To those saying the OP shouldn't talk to the founders: why? I'm just curious.
By doing what they did they've already proven bad faith, talking to them now just warns them.
Better to seek legal counsel and have them talk to the founders.
Ask HN: My startup has concealed from me that it raised funding. What to do?
21–30 of 117 posts
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#22The best course of action is to just go along with it while you get legal council. The more information you can glean while you're working there will only help strengthen your case. If you simply lawyer up and confront the owners, they'll go into bunker mode, fire you and then lawyer up themselves.
Act normal, and continue to work and essentially collect as much as evidence you can. You can drop hints, talk to people to find out what they know, etc.
The more you know, you can start to build a timeline and the implications that the company was effectively doing this behind your back for nefarious reasons. The more you have documented, the more you strengthen your case so when its time to actually threaten them with legal recourse, you'll have all the evidence you need while they'll be scrambling to build a defense.
Hope this turns out well for you!
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#23I'm hung up on the fact that you are exercising your options. Why? If the options are set to expire that quickly then something else is amiss as well. Generally you exercise options only when you intend to sell or leave the company and would lose those options. From what you described, you gave no reason for exercising the options. I'd speak with the founders and enquire why they never executed the agreement, that is…
Your assumption is incorrect regarding the reasons for exercising options. Early exercise of options often garners positive tax benefits for the optionee.
That's a good point. What I left unstated, and what I was wondering was if this individual was given guidance by the founders to exercise his options. Thereby effectively reducing his salary further, when he already stated that his salary was an issue of contention. Something I'd be guarded about.
However, you are right, if this company succeeds, he saves some money on taxes by owning stock early.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#24Yes, you have been cheated quite seriously. Consult a lawyer immediately, especially since the (Canadian) tax filing deadline is soon. Do not press the issue with the founders until you've received thorough legal counsel. Another problem, however, is that even if you do confront them and get to claim what's rightfully yours, you're probably going to be asked to leave the company. It's worth noting this as you plan ah…
> going to be asked to leave the company
I think this is moot. Such a disaster would indicate bad shit is happening. Lawyer up asap.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#25You shouldn't be in bad shape tax-wise. I don't know Canadian tax law - but in the US, you only get taxed when you sell the shares. Capital gains would not be recognized if you exercised the options and held onto the shares.
Since you have been exercising your options - you are a shareholder in the company (or a member depending on the structure) and I would imagine that the company's operating agreement would require them to disclose any funding rounds to you. I'd get a hold of that if you can.
It sounds like you're working with amateurs, so I'd pass it by a lawyer to determine the real impact on you - but I wouldn't flip out until you get the entire picture. They may be planning on diluting the hell out of you or they may just not know what the hell they're doing.
I'd say it's too early to tell.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#26There are legitimate reasons to exercise early, if you think the business will be sucessful. 1. You avoid the tax issues the OP faced if you exercise at a lower valuation. 2. It's also more tax efficient if you plan to hold the shares or wait a few years to sell. It sounds like your bosses are ethically challenged. With 3%, you are an employee and not a cofounder. Instead of suing them, consider writing it off as a l…
I can't imagine writing this off. He's been seriously wronged, to the tune of quite a lot of money. The raise alone (promised in writing, never delivered) is probably substantial, considering it's been about a year since it should have happened. The tax issue seems less clear, but I have a hard time imagining you wouldn't be liable if you hid important investment details from a shareholder and therefore caused him a huge tax liability.
In any case, it certainly seems worth talking to a lawyer to see if there's a case, and if there is a case it's absolutely worth pursuing. If you let people get away with this behavior, you just encourage more of it.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#27There are legitimate reasons to exercise early, if you think the business will be sucessful. 1. You avoid the tax issues the OP faced if you exercise at a lower valuation. 2. It's also more tax efficient if you plan to hold the shares or wait a few years to sell. It sounds like your bosses are ethically challenged. With 3%, you are an employee and not a cofounder. Instead of suing them, consider writing it off as a l…
I can't imagine writing this off. He's been seriously wronged, to the tune of quite a lot of money. The raise alone (promised in writing, never delivered) is probably substantial, considering it's been about a year since it should have happened. The tax issue seems less clear, but I have a hard time imagining you wouldn't be liable if you hid important investment details from a shareholder and therefore caused him a…
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Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#28As you talk to legal counsel, you might possibly ask if you could get a tax shelter of some kind - it may not be feasible, but sometimes colleges will take donated real estate, for example, and the pay an annuity. So say a farmer had a piece of land, it increased to a million, and wants to avoid capital gains. In some cases donation of assets can result in doing something good for an institution but also getting ongoing income out of it.
Not sure it applies to capital gains with options/alternative minimum tax, but a tax lawyer might know.
If the tax bill does turn out to be like the price of a car, aside from taking some form of legal action, or if it fails or is not possible, then you can make payment arrangements, so that in theory, paying off the tax over time will maintain your ability to keep hold of the asset of the options.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#29To those saying the OP shouldn't talk to the founders: why? I'm just curious.
They've already lied to him.
He needs to know what his choices are before he talks to the founders so he knows if what they're saying is bullshit or not.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#30You shouldn't be in bad shape tax-wise. I don't know Canadian tax law - but in the US, you only get taxed when you sell the shares. Capital gains would not be recognized if you exercised the options and held onto the shares. Since you have been exercising your options - you are a shareholder in the company (or a member depending on the structure) and I would imagine that the company's operating agreement would requir…
Yep, this is the right answer: don't panic, lawyer up.