Ask HN: Leaving a startup that I co-own - How should I be compensated?

I would just say finalize the equity. Give what is owed to the rest or your partners. Stay on as board of director role, or advisor. Theres no reason for you to just give up completely .. why not just work on a new project you have on the side to avoid burn out. A lot of times for us developers we think more features will bring more customers.. but I think its up to your partners to go out and sell the crap out of the product, and you should be given some relax time.

Ask them to assess when they think the startup will be profitable, considering everything invested to date, then reproportion your equity accordingly. So if each of you have 25%, the consensus is 2 years to profitability, and you spent 2 years there already, then you should agree to reduce your share to 12.5%, splitting the other 12.5% between the remaining 3 founders. You can also offer to play an advisory role for a bit more.

So first of all - you kind of want it all ways. You think its going to fail but you want a piece of the action "just in case".

First step - pick one.

If you think its going to fail and your partners are just wasting their time. Sign it all over them. Assign them the IP and walk away.

If on the other hand you think that while your involvement has come to an end - that they still have a chance then sit down with them. Get it setup in a form where you can have equity and agree what share of that equity you will have - but it sounds from the agreement you already have you have 25%. Sign over the IP to this entity (they won't be able to sell it or do anything if you don't do this - and you want to give them a fighting chance). If you still want to be an advisor or they do - then that is your choice. The net result of all this is that you will be a shareholder with your investment being the work that you did.

A Note on amount of equity: You have put two years work in at the riskiest part of the game (at the very start when everything is unknown). They might want to argue you down a bit because it's still very high risk - and that would probably be fair - but I would say that's their call if they want to go down that road. Ask yourself if they would have any chance going forward without those 2 years work.

If I were one of the remaining founders I would offer you the following scheme: 1) Make evaluation of the company asap(say 0.5mln). 2) Define your share as fixed amount (say 125K), as you leave and don't put any more efforts for company to survive, contrary to other founders. Your shares and IP goes to company. 3) In case company gets funded/profitable, you'll get your 125K+inflation. If not - not. That would be fair, IMO.

If you think it's going to fail, just call it a day and walk away, signing everything over to them. 25% of nothing, is nothing so it's not like you'll loose anything.

If you don't think it's going to fail, take a week off, get your shit together and get back in the game.

Figure out what you want for your stake, ask the other party(s) to do the same.

Whoever offers the highest valuation for their own shares gets to buy the other party out at that same valuation.

Simple.

This is the situation that shares were intended to solve. They're not perfect, they're not ideal, but they do at least provide a way of thinking about the problem. This is simplistic and intended to give you a point of view from which to reason about it. It's not the end of the story.

Let's suppose there are 100 shares, and you each own 25 of them. You can't think in terms of the effort you've put in so far. That's sunk money/time and you need not to think about it at all. You need to think about the value of the company/idea/project as it is now.

And that's right now, not in two years time. You don't know what it will be worth in two years time. Given that you've lost your enthusiasm, in your heart of hearts you must think it's not going to be worth much in the future. If you honestly, truly believed it was worth pursuing then you'd take a day or two off to recharge, and then get stuck in again.

But you want to hedge against the million-to-one chance that this will all take off without you. So value your expectation of the company's worth.

With 50% chance, you think it's worth nothing.

With 30% chance you think in two years it will pay the bills, but only just. Company worth - $100k

With 15% chance it will be a really good, on-going business. Company worth - $400k

With 4% chance it will soar and be worth $1m.

With 1% chance it will really take off and be worth $7m.

Is that how you see it? Change the figures to match.

That makes the expected value ofthe company:

    0.5*0 + 0.3*100k + 0.15*400k + 0.04*1000k + 0.01*7000
  = 0 + 30k + 60k + 40k + 70k
  = 200k

So your share at the moment, based on this belief, is currently worth $50k. Each share is worth $2k, and you have 25.

Tell me - would you sell me your holding for $50k? If you snapped my hand off, then that valuation is too big. Are you really sure you wouldn't sell it to me for $50k?

Honestly?

So you need to adjust those figures down. Honestly, how much would you take for your 25%?

Now you want to walk away and leave your colleagues to take all the risk. The point is, they will continue to put time, effort and money into the venture. As they do so, they should be compensated, but you shouldn't. So they need to put in X and receive newly minted shares in return. Yes, your holding gets diluted, but the value of the company should be going up. The value of your holding doesn't change, so long as they're getting linear returns for their further investment.

Suppose they all put in an additional $10k. The company will then be worth $230k. They should each receive 5 newly minted shares, so there are 115 shares issued. You now hold a smaller percentage of a larger valued company. You have done nothing, and the value of your share holding reflects that.

Suppose they all put in another 6 months of work. How much is that worth? Based on what's happened so far it's a quarter of the time spent so far, so they should each get an additional 6 shares.

And so on.

Their proportion of the pot is increasing because they are continuing to put more in.

Now here's the kicker. You can trade your shares with them. If your valuation of the company is greater than theirs, you can put money in, getting shares in return based on the mutually agreed valuation (splitting the difference). On the other hand, if you think the company is going down but they don't, you can offer to sell back you shares.

So here's the question again - what would it take for me to buy the 25% from you and have you walk away completely?

  40*100k + 10*1,000k = 4,000k + 10,000k = 14,000k

    expected_value = 0
    for case in possible_cases:

        prob = case.probability
        value = case.value
        expected_value += prob*value

    sum( [ case.probability * case.value for case in possible_outcome ] )

Keep in mind that if you have 25% of the stock now, it's very unlikely you'll get 25% of any purchase, if there is one. The buyer will direct most of the deal toward earn-out for employees they want to retain, and try to minimize money that goes to shareholders. It's also easy to dilute minority shareholders over time, e.g., by giving currently employed founders big option packages. Generally speaking, common shares owned by a founder no longer active in the company are seldom worth anything, unless the company is a major success.

On the other hand, given that the company hasn't really succeeded so far, it's not clear that your efforts to date are worth all that much. If the company goes forward, the real value creation is still in its future. So you're not really being screwed over, you're getting fair value for what you've done. The tough part is recognizing that even though you've put in a lot of effort, and invested a lot of emotion, the results so far just aren't worth that much. You sort of recognize that by walking away. But now you want a share of what the other founders create in the future, which isn't fair. You only deserve a piece of what's been created so far, and by your own description, it doesn't sound like that is very much. You can't have it both ways.

You mention burned out. Could you not take a break away for bit? You also mentioned you spent a considerable amount of time building the base, thus I'm assuming you have put in more time and effort than the others. Why not try and take a week or a month away (either doing something else or vacation) and see if you feel any different? You will get a chance to think and solidify your decision to leave.

Could you maybe change roles in the company? Do something that brings back the energy you once had towards it?

However, by the tone in your first 2 sentences it might be too late. It sounds like you have already made the decision to leave and do not believe in the company at all. In which case, the others might not even want you there anymore anyway and I can't blame them.

The most important factor is what stage the company is at. Since the company is doing very badly and will likely fail you deserve very little credit if it doesn't. You do deserve something though. I'd say around 5% would be fair. That assumes you will act in good faith to hand over any IP assignments necessary, etc.

Here's a simple fair way, if you can get everyone to agree.

Forget about the sole proprietorship. Pretend you all vested your stock over a traditional 4/1 vesting schedule. Go back and figure out what you've already vested - keep that and move on. (so if you've put in 2 years, you get 12.5% of the common).

The company should pay for this legal work, because it's something that should have been done a long time ago. Getting this right is in the company's interest as much, if not more than, your own.