10 ms·

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 sh

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

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