41–50 of 80 posts
I've commonly seen grants like this diluted to almost zero. I would think carefully and strategically about how you can get some sort of value for the equity you vested. Its probably harder than you think to get decent liquidity on it.
Is it legal to dilute this to zero? Can't you sue post-exit (e.g. Saverin and Facebook)?
Very similar situation. You can think of your equity in terms of buckets: you get some for having the courage to start, some for the grind, and some for future returns. You're giving back the future returns bucket, not the other two. The vesting mechanism imperfectly maps to this. Keep the equity. It's not "dead" in any real sense (though people will describe it that way to talk the value down). Dilution will hit it…
Very similar situation. You can think of your equity in terms of buckets: you get some for having the courage to start, some for the grind, and some for future returns. You're giving back the future returns bucket, not the other two. The vesting mechanism imperfectly maps to this. Keep the equity. It's not "dead" in any real sense (though people will describe it that way to talk the value down). Dilution will hit it…
You're not going to sell a board seat. Not how it works. You probably can't even sell the shares!
Earlier quoted context omitted.
You're not going to sell a board seat. Not how it works. You probably can't even sell the shares!
Depends on why you have the board seat.
Earlier quoted context omitted.
Depends on why you have the board seat.
No it doesn't. It's very difficult to imagine a plausible circumstance where you have a company that took significant investment where you could hold a board seat that the board could not eject you from after you left the company. You can't sell a board seat.
Earlier quoted context omitted.
No it doesn't. It's very difficult to imagine a plausible circumstance where you have a company that took significant investment where you could hold a board seat that the board could not eject you from after you left the company. You can't sell a board seat.
"Yes, I'll put another hundred grand into the company, but I want a pref issue with an attached board seat."
However, I assume that, as a pivot implies, you are pre-product market fit. In which case here are some questions to consider.
What is the value of the company after the pivot? How much of what was done pre-pivot has any relevance to the post-pivot company?
Is the startup valued at $20m or do you have SAFEs with a $20m cap? If the company is _worth_ $20m that means you've probably had a priced round and someone would likely pay $2m for your vested equity. Is that correct? Sell to them with a substantial, say ~50%, liquidity preference that goes to the Company (likely the Board's approval is required for a share transfer).
In large part the purpose of the SAFE is to avoid valuing the company. What valuation did you put on your 409A? Are you equating your "given a win-state valuation" (the cap) with your actual valuation (409A).
There is a Michael Seibel video where he talks about founder equity. In it he suggests that you should give back a lot of equity if pre product market fit as this will actually maximize your total return.
Remember if you raised $2m at $20m cap but have spent $1m your remaining co-founder is essentially taking $1m at $5m cap if compared to starting again (since they still have to hand over 10% to the investors and now they have to hand over 10% to you too but you spent $1m so they are giving up 20% for $1m).
Would it be more sensible for your co-founders to start a new company and offer the investors a substantial chunk or all of their remaining money back or to come with? Did they invest in them, you or both of you? In a liquidation how much would you get?
I would suggest that you should look to offer at least 90% of your vested equity to not have the remaining equity diluted. A good rule of thumb here would be what could you sell the company for today with no one staying (more than the a few months for minimal hand over) and divide the amount you raised by this number and this is the dilution you should be looking for.
Earlier quoted context omitted.
Is it legal to dilute this to zero? Can't you sue post-exit (e.g. Saverin and Facebook)?
At a normally-papered startup? Yes. No.
Just keep the vested equity. That's why there's vesting.
10% is a large drag on the cap table.
Earlier quoted context omitted.
At a normally-papered startup? Yes. No.
The juice has to be worth the squeeze. No sense in fighting against fiduciary duty, minority shareholder oppression, etc., etc. unless there is some sort of value there. This usually means a successful exit before taking action.