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I'm getting screwed with my stock options

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Re: I'm getting screwed with my stock options

#31

Post by alexatkeplar »

yumraj wrote: post #10

Definitely talk to a lawyer, one who knows about startups. NOTE: the lawyers for your startups represent the company, so don't talk to them - find your own lawyer. Other than that, AFAIK what you mention is not typical. Option pool should not be created by "taking" options from employees, but rather by issuing new shares which dilutes everyone equally. You should bring it up and ask that they create the option pool b…

This is the sanest comment on the thread by far. You and your lawyer need to a) demonstrate to the co-founders that you understand how options pools are usually created, and b) understand by what mechanism the co-founders intend to dilute you disproportionately to themselves (see btown's comment for some ideas). The good news is that you are already probably 37% vested, and they have chosen to co-locate their operations with you, so you should be in a strong position to negotiate.

Re: I'm getting screwed with my stock options

#32

Post by tptacek »

Be careful executing your options if you don't trust the company. Execution might not substantially improve your rights as a shareholder. It will, on the other hand, involve you surrendering your own cash. There are startup horror stories of early employees executing and getting zeroed out at acquisition.

(I say this as someone who listened to those horror stories, refused to execute options, and lost a low six figure return as a result. I don't regret the decision though; on the other hand, if I had ponied up thousands of dollars and gotten zeroed out, I probably wouldn't be able to live with it.)

Re: I'm getting screwed with my stock options

#33

Post by wpeterson »

arethuza wrote: post #4

Having handled things like that badly in the past - the first thing I would recommend is to calm down and think about it rationally as a business transaction open to negotiation. Also, aren't share option pools handled by (potentially) issuing new shares (in UK terms the difference between issued and authorized share capital) rather than shuffling around existing shareholdings/options?

Agreed on issuing new shares for options pools. This dilutes all pre-existing equity holders equally.

Re: I'm getting screwed with my stock options

#34

Post by kordless »

webwright wrote: post #25

The instant your partners know you're involving a lawyer is when the relationship becomes adversarial (possibly permanently). This is not the lawyer moment. The lawyer moment is "after a lot of discussion, these guys refuse to do what me and the rest of the world thinks is fair". Has there been a lot of discussion? Get on a call with them ASAP. Tell them you think that pro-rata is both what's FAIR and WHAT IS DONE 99…

The guy has no business trying to learn how to be a diplomat when he's already tasked with a day to day job for the founders. If it's gotten this far in the conversation (posting on HN) then the situation is clearly bad, at least on one end. Given it's a situation with unfair dilution, the assumption is that all stakeholders are well aware of the dilution results and are OK with what is being proposed. They are founders, after all, and SHOULD know what they mean by asking for this. Also, don't think for a minute they don't already have attorneys queued up on their end.

I would say this is EXACTLY the time to have an attorney get involved to take a look at the documentation and render an opinion. If the situation is ugly, they may fire him if he protests, but that also gives rise to a reason to question the cause for termination. Given the contractual agreement between the parties, a termination event may provide an avenue to compensation for unfair termination, especially when seeking legal council could be shown as the reason for termination.

When in doubt, lawyer up and be cautious of making blaming statements that aggravate the other party. You may want to end up working with them in the future. Or not, depending.

Re: I'm getting screwed with my stock options

#35

Post by tptacek »

kordless wrote: post #34
webwright wrote: post #25

The instant your partners know you're involving a lawyer is when the relationship becomes adversarial (possibly permanently). This is not the lawyer moment. The lawyer moment is "after a lot of discussion, these guys refuse to do what me and the rest of the world thinks is fair". Has there been a lot of discussion? Get on a call with them ASAP. Tell them you think that pro-rata is both what's FAIR and WHAT IS DONE 99…

The guy has no business trying to learn how to be a diplomat when he's already tasked with a day to day job for the founders. If it's gotten this far in the conversation (posting on HN) then the situation is clearly bad, at least on one end. Given it's a situation with unfair dilution, the assumption is that all stakeholders are well aware of the dilution results and are OK with what is being proposed. They are found…

Saying that may make you feel better, but Tony seems to have the better argument. You absolutely can be fired for lawyering up what the founders intended to be a pro-forma restructuring of the shares. You will probably have no recourse when that happens. Assuming you're vesting, like most employees (and founders!) are, getting fired will cost most of your shares.

