equity, exitI have some equity in a startup that was founded a year ago, because I was working in it as CTO. I now want to leave, and they are interested in me leaving all equity for the small amount I initially paid. The reasons they cite is that having someone that’s not working, didn’t put a lot of money but have equity is bad in front of an investor. I want to sell the equity at the value the society pact says it has. They say they don’t have money to buy it, and that it’s fair that I just leave for the small amount.
Do I hold equity unless they buy it at that price? Will they really look bad in front of investors if they state they used that equity to pay an employee?
Thank you very much, for this answer, and for the useful past answer.
Do I hold equity unless they buy it at that price? (…) I’m fairly sure it’s going to fail
Here are the two main risks you take by refusing to sell the stock:
So don’t be too greedy if you’re truly convinced they’ll fail.
Have you considered making them an offer whereby they pay you in two steps?
That way if the startup fails you get the money you put in back. And if they succeed you get somewhere between what you’d have earned by working for a salary and the current “fair value”. If they’re adamant and refuse to pay you the latter, the salary argument might be a good one to put a floor underneath which you won’t budge.
Will they really look bad in front of investors if they state they used that equity to pay an employee?
Tricky question. If it’s a lot of stock and the employee is no longer there or involved, it can reek of “we couldn’t work as a team with one of our cofounders”. Cofounders splitting up isn’t unheard of though. It also introduces the notion that you get away with a chunk of the company without contributing anything – their incentive to dilute your position will be very high.
Of an IOU, in comparison, you can say “we promised to pay a friend who helped us.”
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