Questions

I am being allotted some equity in a startup. What can be some reasonable clauses which can help me force buy-back or impose selling preference later?

I had been working as a developer in a startup and getting paid through equity. My work is for a fixed amount of time and I can leave after that. I want to make sure that the equity given to me can be en-cashed at some future funding round. Without any sort of preference clause, the funding rounds can just get used in paying back the previous investors and I might not be able to sell my equity soon. Can anyone suggest some clauses which can solve my purpose and are not very problematic to the company or it's present and future investors?

3answers

This issue could be something the founders are unable to control. Now it has become a trend that founders (and early employees) can liquidate some of their shares on a Series A or Series B round.

Investors found this a necessary step, so the founding team don't think of selling out the company too soon just because they didn't have any money.

This article would give you some guidance on the matter (and also a few situations you have to beware of.)


Answered 4 years ago

First of all, usually funding rounds are NOT used to pay back previous investors but rather insert cash into a growing company in order for that company to reach new scale. If you're accepting equity as part of your compensation, you're also accepting the risk that this equity can be worthless or potentially very valuable. The only way you will get liquidity from this equity is through an acquisition of the company where your shares are sold or by selling your private company shares to another individual prior to such liquidity event. There's no guarantee you can sell your equity or that it will be worth a set amount.


Answered 4 years ago

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