aneth3

This article is out of touch with what it's like to not yet be a financially independent, respected, and successful entrepreneur.

Making a few million dollars, one path to which is selling a company, solves a huge number of problems. You stop worrying about making rent, take a year off and start something new without worrying about a paycheck, return to school to change careers without risk, have children and afford a babysitter, build the company you want to even if you don't have confidence it will succeed, hire a maid, have a lawyer do your taxes, have price insensitive vacations, wear fancy hats and expensive suites and deign to tell people how little difference money made in your life, ... shall I go on?

Only those in the cockpit needed to know. The rest were in charge of subduing the passengers and could have been told they were hijacking the plane for ransom, or to meet demands, or any other story. If you consider the long lead up to 9/11, keeping most operatives in the dark makes the most sense for an Al Qaeda planners since it reduces the chances of a member talking or dropping out.

"FBI investigators have officially concluded that 11 of the 19 terrorists who hijacked the aircraft on 11 September did not know they were on a suicide mission"

http://www.guardian.co.uk/world/2001/oct/14/terrorism.septem...

When humanoid robots become passable as humans, I would expect us to have technology capable of distinguishing between warm blooded humans filled with water and robots filled with artificial compounds, and to detect bomb embedded in anything mobile.

I wonder why it did not occur to him that the same AI could also be used to aid in this detection of humanoid nuclear bombs, which if they are going to be built, will certainly be built with or without him.

> surely no shortage of people willing to die to do that

I think there is a major shortage of people willing to be suicide bombers. There is a grand fallacy out there that the world is full of suicidal terrorists. It is not.

Suicide bombers from Palestine were generally tricked or extorted. Those that were acting on their own volition generally could not detonate themselves, which is why bystanders had detonators.

There is strong evidence that most of the 9/11 hijackers did not know it was a suicide mission.

That said, under orders, extortion, or trickery, a human could definitely sneak a bomb into a city.

I am not suggesting people form corporations as a first step, only that they come to a general consensus on equity and commitment as early as possible. Personally, I've had long discussions with potential cofounders who suggest exactly what you say, and when pushed they offer 2% because they are the great idea and execution genius who can pull funding. All those people failed to find competent partners or raise money.

Had these founders not had an agreement, corporation or not, the founders who left would continue to have a very substantive claim on the business as part of the partnership.

You can read here about what happened in one case when this went wrong:

http://www.milwaukee-business-lawyer.com/what-happens-when-o...

Courts hold that a partner who leaves a business lacking an agreement does not lose rights to their portion of the business. If it can be proven that there is absolutely no relationship between the old and new product, perhaps it could be shown that a new partnership was created. This is not a lawsuit you want to deal with.

That is why pretty much anyone giving competent advice instructs partners to decide how they should split equity and on a vesting agreement ASAP. That doesn't mean these agreements can't be changed as commitments and roles evolve, but the existence of an agreement makes those conversations necessary. Without one, fundamental disagreements often lurk.

Over and out.

> if Zuck was operating Facebook under the same legal entity as the candy store in which his partner had equity, said partner might have a claim, though it would be hard to establish if the partner produced no work for the new idea

Now, IANAL, but to my knowledge this is just patently false and represents a complete mischaracterization of the purpose and legal implications of a corporation.

In this case, Facebook would be owned by the flower shop entity, not Zuck. Regardless of what work his partner put in, Facebook is still owned by the flower shop entity, and each has ownership stakes as contractually or legally established. Neither Zuckerberg nor his partner would have any personal claim to Facebook, only to their equity in the owning entity. Zuck would not suddenly get more equity in the entity because of the work he did.

This is one of the most basic functions of equity and the reason for investing time or dollars in exchange for equity - so that your wealth increases disproportionately from the work of others. If ownership was determined by judges proportioning by sweat equity, those who left Facebook after 2 years and now have $10M+ would be in trouble.

There are numerous legal complications if Zuckerberg claimed that Facebook was NOT under the flower shop entity, however given your statement that he explicitly placed it under the flower shop, the case is quite simple. Zuck would not have been able to extract Facebook without buying out his partner.

I am way over my head in trying to get into this part, but depending on state law, I understand there are de facto partnership agreements in the absence of a written one (generally an equal split) and sometimes ways of getting rid of "dead weight" partnerships. These are not things you want to happen.

This sort of situation occurs all the time in small businesses and often leads to their demise. You are doing a great disservice to anyone who takes your advice.

I agree in the beginning - "get to work and build a product." Spending a day or a week on something without having this difficult conversation is not a huge risk, but don't spend months or years. The conversation only gets more difficult and can destroy whatever value is created.

> So, yeah, I'll stick with my advice: if you're a fledgling startup, don't waste intellectual, physical, emotional and economic resources on your "stake". Earn it. Having a contract will not prevent disputes; I can speak from experience on that. Get to work and build a product. When there is something actually at stake, then worry about your share of it.

I think this is bad advice, and goes against both my personal experience and almost every bit of startup advice on the internet.

Sure, you don't need a formal contract, but you do need to make sure you are on the same page equity-wise, while being open to renegotiation. Generally, that "same page" conversation should be documented somewhere, even as a simple email. While that email IS legally relevant and possibly enforceable, the point is to get keep everyone's memory honest and provide clarity.

