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We had well-known lawyers from the beginning who deferred payment until we raised. The problem was that we delegated all legal to my business partner. When we t
by psyklic 3y ago
We had well-known lawyers from the beginning who deferred payment until we raised. The problem was that we delegated all legal to my business partner. When we traded the written equity split, he didn't disclose that he held (estimated) >80x more shares than what was listed next to his name.
- quickthrower2 3y agoAmazing people think that’ll work. Might be OK if the person doing that is the majority of the drive behind the business. But if not of course it will collapse.
- aledalgrande 3y agoHow can people be so sketchy and still sleep at night is out of my mind
- liquidpele 3y agoThey use their stolen money to buy very nice mattresses.
- hinkley 3y ago"White noise machine" is the answer from the joke.
- calmlynarczyk 3y agoPsychopathy is a hell of a drug
- parineum 3y agoAnd incredibly rare!
- DelightOne 3y agoHow can that happen and how do you avoid that happen without ones' own knowledge?
- psyklic 3y agoIt happened because it all seemed legit -- we were both going all-in, we had the exact share split in writing, did reverse vesting, received founders stock, etc. I even noticed that the shares seemed to exceed the total, and my business partner sent minor corrections, explicitly affirming I had the most shares of anyone. You have to trust your business partner at some point. Legally speaking, my business partner secretly created a small equity pool for all co-founders excluding himself. There was no reason to believe we were in a pool, since co-founders split the entire pot. This caused the percentages to seem about as expected. To the best of my knowledge, there were only two tells in the written contract: 1. The total shares were listed as ~1M, which at the time sounded perfectly logical. Unbeknownst to me, this was only the shares in the pool. I now know that startups often first allocate 10M shares, apparently for psychological reasons. 2. The vesting documents were titled an "equity incentive plan". At the time, this made perfect sense to me; the entire reason for us all reverse vesting is to provide incentive to stay. However, I now know this specific phrase often indicates an equity pool. I recommend all founders speak with the lawyers jointly, instead of delegating it to the CEO. Ideally, also pass the contract by a startup-savvy lawyer. (In our case, one of our co-founders showed a CPA who said everything looked normal.) I recommend not signing until the exact cap table with zero errors is jointly signed. (As I mentioned above, I pointed out a mistake to my business partner then signed after he replied I had the most equity.) I also recommend contacting your business partner's references if you haven't worked together, especially since they will be providing those to VCs later.