3 ms·

OK, what does this mean exactly - "All founders equityshall be subject to a repurchase right"? Sorry if this is supposed to be obvious, but this is the first te

OK, what does this mean exactly - "All founders equityshall be subject to a repurchase right"? Sorry if this is supposed to be obvious, but this is the first term-sheet I've encountered.

CyrusL 13y ago
It functions the same way as options vesting for employees. Founders usually purchase all their shares up front, so this term says that the company can buy a percentage back if they leave before 4 years.
danielweber 13y ago
I've seen that used as a club against people. A: "I want to sell to a third party." Company: "We have a repurchase right." A: "Well, I'm selling for $10 a share." Company: "We don't think that's the right price." A: "What do you think is the right price?" Company: "We would need to hire an auditor to determine that, and you would have to pay for him."
- jacquesm 13y ago
  A repurchase right is a right of first refusal at a given price, if you can get a better price then you should normally be free to do so. Auditors for independent valuation should only come in to play when there is no price, for instance, when a block of shares is offered to existing shareholders or the company and they can't agree on a valuation. Drag along / tag along clauses definitely can complicate this.
  - gyardley 13y ago
    A repurchase right can mean different things - you'd need to go to the specific language to really determine what it means. In the case of Sam Altman's founder-friendly term sheet, what you're describing is covered by the 'ROFR/Co-Sale Agreement' section. The repurchase right here refers to what happens if a founder leaves before their four-year vesting schedule is up - the company has the right to repurchase their unvested stock, almost certainly (although his term sheet doesn't specify) at the original near-zero issue price. Since founders typically own 100% of their stock for tax purposes (hold it for a year, only have to pay long-term instead of short-term capital gains), the only way companies can subject founders to a vesting schedule is to have the option of buying the unvested portion back.
    - jacquesm 13y ago
      It all depends on who causes the leave, if the founder causes the leave I have no problem with such a repurchase right, but if the company causes the founder to leave (and this does happen) then the company should lose their repurchase right. Subtle stuff this.
      - gyardley 13y ago
        Sure, absolutely. The standard mechanism for this is accelerated vesting - I think Nivi wrote the definitive bit on it, here: http://venturehacks.com/articles/acceleration-termination http://venturehacks.com/articles/acceleration-termination
joshAg 13y ago
If i correctly understood the stock options seminar i recently had to go through, it means two things: 1) if you want to sell your stock to someone else before IPO, the company has to approve the sale. If they don't like who you're selling to (which could just be because they don't want voting shares belonging to outside people), they can choose to buy it back instead. If they don't like your price (too low or too high), then you and the company have to negotiate a 'fair' price. 2) The company has the option, but is not required, to buy back any unvested shares that you have already exercised if you leave.
snprbob86 13y ago
This doesn't address your particular question, but I like to recommend Eric Koester's guides to term sheet newbies: http://www.avvo.com/attorneys/20007-dc-eric-koester-1214516/guides.html http://www.avvo.com/attorneys/20007-dc-eric-koester-1214516/... There are several pages of articles & you might have to read and re-read a few times. It's dense, but clear.

OK, what does this mean exactly - "All founders equityshall be subject to a repurchase right"? Sorry if this is supposed to be obvious, but this is the first term-sheet I've encountered.

CyrusL 13y ago

It functions the same way as options vesting for employees. Founders usually purchase all their shares up front, so this term says that the company can buy a percentage back if they leave before 4 years.

danielweber 13y ago

I've seen that used as a club against people. A: "I want to sell to a third party." Company: "We have a repurchase right." A: "Well, I'm selling for $10 a share." Company: "We don't think that's the right price." A: "What do you think is the right price?" Company: "We would need to hire an auditor to determine that, and you would have to pay for him."

jacquesm 13y ago
A repurchase right is a right of first refusal at a given price, if you can get a better price then you should normally be free to do so. Auditors for independent valuation should only come in to play when there is no price, for instance, when a block of shares is offered to existing shareholders or the company and they can't agree on a valuation. Drag along / tag along clauses definitely can complicate this.
- gyardley 13y ago
  A repurchase right can mean different things - you'd need to go to the specific language to really determine what it means. In the case of Sam Altman's founder-friendly term sheet, what you're describing is covered by the 'ROFR/Co-Sale Agreement' section. The repurchase right here refers to what happens if a founder leaves before their four-year vesting schedule is up - the company has the right to repurchase their unvested stock, almost certainly (although his term sheet doesn't specify) at the original near-zero issue price. Since founders typically own 100% of their stock for tax purposes (hold it for a year, only have to pay long-term instead of short-term capital gains), the only way companies can subject founders to a vesting schedule is to have the option of buying the unvested portion back.
  - jacquesm 13y ago
    It all depends on who causes the leave, if the founder causes the leave I have no problem with such a repurchase right, but if the company causes the founder to leave (and this does happen) then the company should lose their repurchase right. Subtle stuff this.
    - gyardley 13y ago
      Sure, absolutely. The standard mechanism for this is accelerated vesting - I think Nivi wrote the definitive bit on it, here: http://venturehacks.com/articles/acceleration-termination http://venturehacks.com/articles/acceleration-termination

joshAg 13y ago

If i correctly understood the stock options seminar i recently had to go through, it means two things: 1) if you want to sell your stock to someone else before IPO, the company has to approve the sale. If they don't like who you're selling to (which could just be because they don't want voting shares belonging to outside people), they can choose to buy it back instead. If they don't like your price (too low or too high), then you and the company have to negotiate a 'fair' price. 2) The company has the option, but is not required, to buy back any unvested shares that you have already exercised if you leave.

snprbob86 13y ago

This doesn't address your particular question, but I like to recommend Eric Koester's guides to term sheet newbies: http://www.avvo.com/attorneys/20007-dc-eric-koester-1214516/guides.html http://www.avvo.com/attorneys/20007-dc-eric-koester-1214516/... There are several pages of articles & you might have to read and re-read a few times. It's dense, but clear.