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The guy has no business trying to learn how to be a diplomat when he's already tasked with a day to day job for the founders. If it's gotten this far in the co

The guy has no business trying to learn how to be a diplomat when he's already tasked with a day to day job for the founders. If it's gotten this far in the conversation (posting on HN) then the situation is clearly bad, at least on one end. Given it's a situation with unfair dilution, the assumption is that all stakeholders are well aware of the dilution results and are OK with what is being proposed. They are founders, after all, and SHOULD know what they mean by asking for this. Also, don't think for a minute they don't already have attorneys queued up on their end. I would say this is EXACTLY the time to have an attorney get involved to take a look at the documentation and render an opinion. If the situation is ugly, they may fire him if he protests, but that also gives rise to a reason to question the cause for termination. Given the contractual agreement between the parties, a termination event may provide an avenue to compensation for unfair termination, especially when seeking legal council could be shown as the reason for termination. When in doubt, lawyer up and be cautious of making blaming statements that aggravate the other party. You may want to end up working with them in the future. Or not, depending.

tptacek 12y ago
Saying that may make you feel better, but Tony seems to have the better argument. You absolutely can be fired for lawyering up what the founders intended to be a pro-forma restructuring of the shares. You will probably have no recourse when that happens. Assuming you're vesting, like most employees (and founders!) are, getting fired will cost most of your shares. Talking to a lawyer: good. Bringing a lawyer into the discussion with the founders: bad.
- Silhouette 12y ago
  While these practical considerations are interesting, I think there is another observation worth making as well. If you really can be fired without cause or notice and at the loss of most/all of your interest in the business, you have no cards and anything you do is a bluff. If you really are dealing with cofounders who are are willing to push you out of 40% of your interests without offering much of anything in return as soon as the going gets good, then you have no reason to trust they won't push you out of the remaining 60% the day before any lock-up expires. In that case, your best options may be either to lever the practical value that keeping you on board has right now to get a better, more secure deal immediately -- one where you won't be vulnerable to being kicked out arbitrarily and without proper compensation in the future -- or to assume you're going to get screwed when your lock-up ends and leave now. It's a good idea to negotiate at this point rather than caving to the (probably very bad) deal being offered as an opening gambit by the cofounders, but the bottom line is that if they can fire you whenever they feel like it and you have no airtight contractual right to compensation if they do, nothing else you negotiate now actually has any value at all. (Edit: Obviously if you opt for the "apply leverage" option then you do it nicely. I'm not talking about lawyers-at-dawn and threatening to walk if they don't meet your every outrageous demand or anything silly and confrontational like that. But I think it would be perfectly reasonable to expect solid guarantees that your remaining interests will retain meaningful value in exchange for whatever you are willing to give up here, such as accelerated vesting and a condition that if they let you go early then there's something in it for you.)
  - tptacek 12y ago
    That doesn't make sense. You have at least one obvious card, which is that the board wants you to continue working for the company. If they didn't, instead of trying to claw back some of your equity, they'd claw back most of it by firing you.
    - Silhouette 12y ago
      That doesn't make sense. You have at least one obvious card, which is that the board wants you to continue working for the company. That's true of any good employee, whether or not they were on board early and received a stake in the business. However, the value of that card will progressively decrease to near zero over time whatever you do. Like any good poker player, you want them to pay to stay in the game before they know what your hand will be worth if they call you. Put another way: Two years down the line, with 100 people on board and another funding round in the bank, any one senior technical person will almost certainly be expendable to the business and everyone will know exactly how much his options/diluted options/low preference shares are worth if he doesn't have proper safeguards to guarantee his position.
- icebraining 12y ago
  I'm not saying that bringing a lawyer at this point is a good (or bad) decision, I have no idea. But can they really fire him? If OP is in an EU country and they've setup an office there, aren't they under the jurisdiction of said country for employment purposes? If so, it might not be so easy. I don't know labor law across the EU, but here our labor courts don't like companies who fire people for exercising their rights.
  - Silhouette 12y ago
    I don't know labor law across the EU, but here our labor courts don't like companies who fire people for exercising their rights. That is certainly the general attitude around Europe, encoded in law to various degrees depending on where you are. However, it's worth keeping in mind that most of those laws are meant to protect the little guy from being fired unreasonably and winding up with no income but still rent to pay. The maximum levels of compensation available for wrongful dismissal tend to be relatively low compared to the levels you're talking about as a founder/early employee/investor in a company that becomes successful. It seems to be implicitly assumed that anyone dealing with bigger numbers will know enough to make suitable contractual arrangements that protect their own position explicitly.
oaktowner 12y ago
I've had the opposite experience. I once was offered an unfair equity package from cofounders of a startup. I (and two others) wrote up a document voicing our unhappiness and the reasoning behind it. And they ended up agreeing with us. While the offer they first came up with was not fair to us, they honestly hadn't realized it (they had a lot on their minds, it was the first solution that came to them, and they simply proposed it). We did not poison our relationship. They agreed that our solution was more fair (it involved each of them getting less equity and each of us getting more, by the way). And, in the end, the company had a (modestly) successful exit. We are all friends to this day. OP: If it's unfair: write down why it is unfair and what you would propose as a more fair agreement. Only if and when they reject that should you involve an attorney. But there is absolutely a chance that they will realize your solution is better.
- kordless 12y ago
  You were fortunate to have good people who shared your position. It doesn't sound like OP has this, so I'd still suggest consulting with an attorney before doing anything. That doesn't mean he has to get the attorney involved in direct conversations, or even mention he has one.