An email thread like: "Based on our conversation, we plan to split this company equally three ways. Is that everyone's understanding?" "Yes, sounds good" "Yep"

Can be very helpful to avoid misunderstandings both presently and in the future. The point is not to get into a lawsuit, but to avoid one.

I ultimately decided not to join a cofounder who was in a situation analogous to this. An investor owned > 1/3 of the company, but cash was almost gone and the original idea had failed due to TOU issues with a third party. The only option was to pivot entirely, with little money and investors owning a huge chunk. I saw this as unfair, and pushed for a new company - the investors after all had invested in the original idea, and should take some responsibility for its failure.

I would also have agreed to investors putting in more money, combined with issuing additional shares to the founders to keep their stakes the same, or to the investors reducing their stake. The thing is, investors to my knowledge will never be as "gracious" as Arel and Anton.

There is a lot of grey area between pivot and new company where ethics and legalities come into play, and I don't know the right answers. I'd love for someone like pg to expound on this.

Could you guys expound on why this is the "right thing?" I see this very differently.

Personally, I would never have agreed to this based on my understanding of the situation. It's clear from the article that Ecquire evolved from Dropcard, even if it is an entirely different product now:

"Ecquire was getting further and further conceptually (and technologically) from Dropcard"

Almost every tech company evolves dramatically, and rarely resembles its former self after four years. If one contributes substantially in the founding stages of a company, I believe one should end up with something, even if it is a reduced stake. The company would not have made it where it is without Ariel and Anton's participation in early failed ideas or admission and participation in the incubator.

It's safe to assume their contribution exceeds zero percent, which is what the Tal pushed for and Ariel and Anton agreed to. No investor would have agreed to this, why is it right for Ariel and Anton?

> We have laws in this country to prevent people from getting screwed. Work with people you like and trust, and focus on building a product, not on what your "stake" is.

The most important reason to negotiate equity early is not to avoid people getting screwed, but to avoid fundamental equity disagreements from screwing everyone.

Even if you like and trust someone, this does not mean you have compatible beliefs on equity or vesting.

If founder B joins founder A, and they move forward with founder A's idea, it's quite possible that years later, when they decide to raise money, founder A will insist that he deserves 90% of the equity, while founder B will want 40%. You'd also be surprised how much people's attitudes and allegiances can change when heavy hitters enter the picture and large amounts of money are at stake.

Laws will not prevent you from getting screwed if you don't have any contractually established rights. If you sign an assignment of IP for your work to a company, you can't later sue for equity to avoid getting "screwed."

You are certainly entitled to give up whatever equity you like, and perhaps you are a better man than me for not feeling you deserve such a minor stake. If you feel you did the right thing and fully comprehend the situation, it is not my place to challenge your decision. I'm only expressing my thoughts, and my feeling that this is not the way to handle pivots with former co-founders anymore than it is a way to handle pivots with investors.

I don't know how long and hard you worked, how related your work was to the ultimate direction, whether you participated in early fundraising, advised the continuing founders, etc. All of those could impact my thoughts on this. Going on the assumption that you worked long and hard - you contributed to the ultimate direction and team and you earned something.

"Pivots" are all the rage in startups these days. Why is it any more acceptable to ask for vested founder shares to be returned than to ask for shares to be returned from early cash investors or advisors? Does YC return shares to founders who pivot after leaving YC?

I think it can be fair to renegotiate stakes according to impact, as it appears you did to get down to 0.5%, but eliminating clearly earned stakes entirely seems rarely justified. Re-incorporation makes sense in many cases, but in others will open the new company to accusations of fiduciary violations largely for the same reasons.

Two former cofounders with a combined 1% of equity should not have any effect on the future of the company. Even if it did have some minor impact, those shareholders earned and deserve their shares. Companies regularly give shares to advisors, board members, employees, friends, landlords, etc...

I could be off a bit, but I don't think "extra" shareholders become an issue unless their stake is large (>5%) or there are a large number. Regardless, two minor former cofounders hardly seems a significant burden, and eliminating their stake for minor convenience is suspect.

If this was the justification used by the continuing founders, they were either ignorant or taking advantage of their former partners' ignorance.

> I wouldn't be suprised if the current CEO were to pay them on the backend regardless of his dance.

I wouldn't count on it. This is not generally human nature, nor is it compatible with the behavior reflected in this article.

If the early shareholders invested significant time and effort into the business, I don't see why it's 'right' for them to give up their shares. While they are certainly entitled to do so, pressuring them to drop even their 0.5% seems unethical to me.

If those early founders actually did not contribute much in those early days, I would revise this opinion. However as it stands, it seems akin to asking an early financial investor to return his equity. If I give you $50,000 and you pivot ten times, I should still own a piece of your company. Same goes for early founders.

The early founders had already agreed to diminish their share to 1% combined. Pressuring them to go any lower seems greedy and unnecessary assuming they invested significant time and energy over a long period of time, even if it was for an earlier idea.

Unlike most of the comments here, I'm not sure this was a class act. Given that the early founders voluntarily gave up their equity, I suppose the continuing founders deserve some benefit of the doubt.

I don't think I would have agreed to give up my last bit of equity as I would feel 0.5% was fair simply for being a part of the early team formation, ideation, and apparently discarded product development work. I would probably be annoyed by the offer and ignore it.