A friend owes me about $28,000. They work at a late stage startup which is doing well based on growth numbers, and can IPO in a few years. We thought about exchanging 28k with the equal amount from the startup options, since they're short in cash and it can take a while for them until saving up that money, given other debts they have. Since the startup is in breakout stage, it can get even 5-10 times the current value. On the other hand, there are obvious risks. I'm actually a user of the product and find it very useful, and I know very smart people working there, but you never know how finances can go. Given that we are very good and close friends, and I trust them %100, do you recommend taking this deal? What actions should I take to formalize this, in case I wanted to move forward? Thanks!
Research the company as you would any other 28k investment. If you think the shares are undervalued, take the shares. If you’re not comfortable with any 28k investment, try to negotiate a middle ground we’re you get enough cash to make you comfortable
You gave him 28000 and asking much more?
No, I gave them a total of 28k over past 2 years, and they don't have cash to pay me back anytime soon, also I don't know if it's going to be "much more" or even "more".
Go to small claims court if your money is not getting back to you. Remember there is statue of limitations.
This is a difficult question. There are no good answers here.
Late stage startup that’s short on cash and cares for a 28k investment, and going to ipo soon? None of it sounds right...
The startup is not short on cash obviously! The person who works there and is granted the stock option is short on cash and is willing to exchange equivalent of 28k of the total grant with cash.
Are you going to have some written agreement about that?
I haven't figured how. I don't know if the written agreement can be legally binding, but morally can be. Although I don't think it's necessary in this relationship.
I don't think you can do his legally and without him paying the taxes on these shares or options.
Hmmm then I should ask for 28k after tax.
How are you trying to do this ? Is he going to transfer 28K worth shares or options in your name ? The company he works for should allow it to happen. The best way I would think is ask him to sell the shares on EquityZen or some platform and return your money. This way the relationship won’t impact in future. If you’re interested to buy them buy through the platform he lists as you’ll be legally safe.
Haven't thought this through. I haven't used eqityzen, but it's a good idea. But we need to make sure immidiately after they sell, I buy, so that no one else is buying in.
Also, they still need to give me the cash for buying from equityzen
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“very good and close friends” and lending/borrowing money never ends well
Well, if your very good and close friend is in desperate need of money, what would you do??
I do lend and borrow money with my 2 closes friends. It worked well so far. And I did one deal similar to yours made 350% on the 35k in 4 years