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Where are you getting the idea that the tech co-founder (TCF) owns "40% of something fairly valuable"? It seems the TCF currently owns 0%, and will go to ~10% (

by nickff 6y ago

Where are you getting the idea that the tech co-founder (TCF) owns "40% of something fairly valuable"? It seems the TCF currently owns 0%, and will go to ~10% (25% of 40%) if they don't get laid off/fired in the next month.

deleted 6y ago
[deleted]
ohyes 6y ago
It's not clear the other founder actually owns any more than TCF does. What makes you think TCF can be so easily pushed out or that the other founder has significantly more leverage? It isn't clear to me that they have different deals. Honestly, if non-technical thought he could fire this guy, he probably would have already. That's why TCF is being bullied into resigning. What is non-technical going to tell the investors when he fires the guy who keeps everything running, built everything, and did all the SEO? Think of it this way, take the deal and you get 3% of nothing because it'll get driven into the ground. Don't take the deal and either you keep working on it, and get 40+% of something decent, or you get N% of nothing because other guy drives it into the ground but you got a better buyout. There's very little downside for TCF in actually sticking to his guns, and it's not like he's going to look like the asshole here.
- nickff 6y ago
  Non-tech founder (NTF) started it, so I'm guessing NTF is CEO. NTF is probably on similar vesting schedule, but won't fire himself. The fact they're having these conversations means that NTF has probably made up his mind, and decided this is not going to end on mutually amicable terms. It's possible that TCF can hang on until the cliff, but I doubt that'll happen, and it's not going to be pretty if they do. There are all kinds of ways NTF can reduce/destroy TCF's equity; I'd take 3% and move on with my life.
  - CyberDildonics 6y ago
    > There are all kinds of ways NTF can reduce/destroy NTF's equity What are those ways? The only sane thing is to go and talk to lawyers. In what world is it going to be the best option to let yourself be used and abused?
    - nickff 6y ago
      NTF and investor can simply issue more shares under any number of arrangements; cap tables are not written in stone. If they have a hard time, they might also start a new company, and liquidate all the assets from the current company. Every ongoing business arrangement relies on goodwill and intent to survive, like any other relationship. Consulting a lawyer with expertise in the area may be a good idea, but the best solution is probably the cleanest and easiest one.
      - CyberDildonics 6y ago
        I don't think letting someone steal from you is ever going to be the "best" solution. Doing what you described is not new or inventive. It isn't going to catch an experienced lawyer off guard.
      - AtlasBarfed 6y ago
        If there are other employees, wouldn't this require firing all of them and invalidating their equity?
        nickff 6y ago
        The closing and re-opening would invalidate everyone's equity, and open the door for a complete re-negotiation. Dilution usually hits people who are gone the hardest (as they usually get nothing out of the new option pool if there is one).
theptip 6y ago
> I'm the technical co-founder of a pre-revenue startup. We were 51/49% to them and took a small round of pre-seed funding (~$100k) so our cap table is approx 40% for me and co-founder, 10% option pool and 10% investor. We have very standard shareholder agreements for 4yr reverse vesting with 1yr cliff. Note the “reverse vesting” bit, this caught me out too. This is not the standard employee “you have zero until your 1yr cliff” deal, it’s the opposite in some sense, the founders own their shares unless they leave, in which case they are clawed back, and the clawed back amount goes by the 4yr period. In this case if the investor has voting rights, neither founder has a controlling share, and the investor is the tiebreaker. So OP can fire the other founder with the investor’s vote.
- nickff 6y ago
  The non-tech founder is likely CEO (as they started in, and likely got the investor on-board), so they can likely fire the TCF without a vote. The board, likely made up of NTF, TCF, and investor could then fire the NTF. In any case, this is not going to end nicely, and I would recommend walking away with whatever equity can be had without setting the counter-parties against TCF. If NTF and investor get really mad, they can easily dilute or destroy TCF's equity, so I'd try to avoid that.
  - theptip 6y ago
    Wouldn’t firing the TCF (or any key staffing decision) require a board vote at this stage? Not to mention potentially being a breach of the NTF’s duty of loyalty to the shareholders if they don’t have a good business reason for firing them? In other words the NTF would need to have the investor on board to make that move. IANAL so interested to know how folks with more experience have seen this fact pattern play out.
    - irjustin 6y ago
      The grandparent comment stated this. The TCF needs to make a case directly to the investor to show their worth and tell their side of the story. It's not explicit this was done, so it's assumed it wasn't. If the TCF hasn't spoken to the investor directly, it's relatively easy to assume the investor will vote in the NTF's direction. Lots of assumptions, but we don't have that much to go on.

