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Comment by MobileVet | Hacker News Reader

I was part of a very well know incubator and a very early employee at a flagship company. Founder blew tons of cash and dilutions but that is part of it and I didn’t mind.

What was ethically shady was shortly after I left with 4yrs vested they decided to restructure the entire company so they could attract investment. They took all the debt from the original company and put that in a shell company that then owned a portion of the new company. Guess where early employees’ stock went? The debt vehicle.

I actually did make some money on the eventual exit, but probably 1 or 2 orders of magnitude off of what it would have been if my stock was in NewCo. Consider the tech we built was a major driver of the acquisition, it was frustrating.

People are greedy, no matter how nice they are to your face.

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That happened to me too. Owner restructuring companies or moving from LLC to LLC and then starting the vesting schedule over again. It's fairly common it seems that owners play games with the people who actually build the company after the work is done.

Is that illegal? Sounds pretty illegal. I'd imagine the owner getting sued by his employees.

What would you sue for in a startup that doesn't yet have value? Later on, if the company became worth something then yea you could sue but how do you work with the people to build something successful when you know that they are screwing you?

It sucks because you sign on to something and change your whole career but once you do that they kind of have you trapped in a way. They can change the deal arbitrarily once you don't have a job to go back to and you don't have a lot of recourse until the company becomes profitable.

A startup clearly has value even though it isn't a public company yet. Figuring out that value just has more steps.

IANAL, but MobileVet's situation may have been illegal, running afoul of minority shareholder rights, if the situation was accurately described. I imagine what happened was the CEO divided the company then paid a pittance for the portion without the debt to the portion with the debt. You can't do this, or well, other shareholders have legal recourse if you do. If you play enough shell games, you can somewhat hide what you did. That doesn't make it legal. If this is the case, the CEO just relied on the former employees not doing anything.

You are totally right with respect to the fact that it isn't aboveboard, but one of the biggest problems with our legal system is that you need money to protect your money. Other wise you'll go bankrupt while their attorneys file delay motions causing you to have to pay your attorney more and more.

I was the CTO of a company and built its entire infrastructure for 4% of the business. One day I came into work and the CEO(and majority owner) tells me to put aside everything and start work on a totally separate project. Oh, yeah and the company name is now different. The new project that I'm assigned is much more intensive in terms of volume and uptime requirements and came with no rewards.

So I start building the company in good faith with no real contract in place with the new company with the expectation that we would negotiate while I developed so as to not cause delays. This was a naive decision. Always get the contract first because as soon as real money starts flowing in everyone starts grabbing theirs. Prior friends or acquaintances also get preferential treatment which is how I ended up with the VP of marketing taking assignments from me and yet somehow being given 9x as much equity.

Eventually, after the system was stable and I felt confident in my work quality I asked to negotiate my contract. I was instead let go. The joke was on them though, I revoked their access to the repository and told them to show me the contract that says the software is theirs.

What happened then?

I think they decided that it was infeasible to continue using my system without fully knowing how it all worked. I intentionally made parts of it opaque (ie hidden in DLLs) until my contract was resolved. This is part of the reason why they let me go. I insisted that they purchase the rights to those opaque code blocks as part of my contract since they were in fact developed by me for a different project long before I joined the company. (It was a proprietary web server written in c++ designed for high-performance web services and since it was 1 of a kind it had a degree of security through obscurity and therefore I didn't want to release the code for free) I guess a part of me knew things weren't right but I ignored the signs because I loved what I was doing and I was good at it.

Oh, also they tried to claim that they didn't withhold any taxes by not giving me a W2. So now I can't e-file my taxes but they mistakenly reported my income to the department of employment back in Q2 so I'm sure the IRS will be calling them.

Yea, I figured it was unethical at best, illegal at worst. I could have pursued it but chose not to. I should have at least talked with a couple other former employees to see if we could go after it together, but I didn't want to be blackballed from the startup space. This is a very well known individual... though their reputation isn't exactly stellar.

Maybe I should have, but it wasn't going to be life changing money either way and it would have required a lot of time, money and emotional energy.

What's amazing is that you didn't realize that all CEOs are like this. To be a CEO you have to believe that you deserve 99% of a company's profit. Also you have to feel like it's a mistake if the employees get more than 1%!

You are right (well at least from my experience). For a long time I decided to believe that people weren’t that selfish until I worked for this start-up where the CEO openly admitted that he didn’t want reward employees with options. Yet, at the same time the company couldn’t hire competitive employees... that’s 2019 in Europe.

My first job in the US was at a startup located in an incubator building. In the same building was another startup that wasn't doing so well after a lot of growth and management there made sure that they would make some serious money at the firesale while everybody else made nothing. It really opened my eyes about the ethics of VCs and a lot of founders (who were very pleasant and nice people if you met them at the gym or the cafe).

Curious why you don't mention their name? Feels like there's little recourse against this sort of thing other than reputation risk, why not out them publically?

While I'm sure it would be quickly sued out of existence, are there sites specializing in this sort of information? I'd love to see names of founders/early investors/board members/... easily associated with these kinds of decisions (i.e. track records of the good and bad). I have to send feelers out into my network to dig up this kind of information but that's not an option for a lot of people new to the industry.

Shame we don’t have fuckedcompany.com around for this any more.

Valleywag was essentially that, but did get sued out of existence.

it's all public info... fuckedcompany 2.0

I don't know... not a fan of speaking ill of others even if they deserve it. Besides, I don't know for sure that it was illegal and it was a while back. It isn't worth the energy to dredge it up.

A company I used to work for is in the process of doing this right now. Makes me feel really stupid spending ~10k exercising the shares.

While you're probably bound by some restricted shareholder agreement, you may get a lot of mileage by just asking a lawyer to ask some questions on your behalf. If this restructuring is going on in the context of some larger time sensitive deal, they may throw something your way to not screw up the timeline. Of course, this all depends on your tolerance for pain.

I have heard that too. By raising an issue you may delay some deals so they may choose to pay you off just to get rid of you. But obviously there are no guarantees and hiring a lawyer may cost money.

Yea, I pinged the acting CEO... but I really should have had a lawyer make the inquiry to the founder & lead investor.

I believe you should be able to write off a loss as cap gains or OID depending on how long after excise you liquidate. Will at least be able to get some back.

I don't know if this is illegal, but it definitely should be. It'd be interesting to hear someone with a legal background chime in.

That sounds like straight up shareholder fraud to me.

Sure felt that way.

I went through an acquisition with a medium sized buyer who later restructured the company making the common stock essentially worthless. However, we were offered to buy the new stock class to equate to what we had before for a nominal fee (we already finished earn out and we’re gone for 2 years).

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