Talking to a lawyer: good.

Bringing a lawyer into the discussion with the founders: bad.

Re: I'm getting screwed with my stock options

#36

Post by arethuza »

wpeterson wrote: post #33
arethuza wrote: post #4

Having handled things like that badly in the past - the first thing I would recommend is to calm down and think about it rationally as a business transaction open to negotiation. Also, aren't share option pools handled by (potentially) issuing new shares (in UK terms the difference between issued and authorized share capital) rather than shuffling around existing shareholdings/options?

Agreed on issuing new shares for options pools. This dilutes all pre-existing equity holders equally.

Transferring existing shares can also create tax liabilities - not much fun if you shares look worth a lot in paper but in reality you have little liquid cash to actually pay tax bills!

[NB UK experience]

Re: I'm getting screwed with my stock options

#37

Post by mrkurt »

You should talk to a lawyer, primarily to find out where you stand. It is very hard for a tiny startup to properly issue options internationally, and you may find that you don't own options in an enforceable way, or have huge tax problems, or any number of other things.

Once you've settled that, have them explain what they're trying to do and have a lawyer interpret it for you. Normally employee option pools (and any kind of dilution) are expanded by issuing more shares. That would dilute everyone equally. To dilute people at different rates, the company would actually need to issue a bunch more shares (diluting everyone even more) and then grant options to the other guys. As far as I know, judges look on that very unfavorably. The startup's lawyers should be advising against that.

Despite what other commenters are saying, this probably isn't a negotiation. It's likely just incompetence on their part. Your first priority should be understanding precisely what position you and the company are in, and then evaluating from there.

Re: I'm getting screwed with my stock options

#38

Post by oaktowner »

kordless wrote: post #34
webwright wrote: post #25

The instant your partners know you're involving a lawyer is when the relationship becomes adversarial (possibly permanently). This is not the lawyer moment. The lawyer moment is "after a lot of discussion, these guys refuse to do what me and the rest of the world thinks is fair". Has there been a lot of discussion? Get on a call with them ASAP. Tell them you think that pro-rata is both what's FAIR and WHAT IS DONE 99…

The guy has no business trying to learn how to be a diplomat when he's already tasked with a day to day job for the founders. If it's gotten this far in the conversation (posting on HN) then the situation is clearly bad, at least on one end. Given it's a situation with unfair dilution, the assumption is that all stakeholders are well aware of the dilution results and are OK with what is being proposed. They are found…

I've had the opposite experience. I once was offered an unfair equity package from cofounders of a startup. I (and two others) wrote up a document voicing our unhappiness and the reasoning behind it.

And they ended up agreeing with us. While the offer they first came up with was not fair to us, they honestly hadn't realized it (they had a lot on their minds, it was the first solution that came to them, and they simply proposed it).

We did not poison our relationship. They agreed that our solution was more fair (it involved each of them getting less equity and each of us getting more, by the way). And, in the end, the company had a (modestly) successful exit.

We are all friends to this day.

OP: If it's unfair: write down why it is unfair and what you would propose as a more fair agreement. Only if and when they reject that should you involve an attorney. But there is absolutely a chance that they will realize your solution is better.

Re: I'm getting screwed with my stock options

#39

Post by encoderer »

patio11 wrote: post #7

How about "I appreciate your desire to have more stock available to give new hires. You've proposed that I give up 4%, which is 40% of my allocation. I'm amenable to giving up 1%, which is 10% of my allocation and equal to the portion which you're willing to give up, and lets us bring in a whole new engineer." If they counter offered, I might give up another 0.5% in return for "OK, you guys can have 1.5%, but in retu…

Great advice. Always have acceptable alternatives in mind. For instance, propose that they accelerate vesting on your remaining options 50 cents on the dollar. So if they want you to give up 2% they would instantly vest 1%. The term here is "single trigger". Point being, be creative and try to work out a deal. A 4% starting offer isn't unreasonable.

Re: I'm getting screwed with my stock options

#40

Post by rwaliany »

1) get RSUs as soon as you can (if it's not too expensive or seed is a convertible note), so that if you leave you're still an owner in the company. 2) they should just add shares to the company to increase the option pool. I'd consider anything else shady.
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