by nickff 6y ago

deleted 6y ago

[deleted]

ohyes 6y ago

It's not clear the other founder actually owns any more than TCF does. What makes you think TCF can be so easily pushed out or that the other founder has significantly more leverage? It isn't clear to me that they have different deals. Honestly, if non-technical thought he could fire this guy, he probably would have already. That's why TCF is being bullied into resigning. What is non-technical going to tell the investors when he fires the guy who keeps everything running, built everything, and did all the SEO? Think of it this way, take the deal and you get 3% of nothing because it'll get driven into the ground. Don't take the deal and either you keep working on it, and get 40+% of something decent, or you get N% of nothing because other guy drives it into the ground but you got a better buyout. There's very little downside for TCF in actually sticking to his guns, and it's not like he's going to look like the asshole here.

nickff 6y ago
Non-tech founder (NTF) started it, so I'm guessing NTF is CEO. NTF is probably on similar vesting schedule, but won't fire himself. The fact they're having these conversations means that NTF has probably made up his mind, and decided this is not going to end on mutually amicable terms. It's possible that TCF can hang on until the cliff, but I doubt that'll happen, and it's not going to be pretty if they do. There are all kinds of ways NTF can reduce/destroy TCF's equity; I'd take 3% and move on with my life.
- CyberDildonics 6y ago
  > There are all kinds of ways NTF can reduce/destroy NTF's equity What are those ways? The only sane thing is to go and talk to lawyers. In what world is it going to be the best option to let yourself be used and abused?
  - nickff 6y ago
    NTF and investor can simply issue more shares under any number of arrangements; cap tables are not written in stone. If they have a hard time, they might also start a new company, and liquidate all the assets from the current company. Every ongoing business arrangement relies on goodwill and intent to survive, like any other relationship. Consulting a lawyer with expertise in the area may be a good idea, but the best solution is probably the cleanest and easiest one.
    - CyberDildonics 6y ago
      I don't think letting someone steal from you is ever going to be the "best" solution. Doing what you described is not new or inventive. It isn't going to catch an experienced lawyer off guard.
    - AtlasBarfed 6y ago
      If there are other employees, wouldn't this require firing all of them and invalidating their equity?
      - nickff 6y ago
        The closing and re-opening would invalidate everyone's equity, and open the door for a complete re-negotiation. Dilution usually hits people who are gone the hardest (as they usually get nothing out of the new option pool if there is one).

theptip 6y ago

> I'm the technical co-founder of a pre-revenue startup. We were 51/49% to them and took a small round of pre-seed funding (~$100k) so our cap table is approx 40% for me and co-founder, 10% option pool and 10% investor. We have very standard shareholder agreements for 4yr reverse vesting with 1yr cliff. Note the “reverse vesting” bit, this caught me out too. This is not the standard employee “you have zero until your 1yr cliff” deal, it’s the opposite in some sense, the founders own their shares unless they leave, in which case they are clawed back, and the clawed back amount goes by the 4yr period. In this case if the investor has voting rights, neither founder has a controlling share, and the investor is the tiebreaker. So OP can fire the other founder with the investor’s vote.

nickff 6y ago
The non-tech founder is likely CEO (as they started in, and likely got the investor on-board), so they can likely fire the TCF without a vote. The board, likely made up of NTF, TCF, and investor could then fire the NTF. In any case, this is not going to end nicely, and I would recommend walking away with whatever equity can be had without setting the counter-parties against TCF. If NTF and investor get really mad, they can easily dilute or destroy TCF's equity, so I'd try to avoid that.
- theptip 6y ago
  Wouldn’t firing the TCF (or any key staffing decision) require a board vote at this stage? Not to mention potentially being a breach of the NTF’s duty of loyalty to the shareholders if they don’t have a good business reason for firing them? In other words the NTF would need to have the investor on board to make that move. IANAL so interested to know how folks with more experience have seen this fact pattern play out.
  - irjustin 6y ago
    The grandparent comment stated this. The TCF needs to make a case directly to the investor to show their worth and tell their side of the story. It's not explicit this was done, so it's assumed it wasn't. If the TCF hasn't spoken to the investor directly, it's relatively easy to assume the investor will vote in the NTF's direction. Lots of assumptions, but we don't have that much to go on.