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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

#241

Post by ghaff »

tptacek wrote: post #210
xwdv wrote: post #196

Earlier quoted context omitted.

Let them do it then, so the blood can be on their hands. Otherwise the story is "tech co-founder walked away because he couldn't keep up".

The funny thing about this is that it isn't even good advice in the chest-puffing status-seeking model in which its proposed, because a big controversy with a former founder might mostly just makes you someone reasonable people might not want to work with.

If there's a pattern it's one thing. But for a single event when it's hard for an outsider to figure out who was in the right and who was in the wrong, it's probably easier just to avoid both of them.

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

#242

Post by mamon »

thomasahle wrote: post #234
gkoberger wrote: post #209

Earlier quoted context omitted.

Yeah, but each share is valued at a fraction of a cent. The company will have to cut a check for a few dollars. (Happy to explain more if you’re interested!)

If the company has already taken investor money, say x dollars, for 10%, doesn't thst mean the company is worth 10x dollars?

No, that means that this one investor THINKS they are worth 10x dollars. Other investors might value the company differently, based on number of customers, cash in bank, their own subjective opinion on the product, etc.

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

#243

Post by hluska »

You have some options:

1. Hire the best lawyer you can afford. This is easier said than done because there are relatively few lawyers who are qualified to do this kind of work. The ones who are qualified will be very expensive and unless I’m missing some key details, I don’t think you have much chance of coming out of litigation with a profit. You might come out with a W, but I don’t think it will be worth the cost.

2. Assume that this startup is fucked, leave and keep a good relationship with the seed investor.

3. Assume that this startup is fucked, stall for a month until you actually own stock and then you have some leverage. BUT, depending on where you live, you may/might/likely will incur a tax liability on those shares. If you already assume that the startup is fucked, talk with an accountant to figure out what this strategy will do to your 2020 taxes owing.

4. Assume that the startup is fucked and name the company/your cofounder. It would be damned nice to avoid this toxic piece of shit in the future.

Outside of those options, I don’t see any other good choices.

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

#244

Post by im3w1l »

Aunche wrote: post #187
gkoberger wrote: post #117

Can I give you some advice that really sucks? Walk away. It's not fair, but starting a company isn't like getting a job. It's a relationship and a risk that doesn't always work out. Sometimes you find more money and success than you could ever dream of, and other times you waste 11 months. Here's my thought process. You and your cofounder aren't going to be able to work together after this. The company has no money a…

Maybe it's just because I'm an outsider, but startup finance is complete nonsense to me. >Same goes for giving you the 40%... there's no way they can build a company when someone not involved owns a huge stake. This actually happened to one of my professors, which represents the opposite end of the absurdity. He started the company with a friend. The company pivoted to a completely different direction and the friend…

To me as an outsider too, it seems one middle path is to pay people doing the work in equity thus gradually diluting away people who left. In the beginning, the guy who left owns a large piece of a small pie, as time goes they will own smaller and smaller piece of a larger and larger pie.

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

#245

Post by teabee89 »

codethief wrote: post #198

> We were 51/49% to them and took a small round of pre-seed funding (~$100k) so our cap table is approx 40% for me and co-founder, 10% option pool and 10% investor. We have very standard shareholder agreements for 4yr reverse vesting with 1yr cliff. Could anyone tell me what this means in plain English (preferably, ELI5)? I have no idea what term sheets look like in detail but I would really like to learn.

The company's ownership is divided in shares, also called equity. A cap(italization) table details the distribution of equity. In this example, 40.8% (= 51% * 80%) for founder 1, 39.2% (= 49% * 80%) for founder 2 (assuming it's OP), 10% for investor and 10% for something called options that may be granted in the future to new employees that allows them to buy shares of the company at a low price. 4-year reverse vesting with 1-year cliff means that if one of the founders leaves before 1 year of signing the contract, they are forced to sell at no profit (still, not $0) the entirety of their shares to the other shareholders. After 1 year of staying at the company, they may keep 1/4 of their shares and are forced to sell only the rest. Following that 1 year mark, they earn the right every month at the company to keep ~0.833% (= 40% / 48 as there are 48 months in 4 years) of their shares and forced to sell the rest. At the 4 year mark of staying, they are no longer forced to sell any of the initial set of shares. It does not apply to any future grants for which new conditions or new schedules may apply.

