
Ask HN: Founder claims I never purchased options, but I deposited checks - sqquuiiiddd
My previous company (Bay Area startup) was acquired by a Fortune 500. I reached out the founders, congratulating them and asking about my options. The Fortune 500 lawyer team responds saying &quot;[they] do not have a record of any shares held by [me]&quot;. I reply back with a copy of a check I made out to Bay Area startup with a Memo explaining that this money is to purchase the options. The check was cashed and endorsed with the Founder&#x27;s signature on the back.<p>Other than this check and the 83b election document, I don&#x27;t have any other documentation about how many options I own.<p>PLEASE HELP. I don&#x27;t know how to proceed. Do I begin Arbitration or find an attorney?<p>I am totally put off right now, feeling betrayed by the founders.<p>Edit: Thanks everyone for the warm thoughts and advice--I&#x27;m looking for a lawyer now. Really glad I posted.
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jedanbik
Find an attorney. Don’t give us any updates. Consider deleting this. This
posting could be considered legally discoverable. Not hard to figure out who
you are from your submission history. Best of luck.

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hamandcheese
Why would it matter if this was discovered?

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unstatusthequo
Attorney here. Specialize in e-discovery.

Because he said something at all. Though, HN is probably not akw hanging fruit
for anything. Unless your founder is here and knows you are. Or if you re-use
that username then when they look for your social media they will find it.

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bradleyjg
Okay, suppose they discover this post. So what? How does that prejudice his
case in any way?

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adventured
They'll attempt to find a mis-statement, a slip up of any kind that doesn't
jive with any part of the rest of the picture / claim in question. They may
look at the post for anything negative directed at a given person or the
company, or slander generally (eg second line from end). Even if it's a
stretch. From there it's a short hop to tossing around a few legal threats to
end or substantially complicate the entire thing for most people on the other
side.

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bradleyjg
Can you point me to a few reported cases where this happened?

Lawyers have thier own urban legends, just like every other profession.

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tibbetts
Lawyer. Also find out what bank is handling the transaction (often US Trust if
they used [https://www.srsacquiom.com/](https://www.srsacquiom.com/) which is
very popular). There is often a 15% escrow hold back on the transaction value
for 12-24 months to account for just this sort of thing, so it is very
possible to resolve.

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hnmullany
By the way, don't necessarily attribute bad intentions to the founders. Many
startups do a terrible job keeping track of who executed what, and it's not
uncommon to find cap tables that have significant errors and omissions.

Note that even if your shares are worthless - you can take the tax writeoff,
but you do need to get documentation from the company that the common stock
had no value so you have something to show the IRS if you're audited.

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justin66
> Many startups do a terrible job keeping track of who executed what

It's not just the startups. The companies that handle the finance side for
companies that experience liquidity events are fully capable of screwing up.

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toomuchtodo
Talk to HN user grellas. Ask what they’d charge to do a consult and engage the
acquirer’s counsel.

[https://news.ycombinator.com/user?id=grellas](https://news.ycombinator.com/user?id=grellas)

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tibbetts
It’s not really the acquirers problem as I understand it, it is the acquired
company’s problem to distribute proceeds, and usually they have an agent to do
it like SRS because it is so messy.

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davidu
It's the acquirers problem. They will deal with it.

Just send a letter to their legal counsel. They will pay you your money owed
out of the escrow'd funds.

Do it quick before the escrow is released.

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pnmahoney
this shit happens - don't work with founders who show even the slightest sign
that they are there to fuck you, because that means they are. not a
lawyer/doctor/veterinarian etc - but if you have the discretionary cash get a
consultation with an attorney, even if (and it may end up that) the value of
your options does not exceed the cost of that initial look

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ChuckMcM
You need a lawyer to take action. And that lawyer would need to get the terms
of the sale (generally as part of discovery).

But before you do any of that, you need to do a bit of math, this is because
your shares were likely 'common' shares rather than 'preferred' shares, so
they will have different rules by which they were treated in the event of a
sale.

When a company is acquired, everyone has their hand out. So typically those
hands are paid in order of preference until the money runs out.

A general rule is banks (debt), investors (preferred), and then common
(everyone else), in that order. How that works out in practice is that unless
the company is acquired for more than two times the amount of money that was
raised, it is unlikely that common stock will be worth anything at all.

