4 ms·

i have a vesting agreement with my co-founder, 50/50 split vest 25% per year, if he left at 16 months he would keep 12.5%, is this agreement naive given that at

i have a vesting agreement with my co-founder, 50/50 split vest 25% per year, if he left at 16 months he would keep 12.5%, is this agreement naive given that at some point in the future we will be raising vc?

marcus_holmes 9y ago
not really. As other people have said, you have lots of options. If they leave before the VC gets on board, you can just issue more shares to dilute them down to nothing. You can declare a new class of shares with better voting rights, or better preferences, and issue yourself those. The actual numerical value of the shares may be within agreements, but they'll give you more control/entitlement. You can form a new company, sell the assets of the existing company into the new one (or lease them if there are reasons why you can't sell). The old company will be left with some cash, the new one with the business. You can just liquidate the old company, and pick up ownership of the assets post-liquidation. Basically, private companies are worth whatever a clever accountant says they're worth. As soon as your co-founder stops being a director or an officer of the company, there are lots of ways to manipulate their claim on the company. If they leave after the VC is on board, then the VC's advisors will have a suitable vesting schedule put in place. It's basically their problem after they get involved. However, if you knew your co-founder intends to leave, and fail to disclose this during Due Diligence, you could be vulnerable to getting your arse sued to buggery. Of course, some of this is ethically dubious. But (imho) so is claiming a stake in a company that you left while it was still worthless. YMMV. Also, I'm not a lawyer or accountant, you definitely need to check with a qualified advisor not some random dude on the interwebs.
- siegel 9y ago
  I hate to be a downer here, but a lot of options you disclose above are breaches of fiduciary duty that would end up getting the remaining founder sued. I'd really be careful about creative workarounds like that. Your point about knowing the co-founder is intending to leave resulting in trouble is a very good one. Virtual guarantee that as part of a VC round, you will be making representations that you have no reason to believe any key employee intends to leave the company. you don't want to breach such a rep.
  - marcus_holmes 9y ago
    I've heard of all of these tactics being used at one time or another. Obviously my advice is not only unqualified, but also criminal ;) It should definitely be ignored :)

marcus_holmes 9y ago

not really. As other people have said, you have lots of options. If they leave before the VC gets on board, you can just issue more shares to dilute them down to nothing. You can declare a new class of shares with better voting rights, or better preferences, and issue yourself those. The actual numerical value of the shares may be within agreements, but they'll give you more control/entitlement. You can form a new company, sell the assets of the existing company into the new one (or lease them if there are reasons why you can't sell). The old company will be left with some cash, the new one with the business. You can just liquidate the old company, and pick up ownership of the assets post-liquidation. Basically, private companies are worth whatever a clever accountant says they're worth. As soon as your co-founder stops being a director or an officer of the company, there are lots of ways to manipulate their claim on the company. If they leave after the VC is on board, then the VC's advisors will have a suitable vesting schedule put in place. It's basically their problem after they get involved. However, if you knew your co-founder intends to leave, and fail to disclose this during Due Diligence, you could be vulnerable to getting your arse sued to buggery. Of course, some of this is ethically dubious. But (imho) so is claiming a stake in a company that you left while it was still worthless. YMMV. Also, I'm not a lawyer or accountant, you definitely need to check with a qualified advisor not some random dude on the interwebs.

siegel 9y ago
I hate to be a downer here, but a lot of options you disclose above are breaches of fiduciary duty that would end up getting the remaining founder sued. I'd really be careful about creative workarounds like that. Your point about knowing the co-founder is intending to leave resulting in trouble is a very good one. Virtual guarantee that as part of a VC round, you will be making representations that you have no reason to believe any key employee intends to leave the company. you don't want to breach such a rep.
- marcus_holmes 9y ago
  I've heard of all of these tactics being used at one time or another. Obviously my advice is not only unqualified, but also criminal ;) It should definitely be ignored :)