tptacek 12y ago

Saying that may make you feel better, but Tony seems to have the better argument. You absolutely can be fired for lawyering up what the founders intended to be a pro-forma restructuring of the shares. You will probably have no recourse when that happens. Assuming you're vesting, like most employees (and founders!) are, getting fired will cost most of your shares. Talking to a lawyer: good. Bringing a lawyer into the discussion with the founders: bad.

Silhouette 12y ago
While these practical considerations are interesting, I think there is another observation worth making as well. If you really can be fired without cause or notice and at the loss of most/all of your interest in the business, you have no cards and anything you do is a bluff. If you really are dealing with cofounders who are are willing to push you out of 40% of your interests without offering much of anything in return as soon as the going gets good, then you have no reason to trust they won't push you out of the remaining 60% the day before any lock-up expires. In that case, your best options may be either to lever the practical value that keeping you on board has right now to get a better, more secure deal immediately -- one where you won't be vulnerable to being kicked out arbitrarily and without proper compensation in the future -- or to assume you're going to get screwed when your lock-up ends and leave now. It's a good idea to negotiate at this point rather than caving to the (probably very bad) deal being offered as an opening gambit by the cofounders, but the bottom line is that if they can fire you whenever they feel like it and you have no airtight contractual right to compensation if they do, nothing else you negotiate now actually has any value at all. (Edit: Obviously if you opt for the "apply leverage" option then you do it nicely. I'm not talking about lawyers-at-dawn and threatening to walk if they don't meet your every outrageous demand or anything silly and confrontational like that. But I think it would be perfectly reasonable to expect solid guarantees that your remaining interests will retain meaningful value in exchange for whatever you are willing to give up here, such as accelerated vesting and a condition that if they let you go early then there's something in it for you.)
- tptacek 12y ago
  That doesn't make sense. You have at least one obvious card, which is that the board wants you to continue working for the company. If they didn't, instead of trying to claw back some of your equity, they'd claw back most of it by firing you.
  - Silhouette 12y ago
    That doesn't make sense. You have at least one obvious card, which is that the board wants you to continue working for the company. That's true of any good employee, whether or not they were on board early and received a stake in the business. However, the value of that card will progressively decrease to near zero over time whatever you do. Like any good poker player, you want them to pay to stay in the game before they know what your hand will be worth if they call you. Put another way: Two years down the line, with 100 people on board and another funding round in the bank, any one senior technical person will almost certainly be expendable to the business and everyone will know exactly how much his options/diluted options/low preference shares are worth if he doesn't have proper safeguards to guarantee his position.
icebraining 12y ago
I'm not saying that bringing a lawyer at this point is a good (or bad) decision, I have no idea. But can they really fire him? If OP is in an EU country and they've setup an office there, aren't they under the jurisdiction of said country for employment purposes? If so, it might not be so easy. I don't know labor law across the EU, but here our labor courts don't like companies who fire people for exercising their rights.
- Silhouette 12y ago
  I don't know labor law across the EU, but here our labor courts don't like companies who fire people for exercising their rights. That is certainly the general attitude around Europe, encoded in law to various degrees depending on where you are. However, it's worth keeping in mind that most of those laws are meant to protect the little guy from being fired unreasonably and winding up with no income but still rent to pay. The maximum levels of compensation available for wrongful dismissal tend to be relatively low compared to the levels you're talking about as a founder/early employee/investor in a company that becomes successful. It seems to be implicitly assumed that anyone dealing with bigger numbers will know enough to make suitable contractual arrangements that protect their own position explicitly.

oaktowner 12y ago

I've had the opposite experience. I once was offered an unfair equity package from cofounders of a startup. I (and two others) wrote up a document voicing our unhappiness and the reasoning behind it. And they ended up agreeing with us. While the offer they first came up with was not fair to us, they honestly hadn't realized it (they had a lot on their minds, it was the first solution that came to them, and they simply proposed it). We did not poison our relationship. They agreed that our solution was more fair (it involved each of them getting less equity and each of us getting more, by the way). And, in the end, the company had a (modestly) successful exit. We are all friends to this day. OP: If it's unfair: write down why it is unfair and what you would propose as a more fair agreement. Only if and when they reject that should you involve an attorney. But there is absolutely a chance that they will realize your solution is better.

kordless 12y ago
You were fortunate to have good people who shared your position. It doesn't sound like OP has this, so I'd still suggest consulting with an attorney before doing anything. That doesn't mean he has to get the attorney involved in direct conversations, or even mention he has one.