Startups

Founders don’t want to sell

New / EngBabis
Dec 3

Company had a really good run, grew exponentially (now 120 employees) and was able to secure pretty solid rounding at a reasonable valuations.

However, growth is now slower as the competition caught up, and we have massive execution/quality gaps. It would be the perfect time to sell the ship and probably cash in 200M valuation, which would make the founders super rich, and early employees like me would get low 7 figures (I am fully aware of current cap table, dilutions and all that, I’ve been kept in the loop).

However, the founders are instead doubling down and want to turn things around and move into the 1B valuation with a plan that consists in keeping the company around for 3 more years and make 5-10X more revenues than now.

I’m in despair. I can’t leave because I would have to pay too much to exercise my options, and there is no secondary market for the equity.

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  • Rubrik / Eng“”””0
    Voice this concern to the founder and ask for a secondary liquidity opportunity for employees, make them realize it’s a concern for many and if they don’t provide some liquidity, they won’t have a team to get them to 1b
    Dec 30
  • Compass / Eng
    FUPayMe

    CompassEng

    PRE
    Google
    FUPayMemore
    Find a new company that is willing to give you a signing bonus to cover your options.
    Dec 35
    • New / EngBabis
      OP
      I’m talking about $500k+ between cost of exercise and amt liability (amt is really the dominating factor). I was really really early so all the appreciation from ~0 to 200M is counted as AMT. Never heard of companies giving that much POST tax for a rank and file engineer.
      Dec 3
    • Compass / Eng
      FUPayMe

      CompassEng

      PRE
      Google
      FUPayMemore
      Sounds like you should have been saving and now you’re realizing that failing to budget has consequences. Best of luck.
      Dec 3
    • New / EngBabis
      OP
      I’ve been saving a lot. In fact I have a liquid net worth of 1.4M all in index funds, but I’m not going to blow a third of that on startup options, it’s beyond my risk profile.

      The real problem is that when I initially joined the startup they told me the ideal target would have been in the 100M valuation. Now that we reached and surpassed it, they changed their strategy and want to go even bigger, which I couldn’t have predicted.

      Certainly a lesson learned for the future, but I don’t know what I could have done differently in this situation if not staying out of the startup altogether.
      Dec 3
    • Compass / Eng
      FUPayMe

      CompassEng

      PRE
      Google
      FUPayMemore
      Could have exercised earlier but there’s no point in pointing out via hindsight. There are firms that will let you borrow money for your options but I’d recommend you against if it you can

      Alternatively you can ask your founders to do a secondary offering so you can sell some shares to cover your exercise.
      Dec 3
    • New / EngBabis
      OP
      Yeah I looked at esofund but it’s a legalized scam essentially. They take 50%+ of your proceeds, and if the company goes bust and your loan is forgiven you are still on the hook for a massive taxable event because the forgiven sum is considered income. I’d rather rot here for a couple more years ugh.
      Dec 3
  • Google X0r0q
    How are you 'in the loop' if you can't discuss this directly with the founders?
    Dec 31
    • New / EngBabis
      OP
      Because at every investment round I hammered them with questions about the details of the round and they also let me see the cap table a year ago. I expressed my concerns, they just dismissed it and say I’m too pessimistic and things will turn out great. In the end I’m not an executive.
      Dec 3
  • Wells Fargo techgeeksf
    You are screwed. Got to ride it out
    Dec 30
  • Ask the founder to give you longer exercise period after leaving, like 5-7 years. Doubt they will grant that to you but won’t hurt to ask.

    I lost $3M+ on paper money from my last startup :) btw.
    Dec 39
    • New Lollj
      That’s a great advice
      Dec 3
    • New Tenteo
      No harm in asking... assuming you’re ready to walk. Note that the board can be concerned about precedent setting unless they’re open to revising the terms for all employees.
      Dec 3
    • Exactly. The board will shot down the idea. Since you are an insignificant engineer, they don’t really care if you leave.
      Dec 3
    • New / EngBabis
      OP
      This is interesting. Why did you lose that much? Were you terminated? Or you didn’t think it would become as valuable and so left without buying the options? I’m in a similar situation, according to the last share price my equity is in the 3-4M ballpark as well.

