5 ms·

Do NOT sell. keep 40% of nothing, matter of pride first and for all. Secondly, they are more than likely bluffing. They don't want to put advertising that woul

Do NOT sell. keep 40% of nothing, matter of pride first and for all. Secondly, they are more than likely bluffing. They don't want to put advertising that would generate 5k/mo means they are trying to make things look artificially worse so you leave and keep the rest for themselves. Don't fall for the 40% of nothing once you are close of making money. They just don't want to share the pie.

moomin 6y ago
I’ll just add: write down everything. Guy is trying to run a bait and switch on you and there’s a very good chance this ends up in court. Be ready.
- Mockapapella 6y ago
  OP make sure you do this, it is incredibly important. I was in a similar situation with a real dick of a co-founder who constantly pulled these bait and switch tactics. I would even go so far as to write down behaviors they exhibit and times where they tried to strong arm you in the past. Keep logs of everything, insist on communicating through means by which you can record the conversation. Writing things down may not stop their behavior, but it will seriously help your case should this turn into a legal fight.
- bufferoverflow 6y ago
  I'd say audio-record everything if your state allows one-party consent. https://www.mwl-law.com/wp-content/uploads/2018/02/RECORDING-CONVERSATIONS-CHART.pdf https://www.mwl-law.com/wp-content/uploads/2018/02/RECORDING...
phkahler 6y ago
If it really were 40 percent of nothing, the other party wouldn't want it so bad ;-)
- gabereiser 6y ago
  This. 100% this. No sell, no deal, that’s not in the contract...
- mywittyname 6y ago
  Try turning the tables and offering them a buyout.
  - g051051 6y ago
    OP said "They will not entertain the idea of me buying them out for cash."
  - mooreds 6y ago
    Unfortunately it doesn't sound like an option: > They will not entertain the idea of me buying them out for cash.
    - gojomo 6y ago
      That's a negotiating position.
    - phkahler 6y ago
      Then they have established a lower bound on the value of their shares.
      - gabereiser 6y ago
        Bingo! Now you know it’s BS. This really sucks. It’s not a good place to be. The fact that they won’t take a buyout from you means they are pulling a fast one and someone probably said “You know, it would look better if it was just you” somewhere down the road. Don’t sell, don’t give, don’t walk away. Stand firm. This was a binding agreement they can’t get out of. You have all the power here. You know you have something. They have established a lower bounds on its value. It’s way more than 40% of 400k. Best of all. Don’t let your customers know it’s founders are going through this. It’s obvious, but make sure you keep your cool and composure. It will pay off in the long run.
        phkahler 6y ago
        >> It will pay off in the long run. For both of them if partner can separate head and ass.
- whymauri 6y ago
  >the other party wouldn't want it so bad ;-) Value to a founder does not imply value to the market.
deleted 6y ago
[deleted]
dheera 6y ago
Hmm... a few objective points here: - If OP keeps 40% and doesn't do work for the company, the company is highly unlikely to succeed. The company needs to be able to dish out equity to future employees and likely investors to succeed, and having 40% locked up in an entity that doesn't do anything for the company is not going to be attractive to those future participants. - If OP keeps any equity, they should be doing it with the hope that the company succeeds, so that the equity will be worth something. Don't keep equity to spite your co-founder. It's not going to benefit you in any way if that causes the company to fail and your equity ends up being worth $0. - If OP wants a fully cash deal, it's not realistic if the other co-founder doesn't have a ton of personal cash (most don't). Raising a round to buy out a co-founder at 40% of valuation isn't something ANY investor is going to want to do. That's almost half of an investment thrown in the trash, from their perspective, and they'd probably rather invest in a less complicated competitor. - It sounds like the human relationship between OP and co-founder is broken and it is not worth pursuing working together, as that alone would likely lead to the failure of the company even if everything else works out. That said, my thoughts would be: (a) Stall for a month to get to the cliff so you have slightly more leverage. (b) Work out a deal where you're not keeping that much equity, but you're keeping an amount such that the company is still bound for success, and that your smaller amount will actually be worth something. Owning 40% of $0 is still $0. Owning maybe 5% of $1 billion is something.
- spottybanana 6y ago
  Good analysis. It sounds in principle that for OP there isn't really much options to win big, sometimes that happens in startup land - mentally it is good idea to admit that this project wasn't personally very successful and start thinking about next moves. Most important here, I think, is to act in polite and professional manner. It is not uncommon in these situations for everyone to lose because things get personal. Just try to find some kind of deal where you are likely to get some value.
ericd 6y ago
Vesting schedule means he has 0% right now, 10% in a month, and then 1/48th of 40% every month thereafter.
- learc83 6y ago
  The OP said it was a 4yr reverse vesting schedule and that they currently owned 40%.
  - ericd 6y ago
    With a 1 year cliff, I’m pretty sure he effectively owns 0 right now.
    - swiftcoder 6y ago
      With a reverse vest, you own the shares immediately, and the vesting schedule defines how much of the shares you retain if you leave (i.e. if he quits now, 100% will be clawed back).
      - ericd 6y ago
        Yep, which means he effectively doesn’t own them right now, in any meaningful financial sense. For the purposes of control, sure. The parent comment of this thread was talking about keeping 40% of nothing.
        swiftcoder 6y ago
        There's a decent chance that the other founder is in the same position, in which case the investor is the only one with a real stake in things
jacquesm 6y ago
Agreed. And also: if you give up that 40% then for sure there will be a play to give up the rest.
visarga 6y ago
What if the other party switches activity over a new company in the meantime?
valuearb 6y ago
The founder and investor can fire him and easily dilute him down to 3% without violating any agreement. He’s got zero leverage here unless his agreement had anti dilution protections.
- legutierr 6y ago
  I am not a lawyer, but... Dilution of the sort you seem to be describing would expose the founder and investor to a minority oppression lawsuit from OP which could result in monetary damages, and/or the forced sale of all or part of the company at a price determined by the court. You can't just dilute people without there being any consequences, unless the new shares are being sold at a justifiable price and at an arm's length. The attempts made so far by the founder to push out the OP would color any future dilution, making it harder to justify that dilution in court, even if on the surface it appears legitimate. If the shares are not sold to a third-party arms-length investor, OP would have to be given the opportunity to participate in the share issuance on a proportional basis. If the founder and investor conspire to issue shares to themselves with the sole purpose of diluting OP, not only would that dilution possibly be reversed in court, but further sanctions could be imposed on the founder and investor as well.
  - valuearb 6y ago
    I’m not a lawyer either, but these risks are easy to skirt. First they have time to just fire him, and without contractual protections she/he’s out before vesting a single share. Most US states are At Will employment, meaning they don’t need a reason. If the CTO wants to contest the firing, where will they get $30K+ to pay a lawyer sue over a nearly worthless business? If he/she is able to vest their first year before getting fired, but they then dilute the CTO further, where is the CTO going to get $30K+ to pay their lawyer sue over 10% of a nearly worthless business?

