4 ms·
Is there any way to game this? For instance: 1. I get $150K in convertible debt from Yuri. 2. At the end of YC, my rich friend Joe decides to invest a millio
by hugh3 16y ago
Is there any way to game this?
For instance:
1. I get $150K in convertible debt from Yuri.
2. At the end of YC, my rich friend Joe decides to invest a million dollars in my company at a valuation of five hundred trillion dollars. Yuri thus gets an insanely small slice of my company.
3. Two days later, my company buys Joe's shares back for a million dolars.
4. Now my company goes off to seek actual funding at a sane valuation. Yuri gets annoyed.
- jmtame 16y agoit's not worth ruining your reputation over screwing a single investor especially in a deal this small. it's a small community and even if you found a way to trick the investor in this situation, it reflects very poorly on you. i'm sure there are ways to game it, but why even bother? yc is a small network; if one founder screws someone else, everyone knows about it. vice versa.
- peteforde 16y agoYou're leaving out the part about getting accepted into YC and then being willing to blackball your reputation and ability to ever raise money to do anything, again. Who would do that for $150k? To me, this is the equivalent of leaving $20 on the table to see if you can trust your friends.
- jacquesm 16y agoI'm fairly sure that they can afford lawyers good enough to close that particular loophole.
- hugh3 16y agoFair enough. I was just wondering whether there were any legal barriers built in to stop people doing these sorts of dodgy deals.
- peteforde 16y agoThe SEC or IRS would probably consider this some variation of conspiracy to commit fraud. I'm not an American, so I am guessing.
- brc 16y agoPretty sure the SEC is nowhere near these deals as all are private, probably under some type of 'sophisticated investor' rule anyway. IRS couldn't care who ripped off whom as long as they get their pound of flesh.
- dennisgorelik 16y agoIf that happens, Yuri would be insanely profitable. Five hundred trillion dollars are coming into the company. Then all that shares are bought back. So now Yuri has substantial share of these five hundred trillion dollars. Even if Yuri's share would be just 1% -- 5 trillion dollars would allow Yuri never work again.
- hristov 16y agoYou probably will not be able to pull off part 3. There are duties the company has towards its shareholders. Thus, it will often cause legal problems for the company to buy out one person's stock without offering to buy everyone's stock for the same price. That's why when companies buy back stock they tend to use tender offers that are extended towards all shareholders. This is not legal advice. The legal issues here are more complex than this post calls for.