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Would it be legal for the startup to take a loan of $800k and just pay off the remaining balance? Then EC gets their 5x, and you keep your equity? (Probably the

• laser 8y ago
  IANAL, but it's ambiguous from my reading—leaning towards no, not without them accepting. The reason being that the reduction in the 'Return Cap' is through a quarterly pay-off-mechanism as a percentage of earnings, set out in the agreement. There may be case law or general legal precedent that requires them to take your money if you wish to pay them off, but a literal reading of the agreement in a vacuum doesn't suggest to me that they have to take your early payment. There is precedent for things like car loans or mortgages or w/e, where there's a penalty for paying off early (They want to keep milking you for interest). So, without an explicit provision I would assume you cannot pay off the return cap, except through the set percentage of earnings per quarter.
• tylertringas 8y ago
  It's relatively easy to write terms that (a) allow something like this to adversely affect us if done on good faith over the normal course of business and (b) prevent founders from doing this maliciously to engineer more equity in the event of a sale. Our final deal docs go into this.