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This is not particularly abnormal. Your holding is what is sometimes referred to as "dead weight on the cap table." From the standpoint of investors, your 8%
by siegel 9y ago
This is not particularly abnormal. Your holding is what is sometimes referred to as "dead weight on the cap table." From the standpoint of investors, your 8% of the company isn't serving a purpose to move the company forward. If you were a full-time employee, the investors would push for you to subject your shares to vesting and continue working to "earn" those shares again. But you aren't.
That being said, they can't force you to do this and, if you are going to do it, as blacksqr says, you should get a premium for it.
At a minimum, any repurchase should be conditioned on the company closing a significant investment round. You can enter into an agreement now where you bind yourself to sell back a percentage of shares subject to that condition. That way the investor, if they care, knows that you will be divesting of a significant percentage of your shares. At the same time, you don't unnecessarily sell back your shares before an investor insists on it (Note: The investor's money is going to end up being used for the share repurchase. So, if they don't actually care, they probably will not agree to fund the repurchase).
It can get a little complicated, in that there are tax implications for you, as well as a potentially detrimental impact on the company's 409A valuation. With some creative lawyering, there could be a win-win here.
- T2_t2 9y agoI have no idea what the correct answer is, but as this is one of those questions that matters, OP probably needs proper proper advice from someone you trust in the know. If, for whatever reason, getting proper advice is not something you can get, this is perhaps the best of the info, as Siegel's Bio says https://news.ycombinator.com/user?id=siegel https://news.ycombinator.com/user?id=siegel: > Startup Attorney Grellas Shah LLP http://www.grellas.com http://www.grellas.com https://www.linkedin.com/in/david-siegel-a271265/ https://www.linkedin.com/in/david-siegel-a271265/
- siegel 9y agoThanks, T2_t2. I certainly understand the OP's concern about being fleeced here. It is a very fair and understandable concern. But the founders' claim that investors are being scared away could be very real. It's a delicate balancing act because while the OP doesn't want to get taken advantage of, I'm sure he also doesn't want to engineer a situation where the company can't get funding and his shares become worthless.