How can I dilute a partner that has added absolutely no value to my company? | Hacker News Reader

How can I dilute a partner that has added absolutely no value to my company?

8 pointsdgraf13 comments

At the very early stages my company we joined an "incubator" that has proven completely worthless over time. Now that I have new investors coming in, they are questioning that incubator's worth and its complicating negotiations with them. Is there a way in which that incubator can be diluted down or to have them grant part of their shares to new investors?

View on HN

I wonder if you could simply ask them to sell the shares back to you at a fair price? Diluting a stakeholder purposefully can have unintended consequences (on your reputation, on employee and investor morale, etc). Maybe best to handle it gentlemanly, so that nobody else starts fearing that they're next.

As a personal example, Ive walked away from job offers when I found out the founders squeezed out an early developer's equity. All things being equal, why would I assume Id get any better treatment? This situation isn't quite the same, but you get my drift.

Thanks I had not seen that unintended consequence.

They're not new investors until the check clears. Complicating negotiations in ways that are not reasonably solved is probably a way of saying "no". Stop wasting time. If they want to invest they will based on the prospect of a big upside not over a minor shareholder's equity.

Normally I say "good luck" here. Don't do the wrong thing because when you lose you'll not just have lost but done wrong while trying to stave off defeat.

To get some ideas, watch The Social Network.

dissolve the corporation - rebrand and start a new one. Hollywood use to do this in the 80's to avoid residual payments.

+10 - assuming that it is still feasible in 201x !

In the contact with the accelerator what does it say? It might say if the corporation is dissolved the partner has the right to buy the assets.

That approach will have consequences: If new brand will greatly succeed - leftover previous shareholder can easily prove that it was done to defraud him and leave him out of the game.

If it will flop - then of course no one will have problems with it.

Assuming you have control or influence over 51% of the shareholding, then why not just issue more shares?

Beware - fiduciary issues may abound if you're a majority shareholder.

Which incubator is it?

Talk to a lawyer.

Thanks, doing that already... Just wanted to hear from people who have experienced this problem to learn how they managed it if at all.

Reply on news.ycombinator.com