Questions

A VC/Angel I am negotiating with wants a clause whereby founders have to sell all vested shares if they leave in good terms. Is this normal?

He is also proposing a "bad leaver" clause where founders have to sell all their vested or unvested shares at the lowest value between the nominal and subscription price.

4answers

NO, it's in no ways normal. In reading how you have framed the question, this investor sounds to be acting in bad faith and is also setting you up to fail by introducing terms that are not standard to how quality investors interact with their investee companies.

It is however very standard to have a first right of refusal to purchase your shares should you wish to sell. But that is not at all what you have stated.

Happy to talk through the particularities of your situation in a call


Answered 5 years ago

What's "good terms"? If everybody is happy and you are moving on to your next venture considers as good terms? I never heard about something like this (and I drafted a lot of investment agreements) and it doesn't make any sense either. Will they sell all their vested shares if they decide to stop investing or not participating in future rounds?


Answered 5 years ago

Yes it's normal. They don't want someone owning a large portion of the company and then basically retiring to let others make them money. They will want to buy you out. You can ask that you keep a small percentage or that the shares will be sold at 1.5 times current value of company at time of sale. until shareholder owns shares for 3yrs or more then goes to market value. Don't expect them to bit at this, just giving you some background and letting you know some negotiation options.


Answered 5 years ago

While, it's normal for a VC firm to ad such clause to gain and retain absolute control, you should ask them what's their definition of "Good Terms". It shouldn't be "whatever I say is correct" syndrome, but actually a good term with "win-win" as underlying proposition.

If good leaver is what your investor talking about then you should consider discussing reverse vesting clause. Watch out for traps before you sign a deal.

Hope above helps!!


Answered 5 years ago

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