Software company, three co-founders, pre-seed.
This type of matter is led by Eleanor Sterling
Restructuring founder equity ahead of a seed round
The challenge
One co-founder had stepped back from the business, but held a third of the equity with no vesting. Prospective investors raised it as a condition of investing.
Our role
Corporate counsel to the company, working alongside the founders' individual advisers.
What we weighed
- A fair outcome for the departing founder's contribution to date
- Clean ownership investors would accept
- Tax consequences of any repurchase, coordinated with accountants
The work
- Reviewed incorporation records and the original equity issuance
- Prepared a negotiated repurchase and IP confirmation agreement
- Put vesting in place for the continuing founders
Typical outcome
An illustration of how this type of matter can be resolved: the departing founder keeps a reduced, fully vested stake and the company goes into its seed round with a clean cap table.