So step one is trying to figure out how much the company was purchased for. If
that purchase price was 'material' (which is to say that the buying company
was investing serious cash and it could swing the buying company's value by
enough) then the company has to announce the amount and terms of the sale. If
it was a non-material impact on the company then the terms of the deal can be
kept reasonably private. (sometimes if you know someone who knows someone you
can get a board member to disclose it to you, off the record of course).

So this is what typically happens, the money from the purchase first pays off
any debt. And sometimes (at least in the Bay Area it was not uncommon) there
is a vendor who exchanges capital equipment (chairs, office furniture,
computers, etc) for a debt obligation. It is structured so that it turns into
either stock or a debt on acquisition depending on which gets the company the
most money back. If you're startup kept asset tags on everything they probably
did this sort of deal. So the debt gets paid off.

Now, with what is left, the preferred shares have something called a
'liquidation preference' and a 'seniority' order. Each round of funding re-
writes the rules so you have to have a copy of the last round of funding terms
to understand what is what. In good days the liquidation preference is 1 for
1, so for each dollar invested the investor gets back one dollar. Sometimes
when things were going badly at the end and the company is scrambling they
will do something called a 'cram down' round where the people who provide
funding for the round have an outrageous liquidation preference like 3 or 4 to
one. And everyone else comes behind them. In any event all of those pre-spoken
for dollars comes out of the purchase price first.

And now, if there are any dollars left, the 'conversion' happens. There are
two common things that can happen here, one all shares including preferred and
common can convert to a single share type, and then the remaining money is
divided up by the ratio of the total each share block holds. (this is when
preferred shares are 'participating' which means they convert to common after
their liquidation preference is met) Sometimes preferred shares will not be
included in the final round (non-participating).

In my experience, and for those deals where I knew all of the numbers, unless
the acquisition price was at least twice the amount of money raised, it rarely
trickled down any value to common shares. This is the basis for my advice for
new hires to treat any equity grant in a non-public company as $0 regardless
of what the CEO tells you.

This reality, that you have to be acquired for 2x of what you raise to have
any hope of generating wealth for the employees, helps experienced founders
push back on taking too much venture money.

Good luck on your quest, if you have some amount that would satisfy you then
you might get away with just writing the general counsel (that is their head
lawyer and their contact information should be on the 'legal' part of the
company's web site) with the amount of money you want, your evidence that you
own shares, and an offer to sign a release for any and all future claims. If
it is reasonable they might just pay it out of a fund they reserve for such
things (and by reasonable I mean < $100K).

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rdiddly
IANANAL (I am not ANAL), nor am I a lawyer, but it seems to me the cashed
check and the 83b form (especially if filed with the IRS) both pretty-well
corroborate the fact that money was exchanged, and it was for stock options.

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tudorw
If you get in the situation where you think you might need a lawyer/attorney,
talk to one, they are generally approachable sorts, if you don't trust one,
talk to a few, as others have pointed out, this is the first and only step to
take if you are considering action.

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api
Lawyer. Call one you must.

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foobarbazetc
Do you have proof they cashed them?

If so, talk to a lawyer.

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sqquuiiiddd
Yes I have bank statements that show the check was cashed.

> talk to a lawyer

The amount of the acquisition was not disclosed. I don't know if my options
are worth more than lawyer fees. What kind of lawyer do I need to look for?

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vinothgopi
If it is a public company, their SEC filing should reveal how much they paid
for the acquisition.

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tibbetts
The transaction won’t be disclosed if it is immaterial (small enough). Ask a
friend from the company or maybe an investor depending on who you have a
relationship with. You just want to know the per share valuation of common
stock.

Frankly I’m surprised the founder isn’t being more candid with you. Messing
about and prolonging this stuff helps no one.

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econner
You don't have a share purchase agreement that was signed by both you and the
founders?

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pjdemers
And a copy of the option grant itself? Also signed by the founders. Plus, if
it was a taxable event, there should be a line item on your W2 with the
taxable amount. Otherwise a form 3821 so you can prove to the IRS you don't
owe taxes.

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neom
adam bier in SF is my lawyer, he's very good and has dealt with something
similar for me.