      And for exercise window yeah, I asked in the past and VCs said no.
      Dec 3
    • Yes the company is not growing anymore. No exit in sight. And no secondary market is willing to buy my options. So I left everything on the table. Sucks, yes but what can you do ;)
      Dec 3
    • New / EngBabis
      OP
      Damn. Seems almost like my situation. Why do the founders not want to sell? I’d imagine they also have a pretty big chunk of equity and would be looking forward to liquidity, especially if the company is not growing anymore.
      Dec 3
    • They want to raise another round to be unicorn status from current 400M valuation. I’d say greed played a major role here.
      Dec 3
    • New / EngBabis
      OP
      Lol are we sure we don’t work at the same company?? Our valuation is also really close to that, and I don’t fucking understand why founders don’t take the cash. At those levels of wealth (they’re going to be making 8 figures for themselves for sure), a 3X growth is not going to make that big of a difference, it’s still life changing. Losing it all would instead be major. Go figure. Thanks for sharing.
      Dec 3
    • I left almost 2 years ago. But yeah it sounds cool if founders can claim they built a unicorn, right?

      My previous company is walking dead now so I’m glad I made the right choice.
      Dec 3
  • Form a union
    Dec 32
    • New / EngBabis
      OP
      Perfect strategy to get fired and lose all my equity. Alliances/unions just don’t work in tech, people are too self centered or naive or greedy.
      Dec 3
    • Then they'll have to fire everyone. That's the whole point of unions.
      Dec 3
  • Intel / SalesLastMan
    Classic problem of any startup .. nothing for you to do .. if company is planning another trajectory.. u r not a major stock holder ..
    Dec 31
    • New / EngBabis
      OP
      Yea :( I’ll be much wiser next time. I hate not being in control like that. At least if I was at another company I’d know exactly how much I stand to lose if I were to leave. Here it could literally be anything between -$500k (if I exercise my options and then the company goes bust) and +$5M
      Dec 3
  • This comment was deleted by original commenter.

    • New / EngBabis
      OP
      I’m not in business. I’m just a normal rank and file engineer, but I was very early so I have a boatload if options, but I’m still just a normal swe.
      Dec 3
    • New / EngufJz68
      And therein lies your problem. You could have been working in fang and been an investor and gotten preferred stock not to mention access to the real cap table, not the BS one they feed you.
      Dec 3
    • New / EngBabis
      OP
      Very actionable advice buddy.
      Dec 3
    • New / EngBabis
      OP
      1) very hard for normal people to find opportunities to invest in such startups as a normal accredited investor. I know of several people close to the founders who wanted to invest but were turned down, even very early on, since the round was already oversubscribed by VCs who can bring more to the table than money. The reason is these founders have a solid track record (sold a couple companies before that) so VCs wanted to give them even more money. They weren’t gonna accept a 100k check from me, not worth the trouble.

      That’s actually part of the reason these founders don’t want to sell. They’re already ballers with 8 figures net worth so they want to shoot for 9 figures for themselves.
      Dec 3
    • New / EngBabis
      OP
      2) luckily I negotiated a really good TC. Without counting options, my liquid cash comp is 300k. FAANG last year offered me 360k cash + equity, so not too far off (FB E5)
      Dec 3
    • New / EngBabis
      OP
      3) I find it hard to believe the cap table was bs, can’t tell the full story but let’s just say it “leaked” more than they willingly share it lol. Ok I’ll tell the story. One founder was sitting relatively close to me and it was late in the afternoon and everybody went home except us. I couldn’t resist peeking at his laptop when he went to the bathroom and he had the cap table open in front, with all the employee names and amount of equity granted, as well as amount owned by VCs at which price lol. I took a few pictures with my phone. I know, naughty lol
      Dec 3
  • Microsoft twkh55
    Do you think their plan is realistic? Also how significant is it if you left? Be realistic here, is your IP enough to cause a significant drop in revenue or customer satisfaction. If your IP is nothing to the company and you're just a code monkey then all you can do is leave.

    If you have a significant contribution into the product then you should talk to the owner about some kind of buy out or some kind of separation agreement.
    Dec 32
    • New / EngBabis
      OP
      I’m not a code monkey but at the same time if I left business would continue as usual, little disruption overall.

      The problem with leaving as I was saying is that I have $500k+ to shell out to exercise my equity and pay amt, that’s why I loathe these founders for not selling.
      Dec 3
    • Microsoft twkh55
      Well the problem is you don't have much leverage and the 500k isn't truly yours in the sense that it is a promise for joining a startup at a lower pay that you can exercise it in the future. The founders have no obligation to sell and you rightfully feel you have been tricked and that's kind of the nature and risk of taking equity as a regular worker in a startup, either your equity gets ipo, bought out, or most likely worthless and company eventually goes belly up or sold at a discount.
      Dec 3
  • New / EngBabis
    OP
    Haha no, don’t worry. Doesn’t start with F
    Dec 40
  • Juniper UsA51
    Op help me out....I am joining a startup and hope this is not the one that I am joining...
    Is it hw/sw startup?
    Doe the name start with F.?
    Dec 40
  • Uber p3
    This is a common situation. At one point you need to move on. You’re not a founder. Exercise a few options and move to another company.
    Dec 30

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