4 ms·

There's another approach you should consider. I call it a "Truman Show acquisition". Get with the good 95% of your company and start a new entity. Don't tell y

There's another approach you should consider. I call it a "Truman Show acquisition". Get with the good 95% of your company and start a new entity. Don't tell your cofounder about it. New entity makes a deal with your current one to exclusively license the technology and branding, and take possession of the assets. Make the deal as one-sided as you can without your toxic CTO catching wind (and without breaking the law or giving grounds for a lawsuit in the event they do catch wind). All new R&D goes on at the new entity. All existing staff gradually curtail the hours they spend at the old entity and "resign" here and there, all while working for the acquihiring new entity. Old entity never hires replacements. CTO continues frittering away, you can't afford to pay him, but ensure that his equity in the old firm is acknowledged and protected. At the end of some period (e.g. 3 years), the license agreement ends, everyone but CTO makes a clean break and officially works for the new firm. The old shell of a company gets folded up due to having no money. Truman Show acquisition.

crushersk 2y ago
Since we have currently run out of money at the current company, how does that play a role here?
- reaperman 2y ago
  It’s a nuanced negotiation with uncertain outcome, but if your investor wants this to work out and wants your CTO gone, they may be willing to entertain such a path to realize that vision. However, finding a way to buy out the coworkers 5% and fire them may also be a reasonable strategy. The CTO should be aware at this point that your business is close to dead in the water and may believe there’s not much value left for them to extract. If they don’t think the investor is interested in putting more capital in and runway is running out, they could sell that 5% cheap. But you also may run the risk of demoralizing any remaining employees if they also believe the runway is gone.
  - fakedang 2y ago
    It's possible to let the employees know of the actual game plan, but not the CTO, then execute the structured dissolution of the company. I know this, my former cofounder tried this against me, the only difference being I still had the support of the angel investor and the other cofounder, which contradicted the co-founder's assertions. But I guess it would work in this scenario. The investor is the key player here and he should steadfastly ensure he won't pay a penny more into the current entity and is willing to write it off completely.
- mchannon 2y ago
  It doesn't play a role at all. A new entity should only run you a few hundred dollars through Clerky or similar. Your investor ought to be willing to cough that up, or you can probably put together a pitch deck (freshly inked licensing deal in hand) to attract a new investor in the new entity. Your terms of licensure would not be strictly monetary, either. Make them $1 plus X percent of new company revenues over the next three years. Even if that X is substantial it's mostly going in and out of the same pocket. I suppose if you wanted to fold the old entity up now, you could, but murky ownership of IP and assets could be a millstone around a new company's neck in the form of legal exposure from the CTO ("they cheated me out of my equity!"). Better the old entity goes out with a whimper, rather than a bang.
abstractanimal 2y ago
This sounds like a great way to get sued for minority shareholder oppression.
- mchannon 2y ago
  The goal is to structure the deal such that the minority shareholder doesn't "feel" oppressed. There is a value for X where that likely won't happen. OP currently suffers from oppression by minority shareholder, and needs a solution. I gave one.
  - JumpCrisscross 2y ago
    > goal is to structure the deal such that the minority shareholder doesn't "feel" oppressed This is a buyout. Everything is a buyout with extra steps.
    - mchannon 2y ago
      Buyouts involve cash and they have no cash.
  - deleted 2y ago
    [deleted]
  - phendrenad2 2y ago
    What is X in this equation? The bullshit factor?
thrwy2373827 2y ago
This is a breach of fiduciary duties. Maybe OP can get away with it for some time, but if the new venture goes well, it will be very ugly. Better for all the worthwhile people to resign and start a new entity with no IP overlap with the old one. It still might get ugly down the road but OP will be in a much better position to defend. If the CTO has really been that bad, then I don't see much downside to a fresh start.
- mchannon 2y ago
  I disagree about it being a breach of fiduciary duty. The company can’t move forward with this carbuncle, and the CTO still gets their equity respected in the form of the licensing deal. A suicide pact would be an inferior execution of fiduciary duty. Fresh start is likely not an option. You forget about the IP and assets of the company. Can’t take those with you in a fresh start and OP and his investor has a lot of sunk cost here.
  - thrwy2373828 2y ago
    You rarely fail to miss the point
- deleted 2y ago
  [deleted]

crushersk 2y ago

Since we have currently run out of money at the current company, how does that play a role here?

reaperman 2y ago
It’s a nuanced negotiation with uncertain outcome, but if your investor wants this to work out and wants your CTO gone, they may be willing to entertain such a path to realize that vision. However, finding a way to buy out the coworkers 5% and fire them may also be a reasonable strategy. The CTO should be aware at this point that your business is close to dead in the water and may believe there’s not much value left for them to extract. If they don’t think the investor is interested in putting more capital in and runway is running out, they could sell that 5% cheap. But you also may run the risk of demoralizing any remaining employees if they also believe the runway is gone.
- fakedang 2y ago
  It's possible to let the employees know of the actual game plan, but not the CTO, then execute the structured dissolution of the company. I know this, my former cofounder tried this against me, the only difference being I still had the support of the angel investor and the other cofounder, which contradicted the co-founder's assertions. But I guess it would work in this scenario. The investor is the key player here and he should steadfastly ensure he won't pay a penny more into the current entity and is willing to write it off completely.
mchannon 2y ago
It doesn't play a role at all. A new entity should only run you a few hundred dollars through Clerky or similar. Your investor ought to be willing to cough that up, or you can probably put together a pitch deck (freshly inked licensing deal in hand) to attract a new investor in the new entity. Your terms of licensure would not be strictly monetary, either. Make them $1 plus X percent of new company revenues over the next three years. Even if that X is substantial it's mostly going in and out of the same pocket. I suppose if you wanted to fold the old entity up now, you could, but murky ownership of IP and assets could be a millstone around a new company's neck in the form of legal exposure from the CTO ("they cheated me out of my equity!"). Better the old entity goes out with a whimper, rather than a bang.

abstractanimal 2y ago

This sounds like a great way to get sued for minority shareholder oppression.

mchannon 2y ago
The goal is to structure the deal such that the minority shareholder doesn't "feel" oppressed. There is a value for X where that likely won't happen. OP currently suffers from oppression by minority shareholder, and needs a solution. I gave one.
- JumpCrisscross 2y ago
  > goal is to structure the deal such that the minority shareholder doesn't "feel" oppressed This is a buyout. Everything is a buyout with extra steps.
  - mchannon 2y ago
    Buyouts involve cash and they have no cash.
- deleted 2y ago
  [deleted]
- phendrenad2 2y ago
  What is X in this equation? The bullshit factor?

thrwy2373827 2y ago

This is a breach of fiduciary duties. Maybe OP can get away with it for some time, but if the new venture goes well, it will be very ugly. Better for all the worthwhile people to resign and start a new entity with no IP overlap with the old one. It still might get ugly down the road but OP will be in a much better position to defend. If the CTO has really been that bad, then I don't see much downside to a fresh start.

mchannon 2y ago
I disagree about it being a breach of fiduciary duty. The company can’t move forward with this carbuncle, and the CTO still gets their equity respected in the form of the licensing deal. A suicide pact would be an inferior execution of fiduciary duty. Fresh start is likely not an option. You forget about the IP and assets of the company. Can’t take those with you in a fresh start and OP and his investor has a lot of sunk cost here.
- thrwy2373828 2y ago
  You rarely fail to miss the point
deleted 2y ago
[deleted]