Mon, 17 May 2021
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
If you have too many former founders with stock who no longer work at the startup, then you may need to clean up your cap table.
Due to a lack of a vesting schedule, those founders took substantial tranches of stock without staying long enough to build meaningful value.
If this stock amount is significant, then it will hurt the business later.
That stock needs to be set aside for future employees or to reduce the impact of dilution from future investors.
To resolve this issue, go to the departed founders and offer to buy them out.
In the negotiations, you can offer them a price which matches their contribution.
If they decline, then you can threaten to shut the business down in which case the stock will be worthless.
Since you’ve built a business, they will recognize this as a real threat because you can start a new one without them.
The old saying in the startup world is, “10% of something is better than 100% of nothing”.
Most founders will recognize they have something of value and will not want to see it go to zero.
It’s important to clean up the cap table early on and not let it persist.
Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.
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