

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

At the very early stages my company we joined an &quot;incubator&quot; that has proven completely worthless over time. Now that I have new investors coming in, they are questioning that incubator&#x27;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?
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MalcolmDiggs
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.

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dgraf
Thanks I had not seen that unintended consequence.

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brudgers
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.

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calcsam
To get some ideas, watch The Social Network.

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

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gesman
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.

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

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

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biomimic
Which incubator is it?

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andr3w321
Talk to a lawyer.

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

