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biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
ipaddr · 8 months ago
Your best course of action is to wait until the 1.3 is awarded or not. Your CEO ex-partner understands this and wants your equity before this happens. Why rush? It's in your interest to slow it down.

1% at current valuation will drop as new inventors buy in. Get protection that this amount never drops and try for 10% but settle at 4% non diluting shares.

If the company dissolves you get half of the existing value anyways and that amount is trending up.

The only reason to take the 30k is if you believe the company will drop in value and fall apart quickly. If that's the case you wouldn't be looking for 1% as that would be worthless.

You have to consider taxes. If you sell in less than a year any profits over your investment are taxed at normal tax rates but over a year you pay 15% in the US. Frances has complex rules where holding it for 2 years to 6 years will drop the percent owed.

biphasic · 8 months ago
I agree that he wants to rush it before the grant comes in.
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
pmarreck · 8 months ago
I'd say push closer to 5% and more cash... but it's my understanding that putting a price on a share should be held off as long as possible, or if you must, it should be kept lowish for early-stage.

As others have said you don't want to squeeze it too hard because you'd either jeopardize the future of the company or he could just close up shop, abandon the shares and reopen a new business, especially if there are no other current stakeholders to worry about.

1% IMHO is too small, especially considering you hired and ran good staff for 1.5 years, which is a critical time, and are already revenue-generating. At least push for 2 or 3. I doubt the other founder will accept anything higher than 3, but business types routinely undervalue the technical folks that actually build the money machine. ;)

This is the problem with cofounding, though... It's like owning a home vs. renting... it's far easier to move if you're just renting... Best of luck to you

I was most recently director of engineering at a startup for a year (as first employee, not cofounder), hired 3 good people who are still there, then stretched myself too thin with a toddler at home and we had to part ways (this was hard). Might be fun to have a chat if you're interested.

biphasic · 8 months ago
Would be great to chat, how can I contact you?
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
outten · 8 months ago
I have started four venture backed companies since 1995 … And I was lucky to have mentors … and since then, I have metored hundreds of companies. A couple of items I focus on is: (a) founder relationships and (b)what it takes. Regarding (a) I mention: no one likes lawyers until you need them. I learned this in my first company. tl;dr: your founder agreements should be tight. So much can go wrong when so long. One thing that happened to me was: “My founder passed away in his late 20’s … and who controlled the 40+% that hey owned? His wife? Girlfriend?” This was a challenge. And who owns what? Well, generally the entity. CTO’s genearlly find this the hard way: “Well it was me and team who …”. In my experience, that’s not how it works … How does down roads work? And dillusion? The board? These are complicated concepts that have a huge impact on the company and idea. Hollywood creates myths of success and failure … but remember they are just mthys. How the world works … well, that’s a different thing.
biphasic · 8 months ago
Understood! What do you think of the deal? Is it a fair offer?
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
hacknews20 · 8 months ago
Take the 60k and the 1% undilutable “founder’s shares” and move on, it will be much better for your soul and the faster you do this deal and move on, the faster you start something else with all the new expertise and learnings.
biphasic · 8 months ago
Would agree if it wasn't for employee stock pool and first founding round this year which is already going to make the 1% more like 0.65
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
zbshqoa · 8 months ago
Make sense but 60k for 600k in revenue with a pipeline to 1m or more it's quite small.

I'd try to negotiate at the very least and keep like 5% instead of 1%

biphasic · 8 months ago
Agree with that
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
pmarreck · 8 months ago
I'd say push closer to 5% and more cash... but it's my understanding that putting a price on a share should be held off as long as possible, or if you must, it should be kept lowish for early-stage.

As others have said you don't want to squeeze it too hard because you'd either jeopardize the future of the company or he could just close up shop, abandon the shares and reopen a new business, especially if there are no other current stakeholders to worry about.

