond to this offer in writing, even if rejecting it.

Re: Ask HN: Co-founder wants me to leave but won't entertain a buy out offer

#58

Post by mmastrac »

fortydegrees wrote: post #43
s1artibartfast wrote: post #15

Can you expand on why they want you out and what happens if you stay?

We've spoken a fair bit and they don't have anything specific to say. It's mainly that they don't like or want the stress of working on a startup, and want to run it more as a lifestyle business.

If they want to run it as a lifestyle business, that might be some leverage with your investor. Lifestyle businesses are great, but they do not return the same as high-growth venture businesses.
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