• August 2018
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What happens to your vested options if you leave a startup that is still private?

What will happen to your vested options when you leave will depend on a number of factors like how your startup is set up, under what circumstances you leave, how much equity you own, etc. It is tricky in a private company because, like you said, there is no readily available market in which to sell them. To add to that you don’t even know how much they are worth because there is no market price to tell you. And even if you try to hold on to your equity as an owner and leave the company as a director/manager, you may be worried that the company will act outside of your best interests.

At this point it is important that you speak with a lawyer because there are a lot of different legal issues that need to be worked out and you need to protect your equity especially if you have significant money on the line. I will try to answer your questions by highlighting a few things to think about.

To whom do you sell your shares? — This is a problem in your situation because it seems like your only available buyer is the company buying its shares back from you. This wouldn’t be a problem if you had a market evaluation so you could get a fair price from your fellow founders, but they likely want to pay you a lot less because you have no other buyers available. Your most simple solution is if you could get your cofounders to buy back your equity at a fair price.

How do you determine a fair price? — This is tricky. I’m assuming you invested capital initially, so at the very least you should try to valuate your shares at an amount equal to your capital contribution. But, hasn’t the value of your startup grown since then? And if so, by how much? The straight book value of your shares may not be an adequate evaluation, either. You will want to be compensated for the growth of your equity, so you should try to factor in any growth in your share valuation. The problem, again, is that you would have to convince your cofounders to pay you such a price.

All that being said, I suggest that you talk to an attorney before making such a decision. A founder leaving a startup can trigger all sorts of problems and scenarios and you need to be aware of the consequences of any such action. An experienced attorney will be able to walk you through various strategies and help you determine which is the best for you. If you are looking for an attorney or just have more questions, I invite you to visit LawTrades where we will match you with an experienced attorney for a free consultation.

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