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How can I dilute a partner that has added absolutely no value to my company?
At the very early stages my company we joined an "incubator" that has proven completely worthless over time. Now that I have new investors coming in, they are questioning that incubator's worth and its complicating negotiations with them. Is there a way in which that incubator can be diluted down or to have them grant part of their shares to new investors?
- andr3w321 12y agoTalk to a lawyer.
- dgraf 12y agoThanks, doing that already... Just wanted to hear from people who have experienced this problem to learn how they managed it if at all.
- calcsam 12y agoTo get some ideas, watch The Social Network.
- SCAQTony 12y agodissolve the corporation - rebrand and start a new one. Hollywood use to do this in the 80's to avoid residual payments.
- CyberFonic 12y ago+10 - assuming that it is still feasible in 201x !
- bruceb 12y agoIn the contact with the accelerator what does it say? It might say if the corporation is dissolved the partner has the right to buy the assets.
- gesman 12y agoThat approach will have consequences: If new brand will greatly succeed - leftover previous shareholder can easily prove that it was done to defraud him and leave him out of the game. If it will flop - then of course no one will have problems with it.
- CyberFonic 12y agoAssuming you have control or influence over 51% of the shareholding, then why not just issue more shares?
- piker 12y agoBeware - fiduciary issues may abound if you're a majority shareholder.
- MalcolmDiggs 12y agoI wonder if you could simply ask them to sell the shares back to you at a fair price? Diluting a stakeholder purposefully can have unintended consequences (on your reputation, on employee and investor morale, etc). Maybe best to handle it gentlemanly, so that nobody else starts fearing that they're next. As a personal example, Ive walked away from job offers when I found out the founders squeezed out an early developer's equity. All things being equal, why would I assume Id get any better treatment? This situation isn't quite the same, but you get my drift.
- dgraf 12y agoThanks I had not seen that unintended consequence.
- biomimic 12y agoWhich incubator is it?
- brudgers 12y agoThey're not new investors until the check clears. Complicating negotiations in ways that are not reasonably solved is probably a way of saying "no". Stop wasting time. If they want to invest they will based on the prospect of a big upside not over a minor shareholder's equity. Normally I say "good luck" here. Don't do the wrong thing because when you lose you'll not just have lost but done wrong while trying to stave off defeat.