
Ask HN: Cap table is a mess - startup89
Hi,<p>Will keep it simple:
- 16% of our Cap Table is owned by people no longer involved in the company
- We have $2M in the bank
- We are pivoting to something completely different
- The $2M is from note holders (so they currently are not on the cap table)<p>What is the best way to get that equity back?
- Buy out the owners
- Start new company and refund investors
- Do a recapitalization
- Other idea?<p>Thanks
======
fab1an
IANAL, and this depends on many many factors, and probably many more than you
currently have on your radar given the way you've phrased your question.

Best way forward here is likely to sit down with a great lawyer and talk
through the _technical_ options you have, which will vary based on
jurisdiction and setup.

If you have a good relationship with the 16%, there is probably a way to
readjust the ownership levels in good faith - they will want you to be
properly incentivized. You will have to make a good case for this and explain
how the readjustment will work best on a technical level, and why this is
going to be win-win.

------
siegel
Sadly, this question cannot be answered based on this information.

When you say "pivoting to something completely different," are you going to be
using IP developed as part of the current company? If so, starting a new
company will be very difficult.

And the note holders don't want their money back, most likely. I mean, if you
dissolve, they'll have no choice but to take it. But they were investing to
get equity down the road. Query how you raised $2M and apparently haven't
spent any of it. How long ago did you enter into these notes? I would have to
imagine it was pretty recent. And you didn't know about the pivot then? That's
possible, of course. But it's a concern the noteholders may have.

There are lots of strategies to move forward. But it's pretty fact specific. I
think fab1an's advice is really the best.

------
_ah
Don't know what your goals are here, but if you have $2M banked then you're
presumably shooting for a relatively large ~$100M+ market valuation. At this
point, your primary focus should be the success of your pivot, and nothing is
more valuable than cash.

If the extra 16% equity is necessary to ensure your ability to fundraise and
retain talent, then it is a fatal condition. You must find a way to show the
equity holders that their 16% will be worth zero unless they give some back.

If the extra 16% is _extremely annoying_, and you really wish you could get it
back because you think this new venture will be HUGE... then I'd advise you to
consider leaving it alone as "dead equity". Yeah it sucks, but your options
here are Victory or Zero. Giving up cash (or time, and mental anguish) for a
slightly larger Victory doesn't really help you, and increases the probability
of Zero by a non-trivial amount. Check your ego and be wise here.

IANAL. Your Mileage My Vary.

------
tedmiston
I don't know that HN can give a satisfactory answer with the information
provided. For instance, does the traction of the business indicate the value
will continue to increase (i.e., is buying out worthwhile to you)? Is the
outside ownership shares or options; if options, do they have expiration? Are
there opportunities to fundraise or sell? Is the outside ownership a problem
to potential investors? etc

------
hguhghuff
No longer involved, but provided something of value in the past?