moomin 6y ago

I’ll just add: write down everything. Guy is trying to run a bait and switch on you and there’s a very good chance this ends up in court. Be ready.

Mockapapella 6y ago
OP make sure you do this, it is incredibly important. I was in a similar situation with a real dick of a co-founder who constantly pulled these bait and switch tactics. I would even go so far as to write down behaviors they exhibit and times where they tried to strong arm you in the past. Keep logs of everything, insist on communicating through means by which you can record the conversation. Writing things down may not stop their behavior, but it will seriously help your case should this turn into a legal fight.
bufferoverflow 6y ago
I'd say audio-record everything if your state allows one-party consent. https://www.mwl-law.com/wp-content/uploads/2018/02/RECORDING-CONVERSATIONS-CHART.pdf https://www.mwl-law.com/wp-content/uploads/2018/02/RECORDING...

phkahler 6y ago

If it really were 40 percent of nothing, the other party wouldn't want it so bad ;-)

gabereiser 6y ago
This. 100% this. No sell, no deal, that’s not in the contract...
mywittyname 6y ago
Try turning the tables and offering them a buyout.
- g051051 6y ago
  OP said "They will not entertain the idea of me buying them out for cash."
- mooreds 6y ago
  Unfortunately it doesn't sound like an option: > They will not entertain the idea of me buying them out for cash.
  - gojomo 6y ago
    That's a negotiating position.
  - phkahler 6y ago
    Then they have established a lower bound on the value of their shares.
    - gabereiser 6y ago
      Bingo! Now you know it’s BS. This really sucks. It’s not a good place to be. The fact that they won’t take a buyout from you means they are pulling a fast one and someone probably said “You know, it would look better if it was just you” somewhere down the road. Don’t sell, don’t give, don’t walk away. Stand firm. This was a binding agreement they can’t get out of. You have all the power here. You know you have something. They have established a lower bounds on its value. It’s way more than 40% of 400k. Best of all. Don’t let your customers know it’s founders are going through this. It’s obvious, but make sure you keep your cool and composure. It will pay off in the long run.
      - phkahler 6y ago
        >> It will pay off in the long run. For both of them if partner can separate head and ass.
whymauri 6y ago
>the other party wouldn't want it so bad ;-) Value to a founder does not imply value to the market.

