Ask HN: Ex-Founder. Should I take lowball buyout offer?

Critical side note, from a tax perspective: Be very careful with the suggestions to have the stock bought back by the company for a 10% or 20% discount off the price in the round.

I assume your 5% stake is common stock. The common stock valuation will not be 10% or 20% less than the preferred price in the round. It'll be more like a 75% discount.

What this means is that even if you have long term capital gains on the appreciation of the stock, that tax rate will (at best) only apply to the delta between the common stock valuation at the time of repurchase and the price at which you bought the stock.

The delta between the common stock valuation at repurchase and the price at which the shares are actually repurchased will be treated, for tax purposes, as an employee bonus. So, it will be taxed like employment income.

Just want you to be aware of what you're potentially getting into, from a tax perspective.

Valuation and percentage aside, let me ask you this question -- now that the company is raising another round, where do you think the equity for the new investors is going to come from?

Say the company is trying to take on another 20mil at 100mil valuation, that's 20% of the company that will have to come out from the current shares, i.e. dilute all the current owners of the shares. That means to raise that money right now, the company is going to have to dilute you, but also all other employees and founders and investors. So you will lose ~20% of your shares, in exchange for XX-growth of the paper value of your shares.

Imagine that right now your shares are worth 1 million, but for absolutely no cost to you, those same shares will be worth 20 million tomorrow (minus the 20% that investors end up taking). This is not "exact" math, but it illustrates the point.

You can sit on your shares today, and make a ton of money overnight by doing _nothing_.

If you sell your shares today, for any amount less than what you would get in the above scenario, you're losing money. The hardball-CEO is just going to take your shares, and immediately resell them to new investors at 100X the price.

Unless you absolutely need the 100k today and can't live without it, your best bet is to hold on to the shares and take the gamble on them growing multiples. If the company does great, you win. If the company shuts down, all you lose is x-months worth of salary equivalent. If the company needs to raise more money later, then you can always offer to sell your shares at the later price.

Not every company has onerous terms.

But you could still factor that in to whatever the fair market value is.

Call it a 50% discount if you like, to get to the "market value". But that still sounds like a much much better deal than what the CEO is offering

You own 5% of the company that is about to be bought for an amount that makes your stake worth $500k minimum. I was in a similar situation once. My mentor at the time told me, "If you have them by the short hairs, pull." We countered for 10x their offer and settled for half of that.

  Not for most people here, though

I doubt you have any data to back that 'most' up. There are a lot of people reading here and many of them are not like yourself.