1% IMHO is too small, especially considering you hired and ran good staff for 1.5 years, which is a critical time, and are already revenue-generating. At least push for 2 or 3. I doubt the other founder will accept anything higher than 3, but business types routinely undervalue the technical folks that actually build the money machine. ;)

This is the problem with cofounding, though... It's like owning a home vs. renting... it's far easier to move if you're just renting... Best of luck to you

I was most recently director of engineering at a startup for a year (as first employee, not cofounder), hired 3 good people who are still there, then stretched myself too thin with a toddler at home and we had to part ways (this was hard). Might be fun to have a chat if you're interested.

biphasic · 8 months ago
Agree that 1% is too small. Would be happy with 2-3% plus the cash
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
ollymorgs · 8 months ago
8 years ago I went through exactly this situation.

I was 50/50 shareholder, voting rights and co-director in a bootstrapped startup with no shareholder agreement. I worked as the CTO building the product for 4 years and hired a team of 4 other developers. My co-founder hired a full time salesperson who eventually left when he couldn't make quota. I was 21 when we started the business, he was 31, and over those 4 years I just grew up to realise he wasn't a good CEO.

After multiple failed attempts to raise money I eventually called one of the investors to ask for honest feedback why he didn't invest, he told me the vast majority of his failed deals happen when co-founders fall out and predicted that would happen with us too. I decided 3 months after that email to leave the business.

I started a new company with a similar product but focussed on large/enterprise in that market, while the previous company was focussed more on small clients. I kept my shareholding but resigned as a director. The co-founder went nuclear and decided to dilute me out of the business by issuing new shares and buying them. If I had bought them I would have just been giving him the money which he'd just pay himself as a bonus and then repeat, so I just had to watch my shareholding go down to 25%. All legal avenues I went down just confirmed that the cost of litigation would cost more than whatever I'd get out of it.

The year before i left my Grandad died and left me $15k and at the time I decided to forego my salary for 8 months to help the company's cash flow situation. So I eventually offered a settlement where I would sell out of the company for $15k and be done with it.

Forward to now, my new company, still bootstrapped, is over $10M ARR and profitable with 113 employees growing at 60% a year. I have over 51% of the shareholding and over 60% of voting shares. I still write code every day and behave more of an engineer now than I ever did in the previous company.

My advice to you is to take the money and leave, start something new and just start building. You have already realised the biggest value of that company; lessons about what to look for in a future co-founder, how to run a company and build a product. Leave everything else behind, move on and I promise you'll look back at this moment in 4 years time as being the best decision you ever made.

Good luck!

biphasic · 8 months ago
> You have already realised the biggest value of that company; lessons about what to look for in a future co-founder, how to run a company and build a product.

Agree with that, I now know what to look for if I started a new venture. Thanks a lot for sharing your story!

biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
zbshqoa · 8 months ago
Keep the shares and quit the company. It you don't need the cash it's pointless to sell your shares (you don't have to)

He'd need to raise capital at some point, new investors could buy your shares at a higher value.

biphasic · 8 months ago
I'm interested in coming to an agreement, I have not much to gain in holding on to all my shares.
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
Kiro · 8 months ago
> We don’t have a shareholders agreement so he could in theory dilute me by issuing new shares using company or investor money

How does that work? Wouldn't that dilute his share as well? And wouldn't the valuation increase accordingly, making your share keep its value intact?

biphasic · 8 months ago
because he has a 2/3 majority, he can lift my rights for preferential subscription, which means I don't get the chance to buy them. He could issue new shares at a really low price and buy them himself.
biphasic commented on CTO / cofounder exit deal after 1.5y at 600k revenue without SHA    · Posted by u/biphasic
aimazon · 8 months ago
> Lawyers I talked to told me different things, one that worked a lot with startups told me that it's a good deal, another one specialised in shareholder litigation told me I could squeeze the company dry.

They're not contradictory. The deal you've been offered is good and fair. However, you could take an adversarial position and squeeze your co-founder for a lot more if you're willing to sacrifice the company's wellbeing for your exit, e.g: you brought on the team and manage them, you could leverage that influence to poison them against your co-founder, the threat of you doing that would likely push up the buyout offer.

Take the 60k, push up the 1% to 5% (as that isn't going to adversely impact the company) and move on.

biphasic · 8 months ago
I'm trying to push up the stock, but my co-founder is a tough negotiator and adamant

u/biphasic

KarmaCake day16September 7, 2020View Original