Re:Ask HN: Do minority shareholders scare away new investors?
by T2_t2 on Wednesday February 21, 2018 @07:12PM
(#16434135)
I have no idea what the correct answer is, but as this is one of those questions that matters, OP probably needs proper proper advice from someone you trust in the know.
If, for whatever reason, getting proper advice is not something you can get, this is perhaps the best of the info, as Siegel's Bio says https://news.ycombinator.com/user?id=siegel:
> Startup Attorney Grellas Shah LLP http://www.grellas.com https://www.linkedin.com/in/david-siegel-a271265/
Re:Ask HN: Do minority shareholders scare away new investors?
by siegel on Wednesday February 21, 2018 @07:20PM
(#16434174)
Thanks, T2_t2.
I certainly understand the OP's concern about being fleeced here. It is a very fair and understandable concern. But the founders' claim that investors are being scared away could be very real.
It's a delicate balancing act because while the OP doesn't want to get taken advantage of, I'm sure he also doesn't want to engineer a situation where the company can't get funding and his shares become worthless.
That being said, they can't force you to do this and, if you are going to do it, as blacksqr says, you should get a premium for it.
At a minimum, any repurchase should be conditioned on the company closing a significant investment round. You can enter into an agreement now where you bind yourself to sell back a percentage of shares subject to that condition. That way the investor, if they care, knows that you will be divesting of a significant percentage of your shares. At the same time, you don't unnecessarily sell back your shares before an investor insists on it (Note: The investor's money is going to end up being used for the share repurchase. So, if they don't actually care, they probably will not agree to fund the repurchase).
It can get a little complicated, in that there are tax implications for you, as well as a potentially detrimental impact on the company's 409A valuation. With some creative lawyering, there could be a win-win here.