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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

#51

Post by nordsieck »

danielweber wrote: post #19
btown wrote: post #13

Earlier quoted context omitted.

On the other hand, it is standard advice in the venture-backed startup world to NEVER give an anti-dilution clause - I've heard the words "never give an anti-dilution clause to anyone unless they're God, and even then he'd better be giving you a term sheet worth its weight in gold." Unless you were aware of such a clause, it's unlikely that it's in there. At the end of the day, without a clause like that, the parties…

Without an anti-dilution clause, early investors can be stomped all over by later investors. NB: I'm not disagreeing with your arguments for why anti-dilution clauses are bad. But minority shareholders are otherwise relying on the trust from the board, which has every incentive to screw them over, so it's a no-win situation.

This is not strictly true. Early investors usually have pro-rata rights.

Re: I'm getting screwed with my stock options

#53

Post by Aqueous »

encoderer wrote: post #39
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.

He shouldn't be giving up any of his shares. At all. He should be demanding more options. In all likelihood - he's the reason the business exists. They would have nothing without him.

Re: I'm getting screwed with my stock options

#54

Post by eccles »

jdmichal wrote: post #30
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…

I just want to point out: There's a difference between lawyering up for advice, and hiring a lawyer to be your front man during the negotiations. OP can talk to a lawyer to examine his contract(s) and gain advice on what the potential options available to him are according to the law and those contracts. The company does not need to and should not know anything about this level of involvement.

+1

In fact I bet the other parties have done the same already.

Re: I'm getting screwed with my stock options

#55

Post by danielweber »

swang wrote: post #41
tptacek wrote: post #32

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 figur…

Can you explain more about how they can screw you over when they get acquired?

I know of multiple startups where the acquisition price was exactly the price necessary -- down to four significant digits -- to pay off the VC companies that made up 3 of the 5 sitting board seats.

I myself exercised a (small!) amount in a company that got acquired and my shares all went to $0 because other shareholders got preferential treatment. (This company earlier made a point of the fact that there were no investors with preferential treatment, but either lied about that or somewhere along the line they got desperate and gave preferential treatment. In either case, the stakes were too small to bother suing.) At least I could claim a capital loss.

Re: I'm getting screwed with my stock options

#56

Post by danielweber »

Aqueous wrote: post #53
encoderer wrote: post #39

Earlier quoted context omitted.

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.

He shouldn't be giving up any of his shares. At all. He should be demanding more options. In all likelihood - he's the reason the business exists. They would have nothing without him.

Unfortunately it all depends on his bargaining position right now. It might feel good for the rest of us for him to take one for the team and stand up for his rights, but it could lead to him having a worse outcome if those rights are beyond his bargaining position.

Re: I'm getting screwed with my stock options

#57

Post by erichurkman »

swang wrote: post #41
tptacek wrote: post #32

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 figur…

Can you explain more about how they can screw you over when they get acquired?

Let's say you raise $10m in preferred rounds and proceed for a few years, but it's not working. You eventually find a buyer that will acquire/acqui-hire your company for $5m.

That $5m is not split evenly, it's distributed to the highest priority share classes first (after potentially paying off certain debts, notes, etc). So your Seed, Series A, etc will get paid out of the $5m – nothing is left for common.

Common is the last to earn money, and options are part of the common class.

Re: I'm getting screwed with my stock options

#58

Post by Silhouette »

Aqueous wrote: post #53
encoderer wrote: post #39

Earlier quoted context omitted.

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.

He shouldn't be giving up any of his shares. At all. He should be demanding more options. In all likelihood - he's the reason the business exists. They would have nothing without him.

They would have nothing without him.

The trouble is, that probably isn't true. They might have had nothing without him before, but now they have 16 people left without him, and presumably by now some of those other people are technical as well.

So, his relative importance may already have been reduced from "indispensable" to "valuable technical leader", and his personal negotiating position is getting weaker all the time as the business grows. He may have to give up something of value now to consolidate his position for the long term, but if he's been suckered already then consolidation may be the best course of action that is still available to him. Of course even a somewhat reduced but secured stake in the business may still work out very lucrative if the company is successful at its new scale and funding. The real question is how much influence he has left to give up as little as possible while securing the rest.

Re: I'm getting screwed with my stock options

#59

Post by tptacek »

Silhouette wrote: post #45
tptacek wrote: post #35

Earlier quoted context omitted.

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…

While these practical considerations are interesting, I think there is another observation worth making as well. If you really can be fired without cause or notice and at the loss of most/all of your interest in the business, you have no cards and anything you do is a bluff. If you really are dealing with cofounders who are are willing to push you out of 40% of your interests without offering much of anything in retu…

That doesn't make sense. You have at least one obvious card, which is that the board wants you to continue working for the company. If they didn't, instead of trying to claw back some of your equity, they'd claw back most of it by firing you.
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