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I disagree - keep the 40%, this will at least force them to come to you with why they want you to leave. The obvious answers are - they are a jerk to work wit

I disagree - keep the 40%, this will at least force them to come to you with why they want you to leave. The obvious answers are - they are a jerk to work with and they won't admit it - you are a jerk to work with and they won't tell you - something else If it's something else and there is real money at stake both of you should be able to work something out. Otherwise it's one of the first two - which is much harder to deal with

gkoberger 6y ago
Just to clarify, this person doesn't have 40%. They currently have 0%, and their agreement states they only get 40% if they work there for 4 years. Also, I don't know for sure, but I imagine they know the reason (even if they don't agree with it).
- spottybanana 6y ago
  The OP however didn't say who has the power to fire and on what kind of terms. If the other founder can fire him, the 3% was offer for him to leave on good terms. Because they could just fire and OP would get actually 0% and no discussions or negotiations needed.
- dgacmu 6y ago
  It's a little more complicated than that. As they described it, they own 40%, but if they leave early the company has the right to buy back certain numbers of the shares at the original price. The one year cliff suggests that at this point, the company can buy back everything, but in another month, they will have 10% that's not touchable.
  - gkoberger 6y ago
    Yeah, but each share is valued at a fraction of a cent. The company will have to cut a check for a few dollars. (Happy to explain more if you’re interested!)
    - thomasahle 6y ago
      If the company has already taken investor money, say x dollars, for 10%, doesn't thst mean the company is worth 10x dollars?
      - mamon 6y ago
        No, that means that this one investor THINKS they are worth 10x dollars. Other investors might value the company differently, based on number of customers, cash in bank, their own subjective opinion on the product, etc.
      - gkoberger 6y ago
        It's complicated! I'll do my best to explain it simply, but there's a lot of nuance. There's a few different valuations. There's how investors value it, which can be different between investors. There's also a 409a valuation, which is what the government deems it to be "actually worth". But since the OP hasn't vested, the number that matters here is the strike price at the time the OP got their shares, which is likely ~$100. At some point the OP wrote the company a check for $49 (or so) to "legally buy" their shares (49%). But they haven't vested, so these shares are in a sort of "limbo". So, the company can't just take them back, since it would be stealing $49. The OP also hasn't earned the shares, per the vesting contract. This means the company has to pay back the $49 if they're going to take the shares back. It might seem silly to be talking about so little money, but that's all the OP means (even if they don't realize it) when they say the company has the right to buy back the shares.
        Blahah 6y ago
        Can the company in this situation generally force the return sale of the shares for the strike price at the time the shares were issued? And assuming 1/4 of the shares are vested after 1 year, can the company still buy those vested shares? How does valuing those work?
        gkoberger 6y ago
        Basically, since the OP didn’t vest. It’s only worth anything if it vests, so in this case it’s less about forcing and more about just tidying up the paperwork from a legal place.
tptacek 6y ago
What "40%"? The entire point of the vesting agreement, bog standard in every competently run startup, is that he doesn't have 40%. In fact, if he's leaving less than a year in and his partner has the contractual authority to sever his employment, what he actually has is zero.
- CodesInChaos 6y ago
  Depends on the terms of the agreement. In my case the unvested shares had to be returned if I terminated the employment or the company fired me for cause, but not if the company terminated the employment without cause.
  - tptacek 6y ago
    I've had clauses like that too, as part of M&A, but haven't seen them in company formation docs. This seems like a thing you can discover quickly and relatively inexpensively.
    - jgraettinger1 6y ago
      Yea, this is called a "double trigger" and is often written into founder reverse vesting agreements signed during formation. The idea is that at first, you can be fired as per usual like any employee. But, if there's a significant change in control of the company (e.x. M&A of >50% of outstanding shares), then _one_ of the triggers has been met. At that point, if you're fired without cause, that's the second trigger and remaining unvested shares immediately become fully vested. Of course, I've since learned that pretty much _anything_ can be re-worked in an M&A agreement -- "we're not buying you without striking this clause" -- so it's no silver bullet.
- Alex3917 6y ago
  > If he's leaving less than a year in and his partner has the contractual authority to sever his employment, what he actually has is zero. FWIW that's only true if he was being paid at least minimum wage. Otherwise he would be entitled to some equity even if he didn't hit his cliff.
spottybanana 6y ago
I understood "walk away" meant walking away without any kind of papers signed. That would mean, that if the other stakeholders want something from OP they have to approach him and make a clear offer. And I think that is also the best option. Just mentally evaluate the ROI of this project to zero, and try to focus on something else now. With startups you got to get used to the fact that failures and misinvestments happen.
joeblau 6y ago
They don't have 40%, they have 0% and will get to 10% in 1 month. Then have to accrue 1% for the next 36 months after that. Wasting 3 years is not worth the time. The Op should eject and focus on building something else or the same thing with a new co-founder.

