I designed and built a product and put together a kick ass engineering team of 4 people. My business partners handle sales and put the majority of the cash in, leaving me with stake of around 30%. Four weeks away from signing a multimillion contract, my co-founders issued a cash call, claiming I am subject to a compulsory share transfer clause. They give the company a premoney valuation of zero, and as a defaulting shareholder I should get 50‰ of fair value... Aka here's "140k leave now, and you have no choice about it". I managed to convince a lawyer to help, and she's willing to do it without charge - after going through the shareholders agreement it's pretty clear that their argument doesn't hold up. But... How to handle this situation? Especially going forward with regard to audits etc. as I no longer trust these guys at all
Get what you can and get out. If you care about bringing the full product to market, accept that you might need to take less to avoid any clauses limiting your future work.<p>Depending on the maturity of the company, there are a few different bits of value. Some you can take with you - your product vision - and now build in a linear path towards what brings value. Some things (IP) you won't be able to. But the real value in a company is the existing customers and PMF - if the company is still relatively young, the value you have moving forward is significant.<p>So just build yourself back up and move on. Try not to hold hate in your heart, it will only set you back. Take care of your mental health, be kind to yourself, and figure out what you would be doing next without worrying about what they're doing - that is for your attorney to handle.
Good comments overall. One insight here is to put yourself in their shoes to understand how to negotiate the best outcome. Most people don't rationalize themselves as mean or psychotic - there is probably some rationalizing behind the decision. E.g. diamondage is not a great engineer and we need to clean up the cap table before we increase the valuation because we can hire someone amazing.<p>To be clear, I'm not saying that's right or true. But assuming that's their position, does it change anything about your negotiation strategy?
When I hear stories like this, it’s always puzzling why shareholder agreements are such minefields. Is it realistic to sign an agreement without this “compulsory transfer on call” bs at all? I mean, probably these clauses are there to protect everyone, but not in this case it seems.
Sorry to hear that; I had a similar betrayal happen. My business partner and I had everything in writing, so I also was able to get a lawyer on contingency. From my experience, the legal route can take a long time and prolong your stress. If it turns out the company and your co-founders don't have much capital, then your lawyer (even if well-intentioned) might lose interest.<p>FWIW, we had not yet found product-market fit and my business partner apparently was not able to replace me adequately. So, the company completely lost velocity for over a year, essentially the death knell for a startup.
When I got kicked out by my cofounder, I kept my shares instead of taking the payout. But we still hadn’t made product market fit and if I had taken the money I would have ended up making the most off of the startup.<p>The two questions to ask yourself are:
1. What’s the chance this startup fails? Most startups fail, even those with big contracts.
2. Is this the last idea you’ll have? If yes fight hard to stay involved. If no, have the lawyer negotiate a sale for more than 140k and use that plus all the lessons learned to do a new idea better.
Go out from that relation, with or without the money.<p>Six years ago I finished the year with depression because a betrayal from my associate when we started our dream company.<p>Really, try to learn something and if not, try to remember that not all people are like them.<p>It took me 6 years to be able to face again people that worked with us because that betrayal feeling.<p>Run
Away
Now
you guys need to work it out, if you have vested equity they need your cooperation here, though the $140k today might be worth more than the equity risk adjusted. you can negotiate the cash, or negotiate for a % of the contract if it closes etc