

Ask HN: Restructure during financing round - rjett

We have VCs interested in doing a round of investment in our company. My co-founder still holds on to a sizable chunk of equity, but in the last two years has become of less importance to the company. One of the stipulations for investment is a restructuring of the existing cap table to make sure the right people are incentivized going forward. Since my partner and I (the other two cofounders) have all of our worth tied up in the company, we have no means to buy out our third partners, so the restructure would have to take place via the VC deal. In theory, everyone participating in the deal is on board with this idea. In practicality, I&#x27;m having a hard time finding precedent. For anyone who has experience in M&amp;A, what&#x27;s the best way to accomplish this goal?
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patio11
This is a question for your lawyer, but you'll probably want to replace the
more typical "Issue X new preferred shares to the VCs" with "Issue Y new
preferred shares to the VCs and, additionally, effect a secondary sale of Z
shares of founders stock to the VCs in exchange for monetary consideration of
$N with said shares to be converted into preferred stock on completion of the
transfer."

Playing with the numbers gets you virtually any combination you guys want of:

\+ money injected into the company \+ money transferred to your cofounder to
buy him out \+ resulting remaining cofounder diluted ownership of the company
\+ resulting VC ownership of the company

Those numbers will probably be subject to contentious and highly consequential
negotiation. Again, run it by your lawyer and, if you have them, other
advisors that you'd routinely tap to discuss cap tables.

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7Figures2Commas
patio11 is right: this is a question for your attorney.

For everyone else, this is a perfect example of an irony many entrepreneurs
face today: some investors won't consider investing in a startup with only one
founder, but co-founder relationships can create all sorts of problems that
sour (or even kill) deals.

Mark Suster had some great advice about co-founders at a Startup Grind talk
last month. [http://youtu.be/oAHgGUFjK3c](http://youtu.be/oAHgGUFjK3c)

