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Co-founder exiting after pivot – what's a fair exit package?

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Re: Co-founder exiting after pivot – what's a fair exit package?

#11

Post by vessenes »

Some good advice here; couple qs: did you get shares for your personal capital contribution?

Simplest thing to do if you think it will work and don't need money is just sit on your vested shares, perhaps ask for a little more as an exit package, be supportive, offer to join the board as an advisor, and move on.

If you'd like a clean break and some cash, you could call your last round investors and offer them a discount to the last price for your vested shares. Depending on the state of the company and what's next, they may be interested -- there's an implication in these conversations that you'll find SOMEONE to buy eventually, which they may or may not like. I'd guess unless things are gangbusters, you might look at 30-50% discount from the last valuation, knowing nothing about the common, the company or the pref stack.

Another possibility - you could offer to sell your shares at a discount to your cofounder, leaving him in a good spot - he could ask around for a loan / investment (in which case the company would be the buyer, and he'd benefit pro-rata).

Personal advice - keep some, sell some, stay available to help.

Re: Co-founder exiting after pivot – what's a fair exit package?

#12

Post by brudgers »

throwaway-xx wrote: post #7
agcat wrote: post #6

Went through a similar scenario a few years ago, similar valuation range and stage. The person was nice, so we amicably decided to settle at around 3% sweat equity.

interesting, i might end up doing something similar. if you don't mind me asking, how much did you sell the remainder of your shares for? was it close to your FMV? i feel like i'm already being negotiated hard by being forced to sell my equity to minimize dead equity and then instead of selling at the 409A valuation, being sold at the FMV seems like i'm losing another battle. thoughts?

seems like i'm losing another battle

If you frame it as a battle, you are already losing.

Because it is a battle where you are outgunned and out organized.

And in a battle you go from being a former employee/founder to an existential threat while burning your relationships.

Re: Co-founder exiting after pivot – what's a fair exit package?

#13

Post by brudgers »

ImPostingOnHN wrote: post #9
throwaway-xx wrote: post #7

Earlier quoted context omitted.

interesting, i might end up doing something similar. if you don't mind me asking, how much did you sell the remainder of your shares for? was it close to your FMV? i feel like i'm already being negotiated hard by being forced to sell my equity to minimize dead equity and then instead of selling at the 409A valuation, being sold at the FMV seems like i'm losing another battle. thoughts?

They're forcing you to sell?

Buy sell agreements are common.

Re: Co-founder exiting after pivot – what's a fair exit package?

#14

Post by vessenes »

bound008 wrote: post #10

Important Questions: 1. How much did your involvement lead to the fundraising success? 2. How much did your involvement lead to the products' early success? 3. Does it make sense to take the IP early idea that you were passionate about as part of your exit package? ========== Expectations: * you should expect no cash. taking cash will lead to a lower chance of a return on your equity. if you desperately need cash, yo…

Small nit - protection against dilution - that may not be true; there are laws in the west coast about minority investor treatment. Your overall point -- do what you can to stay a little long and make sure the company is worth something -- is absolutely the right way to think about it.

Re: Co-founder exiting after pivot – what's a fair exit package?

#15

Post by csallen »

1. Don't ask for cash or an exit package imo. This isn't a mature, profitable company. It's a startup. You took a shot, you missed, and you're quitting. I think it's fair for there to just be a clean break there. Either that, or stick with the company and see it through.

2. Keeping the vested equity seems fair to me. The entire point of that vested equity is to represent the sweat you put into the business.

Re: Co-founder exiting after pivot – what's a fair exit package?

#16

Post by nodesocket »

csallen wrote: post #15

1. Don't ask for cash or an exit package imo. This isn't a mature, profitable company. It's a startup. You took a shot, you missed, and you're quitting. I think it's fair for there to just be a clean break there. Either that, or stick with the company and see it through. 2. Keeping the vested equity seems fair to me. The entire point of that vested equity is to represent the sweat you put into the business.

Agree, but asking for his personal investment contribution back is totally fair. Also, make sure you understand how future investment will affect your 10%. Don't want to be left in a Eduardo Saverin (Zuck) situation.

Re: Co-founder exiting after pivot – what's a fair exit package?

#17

Post by michaelt »

UzhasKakoi wrote: post #3

Curious, what was doing your friend, who is ready to take over and lead? Why not switch sides, take over his functions, and offer your stake for sale during the next raise at that valuation? Why not offer your stake to the company’s investors at the previous valuation?

A pivot, by definition, means turning away from the original course of the business.

If you were really motivated by the previous goal, and you're disinterested in the new goal, why stick around?

I've seen companies pivot from "we are going to solve plastic trash recycling using automation" to "we are a trading platform for bales of plastic trash" - much more achievable, but much less interesting.

Re: Co-founder exiting after pivot – what's a fair exit package?

#18

Post by moron4hire »

As someone who has never been in this situation, some of the replies in this thread are very disappointing. They basically seem to amount to, "eh, go pound sand, quitter."

You've put in a ton of work during the hardest period for a startup. That's not worth nothing.

In opposition to these other people, I'd say maybe a frank but congenial discussion with your co-founder is in order. Something along the lines of being burnt out or not agreeing with the current direction of the company, those details don't matter so much. If think you'd want to ultimately fall on you wanting to "pass quietly into the night."

Sometimes people come up with solutions on their own that would surprise you. You just gotta not pigeon hole them into a particular type of response from the start.

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