Screwed by incubator, what do I do with my dead company?
I was part of a (non-YC) incubator in the Bay Area. We were given a small amount of money equity-free and we were directed to use the incubator's high-profile Silicon Valley attorney in forming our corporation. The attorney and founder of the incubator tried to throw out our CEO and replace them with an associate who worked for one of their VC sponsors. This ended up being a pretty awful experience, and we left the incubator early.
Given this experience, the founders have agreed that this company is not going anywhere but we're unsure what to do. We're obviously crushed, but we have plenty of other opportunities, so we're okay.
But to complicate it further, the attorney is now demanding payment for their services which total about two-thirds of all of the incubator money we even got (which has already been spent), and the attorney's firm has a negligible amount of equity in the company. Nobody other than the founders has any equity, and we didn't raise any capital.
So, HN, what have you done with your dead startups, especially after they've been legally formed as a Delaware C-corp? And, how do make sure the ghost of your startup doesn't haunt you for years to come?
Thanks!
7 comments
[ 7.2 ms ] story [ 26.5 ms ] threadCheck your documents, if you are working with a major SV law firm, they regularly take startups under the guise that if you don't raise / exit / generate significant revenue, they write off the fees. After all, you shouldn't be personally on the line and the corp has no real assets of note.
Or, if the investor still wants the company, sign it over to them...what do you all care at this point?
If this isn't something you're planning to pursue, I'd use what (if any) money is left to wind down the company. Declare corporate bankrupcy, file a dissolution form, and close up shop. You shouldn't be personally liable for anything, but you want to close up shop cleanly regardless.
Hire a cheap lawyer to help you do the forms, or use online resources like Nolo or Legalzoom.
If you explain the situation to the lawyers who own part of the company, they may be willing to do it for free, or to take over the company, and run it themselves. Neither hurts you, since you're moving on anyway.
Good luck, whatever you do!
This also caught a lot of people in the housing boom, when mortgage companies didn't properly explain terms to people and then had them use an attorney the mortgage company paid for. More than one person had the question "what's a balloon payment?" 5 years after the mortgage was signed.
My only advice going forward would be to see your own attorney over this, preferably one that has experience in company formation and dissolution. Take all of the paperwork with you, as well as contact info for the other guy's attorney.
>the attorney's firm has a negligible amount of equity in the company. Nobody other than the founders has any equity,
Just before saying only the founders own the company, you say the attorney's firm has some ownership in the company, so it is a little confusing, but, these are major issues to discuss with an attorney:
1. Did this attorney an/or his firm take ownership in your company? Did the attorney/Firm pay or exchange their legal services for this ownership? Did they take ownership and charge the company for their services?
2. Is the attorney seeking payment from you, personally, or the business only? Did the attorney represent you the business or both?
3. As for the comments suggesting you simply dissolve the Company, you definitely should NOT do this before talking to an attorney. For example, the articles of incorporation and by-laws generally require a meeting and approval of all owners, which in this case appears to include a law firm seeking payments either from the company or you personally.