gkoberger 6y ago

Just to clarify, this person doesn't have 40%. They currently have 0%, and their agreement states they only get 40% if they work there for 4 years. Also, I don't know for sure, but I imagine they know the reason (even if they don't agree with it).

spottybanana 6y ago
The OP however didn't say who has the power to fire and on what kind of terms. If the other founder can fire him, the 3% was offer for him to leave on good terms. Because they could just fire and OP would get actually 0% and no discussions or negotiations needed.
dgacmu 6y ago
It's a little more complicated than that. As they described it, they own 40%, but if they leave early the company has the right to buy back certain numbers of the shares at the original price. The one year cliff suggests that at this point, the company can buy back everything, but in another month, they will have 10% that's not touchable.
- gkoberger 6y ago
  Yeah, but each share is valued at a fraction of a cent. The company will have to cut a check for a few dollars. (Happy to explain more if you’re interested!)
  - thomasahle 6y ago
    If the company has already taken investor money, say x dollars, for 10%, doesn't thst mean the company is worth 10x dollars?
    - mamon 6y ago
      No, that means that this one investor THINKS they are worth 10x dollars. Other investors might value the company differently, based on number of customers, cash in bank, their own subjective opinion on the product, etc.
    - gkoberger 6y ago
      It's complicated! I'll do my best to explain it simply, but there's a lot of nuance. There's a few different valuations. There's how investors value it, which can be different between investors. There's also a 409a valuation, which is what the government deems it to be "actually worth". But since the OP hasn't vested, the number that matters here is the strike price at the time the OP got their shares, which is likely ~$100. At some point the OP wrote the company a check for $49 (or so) to "legally buy" their shares (49%). But they haven't vested, so these shares are in a sort of "limbo". So, the company can't just take them back, since it would be stealing $49. The OP also hasn't earned the shares, per the vesting contract. This means the company has to pay back the $49 if they're going to take the shares back. It might seem silly to be talking about so little money, but that's all the OP means (even if they don't realize it) when they say the company has the right to buy back the shares.
      - Blahah 6y ago
        Can the company in this situation generally force the return sale of the shares for the strike price at the time the shares were issued? And assuming 1/4 of the shares are vested after 1 year, can the company still buy those vested shares? How does valuing those work?
        gkoberger 6y ago
        Basically, since the OP didn’t vest. It’s only worth anything if it vests, so in this case it’s less about forcing and more about just tidying up the paperwork from a legal place.

tptacek 6y ago

What "40%"? The entire point of the vesting agreement, bog standard in every competently run startup, is that he doesn't have 40%. In fact, if he's leaving less than a year in and his partner has the contractual authority to sever his employment, what he actually has is zero.

CodesInChaos 6y ago
Depends on the terms of the agreement. In my case the unvested shares had to be returned if I terminated the employment or the company fired me for cause, but not if the company terminated the employment without cause.
- tptacek 6y ago
  I've had clauses like that too, as part of M&A, but haven't seen them in company formation docs. This seems like a thing you can discover quickly and relatively inexpensively.
  - jgraettinger1 6y ago
    Yea, this is called a "double trigger" and is often written into founder reverse vesting agreements signed during formation. The idea is that at first, you can be fired as per usual like any employee. But, if there's a significant change in control of the company (e.x. M&A of >50% of outstanding shares), then _one_ of the triggers has been met. At that point, if you're fired without cause, that's the second trigger and remaining unvested shares immediately become fully vested. Of course, I've since learned that pretty much _anything_ can be re-worked in an M&A agreement -- "we're not buying you without striking this clause" -- so it's no silver bullet.
Alex3917 6y ago
> If he's leaving less than a year in and his partner has the contractual authority to sever his employment, what he actually has is zero. FWIW that's only true if he was being paid at least minimum wage. Otherwise he would be entitled to some equity even if he didn't hit his cliff.

spottybanana 6y ago

I understood "walk away" meant walking away without any kind of papers signed. That would mean, that if the other stakeholders want something from OP they have to approach him and make a clear offer. And I think that is also the best option. Just mentally evaluate the ROI of this project to zero, and try to focus on something else now. With startups you got to get used to the fact that failures and misinvestments happen.

joeblau 6y ago

They don't have 40%, they have 0% and will get to 10% in 1 month. Then have to accrue 1% for the next 36 months after that. Wasting 3 years is not worth the time. The Op should eject and focus on building something else or the same thing with a new co-founder.