deleted 6y ago

[deleted]

dheera 6y ago

Hmm... a few objective points here: - If OP keeps 40% and doesn't do work for the company, the company is highly unlikely to succeed. The company needs to be able to dish out equity to future employees and likely investors to succeed, and having 40% locked up in an entity that doesn't do anything for the company is not going to be attractive to those future participants. - If OP keeps any equity, they should be doing it with the hope that the company succeeds, so that the equity will be worth something. Don't keep equity to spite your co-founder. It's not going to benefit you in any way if that causes the company to fail and your equity ends up being worth $0. - If OP wants a fully cash deal, it's not realistic if the other co-founder doesn't have a ton of personal cash (most don't). Raising a round to buy out a co-founder at 40% of valuation isn't something ANY investor is going to want to do. That's almost half of an investment thrown in the trash, from their perspective, and they'd probably rather invest in a less complicated competitor. - It sounds like the human relationship between OP and co-founder is broken and it is not worth pursuing working together, as that alone would likely lead to the failure of the company even if everything else works out. That said, my thoughts would be: (a) Stall for a month to get to the cliff so you have slightly more leverage. (b) Work out a deal where you're not keeping that much equity, but you're keeping an amount such that the company is still bound for success, and that your smaller amount will actually be worth something. Owning 40% of $0 is still $0. Owning maybe 5% of $1 billion is something.

spottybanana 6y ago
Good analysis. It sounds in principle that for OP there isn't really much options to win big, sometimes that happens in startup land - mentally it is good idea to admit that this project wasn't personally very successful and start thinking about next moves. Most important here, I think, is to act in polite and professional manner. It is not uncommon in these situations for everyone to lose because things get personal. Just try to find some kind of deal where you are likely to get some value.

ericd 6y ago

Vesting schedule means he has 0% right now, 10% in a month, and then 1/48th of 40% every month thereafter.

learc83 6y ago
The OP said it was a 4yr reverse vesting schedule and that they currently owned 40%.
- ericd 6y ago
  With a 1 year cliff, I’m pretty sure he effectively owns 0 right now.
  - swiftcoder 6y ago
    With a reverse vest, you own the shares immediately, and the vesting schedule defines how much of the shares you retain if you leave (i.e. if he quits now, 100% will be clawed back).
    - ericd 6y ago
      Yep, which means he effectively doesn’t own them right now, in any meaningful financial sense. For the purposes of control, sure. The parent comment of this thread was talking about keeping 40% of nothing.
      - swiftcoder 6y ago
        There's a decent chance that the other founder is in the same position, in which case the investor is the only one with a real stake in things

jacquesm 6y ago

Agreed. And also: if you give up that 40% then for sure there will be a play to give up the rest.

visarga 6y ago

What if the other party switches activity over a new company in the meantime?

valuearb 6y ago

The founder and investor can fire him and easily dilute him down to 3% without violating any agreement. He’s got zero leverage here unless his agreement had anti dilution protections.

legutierr 6y ago
I am not a lawyer, but... Dilution of the sort you seem to be describing would expose the founder and investor to a minority oppression lawsuit from OP which could result in monetary damages, and/or the forced sale of all or part of the company at a price determined by the court. You can't just dilute people without there being any consequences, unless the new shares are being sold at a justifiable price and at an arm's length. The attempts made so far by the founder to push out the OP would color any future dilution, making it harder to justify that dilution in court, even if on the surface it appears legitimate. If the shares are not sold to a third-party arms-length investor, OP would have to be given the opportunity to participate in the share issuance on a proportional basis. If the founder and investor conspire to issue shares to themselves with the sole purpose of diluting OP, not only would that dilution possibly be reversed in court, but further sanctions could be imposed on the founder and investor as well.
- valuearb 6y ago
  I’m not a lawyer either, but these risks are easy to skirt. First they have time to just fire him, and without contractual protections she/he’s out before vesting a single share. Most US states are At Will employment, meaning they don’t need a reason. If the CTO wants to contest the firing, where will they get $30K+ to pay a lawyer sue over a nearly worthless business? If he/she is able to vest their first year before getting fired, but they then dilute the CTO further, where is the CTO going to get $30K+ to pay their lawyer sue over 10% of a nearly worthless business?