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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?

#61

Post by FreakLegion »

throwpoaster wrote: post #55
tptacek wrote: post #46

Earlier quoted context omitted.

This person isn't an investor, but even an investor can't sell their board seat. This is getting silly. "Hold on to your founder board seat and sell it later" is not real advice.

Depends on why you have the board seat.

As a hypothetical, kind of? But not really. The board is written into the company's bylaws, as a rule, and requires a board vote to change. 'Selling your board seat' really means engineering a complex deal that requires a bunch of other people to sign off.

The same is true of selling your equity, by the way. As a founder you have common shares, but early-stage investors want preferred shares with QSBS treatment. Even if you're allowed to sell your shares, which most startups don't let you do, it's not in your power to convert them to preferred or give the buyer QSBS treatment.

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

#62

Post by tptacek »

FreakLegion wrote: post #61
throwpoaster wrote: post #55

Earlier quoted context omitted.

Depends on why you have the board seat.

As a hypothetical, kind of? But not really. The board is written into the company's bylaws, as a rule, and requires a board vote to change. 'Selling your board seat' really means engineering a complex deal that requires a bunch of other people to sign off. The same is true of selling your equity, by the way. As a founder you have common shares, but early-stage investors want preferred shares with QSBS treatment. Even…

The problem we have in all these threads is that sometimes people just say stuff, because it sounds interesting or it's fun to fantasize about, and it's hard to tell that stuff apart from actual advice.

This person probably doesn't even have a board seat, but either way: you're not selling a board seat.

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

#63

Post by tptacek »

moron4hire wrote: post #34
peter422 wrote: post #31

Earlier quoted context omitted.

The issue has nothing to do with whether he worked hard, it has to do with the fact that the work the company did ended up being not very valuable, so much so that the company is doing something completely different. Ultimately he created very little value and therefore is entitled to very little value. The company can just go out of business and start fresh! Raising money is not value. 2-5% could be appropriate. 10%…

Bullshit. He helped build a company that could even continue past a year. That's better than literally 80% of the startup market. Look up BLS statistics. Not only that, he helped build a company that could even bother to attract the attention of investors. Prima facia , someone thinks there's value there. The world is full of jokers talking about starting a business and jokers who have "started" a business but are fa…

None of this has anything to do with anything. In the immortal words of William Munny, "deserve's got nothing to do with it". Any properly papered company has a legal structure based on 20+ years of SFBA lawyers predicting that founders are going to leave their companies, which will need to remain going concerns for any startup ever to be investable.

If you're an exiting founder in an LLC without an operating agreement, you can kill the company. Otherwise: you leave with whatever you vested. That's really all there is to the discussion, for now!

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

#64

Post by ldjkfkdsjnv »

icedrop wrote: post #36
codingwagie wrote: post #5

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)?

It happens all the time, I have seen it in NYC. Usually its an early stage thing, cofounder leaves after 1 year etc. Much harder to do with a complicated cap table. Investors I could name even suggest it

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

#67

Post by apparent »

icedrop wrote: post #36
codingwagie wrote: post #5

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)?

Suing would only make sense if the dollar value is very high.

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

#68

Post by throwpoaster »

FreakLegion wrote: post #61
throwpoaster wrote: post #55

Earlier quoted context omitted.

Depends on why you have the board seat.

As a hypothetical, kind of? But not really. The board is written into the company's bylaws, as a rule, and requires a board vote to change. 'Selling your board seat' really means engineering a complex deal that requires a bunch of other people to sign off. The same is true of selling your equity, by the way. As a founder you have common shares, but early-stage investors want preferred shares with QSBS treatment. Even…

> 'Selling your board seat' really means engineering a complex deal that requires a bunch of other people to sign off.

The company is at (pre-)seed, so the next round is this exactly: they're probably rewriting the shareholder agreement, for example.

I wouldn't call it more "complex" any other round.

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

#69

Post by vessenes »

tptacek wrote: post #39
vessenes wrote: post #11

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 discou…

I agree with Joel Spolsky that nobody should get shares for personal capital contributions (at least, not unless they're investing in a round). If you want to be fastidious, set up IOUs.

I'm 100% the opposite. It's wrong for one group to expect preferred stock for their capital contributions, while they ask the usually less experienced CEO to make a tacit capital contribution (lower than market salary) and then on top to ask them to put cash in that won't be given the same terms -- nah.

Now, if the founder capital went in pre-round, and a round was raised, I'm with you -- that's fine - and between the founders at that point; they got paid in equity valuation. But otherwise; nope.

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

#70

Post by tptacek »

throwpoaster wrote: post #68
FreakLegion wrote: post #61

Earlier quoted context omitted.

As a hypothetical, kind of? But not really. The board is written into the company's bylaws, as a rule, and requires a board vote to change. 'Selling your board seat' really means engineering a complex deal that requires a bunch of other people to sign off. The same is true of selling your equity, by the way. As a founder you have common shares, but early-stage investors want preferred shares with QSBS treatment. Even…

> 'Selling your board seat' really means engineering a complex deal that requires a bunch of other people to sign off. The company is at (pre-)seed, so the next round is this exactly: they're probably rewriting the shareholder agreement, for example. I wouldn't call it more "complex" any other round.

A startup that has a board is a company you can't sell a board seat at. This is past silly. Despite what you wrote earlier, "holding on to and selling" board seats is not a thing.
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