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

#246

Post by gojomo »

tptacek wrote: post #102
clarkevans wrote: post #55

Earlier quoted context omitted.

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 liabi…

I think people should be careful with the "seek legal advice" thing. Obviously, you need to talk to a lawyer. But: (a) You need a lawyer who deals with this kind of stuff regularly and has a realistic and well-informed view of what the outcomes are going to be. Most lawyers aren't like this. (b) Legal gets expensive very fast, especially as it transitions from advice to negotiation and document review. At this scale…

Agree completely that poster would want the right kind of lawyer – someone who specializes in this kind/scale of business, and that reaching out to acquaintances/etc who've been in relevant situations may be as valuable or more than legal advice.

Agree also that lawyer-billing-on-the-clock gets expensive fast. But unless poster already has a go-to trusted counsel – which seems not to be the case – the mere act of "shopping around" can get 15m-1h of unbilled pre-engagement discussion from a bunch of lawyers. Essentially, poster could type up a 1-2 page brief, in more confidential detail than the post here, and have dozens of short conversations with lawyers (some of which would read the brief 1st) about key issues, tactics, & potential outcomes. The contrasts between what lawyers say, & what they ask about, will be as informative as any one conversation.

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

#247

Post by tptacek »

ghaff wrote: post #241
tptacek wrote: post #210

Earlier quoted context omitted.

The funny thing about this is that it isn't even good advice in the chest-puffing status-seeking model in which its proposed, because a big controversy with a former founder might mostly just makes you someone reasonable people might not want to work with.

If there's a pattern it's one thing. But for a single event when it's hard for an outsider to figure out who was in the right and who was in the wrong, it's probably easier just to avoid both of them.

I'm 100% avoiding on principle ever working with a founder who ruthlessly terminated a partner in month 11 of a cliff without simply accelerating the cliff, so there's not much need to litigate that point.

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

#248

Post by ohyes »

It sounds like you own 40% of something fairly valuable and now that it's 11 months into your contract other founder who needed your help is getting greedy and trying to push you out before you are owed anything.

You said it yourself, you've grown hugely, you're dominating SEO since you joined, and built loads of products. This is your 'partner' getting greedy after you've done a lot of hard work. It wouldn't have happened without you. Don't undersell yourself.

Your 40% is worth $400k based on that initial funding valuation, right? Assuming it's as successful as you seem to be implying, it is almost certainly worth more now.

Everyone is telling you to roll over but seriously, fuck them. This other toxic guy is the one who should be getting pushed out, not you.

The other investor ultimately has power in this situation, not you or him, so whoever convinces them that they are the person to go with gets the seat and gets to continue with the project.

If he has a good relationship there you're probably fucked, but results matter... and if you can prove you've done great stuff since joining and and have great plans for the future, he can be replaced.

To be clear: this guy has decided to blow up the project so he can get a bigger share, if it all fails now he can only blame himself.

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

#249

Post by pc86 »

cwkoss wrote: post #235
pc86 wrote: post #230

Earlier quoted context omitted.

You can frame it that way if you want but it's just not true. OP has been doing X for 11 months, for free (well, for equity). Right now - today - he owns that equity, regardless of what his partner is asking him to do. If he stops doing X what is his argument against his partner and the investor - who own 50-60% of shares - saying that he's abdicating his duties?

"This is a complex technical issue, and I'm still investigating to find the right solution"

"Lying to your investors is fraud."

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

#250

Post by gojomo »

gojomo wrote: post #183

Find a lawyer/negotiator with experience in this area you can talk to directly, high-bandwidth. They'll echo many of the themes here, but be able to get (& give) more depth/detail. This is a negotiation that's already started. Any communication about what they are or aren't interested in is a negotiating stance, or opening offer, which may be very far from what's possible if you properly understand your position/need…

Also: if company has 'standard' vesting documents & has taken outside funding, is the lawyer who set those up still a trusted neutral resource for both founders? Even in their role as "company's lawyer", they could talk to you both about how the existing agreements affect the resignation, firing, or mutually-agreed exit of a founder, and discuss ideas that help the company survive & thrive past that event.

Though, to actually negotiate (& legally execute) a durable exit agreement, you'd likely want a separate lawyer on your side. (And, given the values implied by the outside investor's price-paid, & your estimation of future revenues, spending a few $thousand here could save $tens-of-thousands or more later.)

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