Co-founder exiting after pivot – what's a fair exit package?
Throwaway for obvious reasons. I’m a co-founder of a venture-backed startup currently valued at ~$20M. We raised a strong pre-seed, built a team, shipped v1, generated revenue, and recently pivoted into a related idea that I think could work—but I’m no longer the right person to lead it. My co-founder is passionate about the new direction and wants to take it forward. I want to step away cleanly and with integrity.
I have ~10% vested. I led our early fundraise, worked unpaid for months, and contributed personal capital. I’m not trying to maximize my return—but I also don’t want to walk away empty-handed after 1.5 years of building.
My question: 1. What’s a fair exit package in this situation? A formula/rule I can use?
2. Should I just keep the vested equity? Future investors may see this as dead equity.
3. Is a cash buyout common or appropriate?
How would you approach this with the board/co-founder in a way that’s constructive and protects long-term relationships?
Would love to hear from anyone who's seen this play out—on the founder, investor, or legal side.
I used to work in VC. Although I've never deal with this situation myself, I've talked to other founders who've had similar experiences.
The general thinking is that the new team is essentially a new business. This new business needs cash, and taking that away is more or less a non-starter at this point. Fundamentally, founders are compensated for seeing things through, not for partial work. It's a really hard sell to either ask a cash-poor company for cash for non-productive purposes or to ask new investors to put up cash that's going towards an exit-package (ie. someone who's not going to be contributing). The only leverage you may have is how much pain you can cause by not being bought out, which puts you in an adversarial relationship with everyone else. I don't think that's good for you.
So I'd recommend you'd just hold on to your vested shares to build good will. Indicate your intent to exit, but you like the new idea and wouldn't put additional pressure on the business at this stage. If the business is successful in the future, you may get bought out by later stage investors to simplify the cap table and reduce governance complexity. But for that outcome, you'd need to be on good terms with current investors and the new team.
I've commonly seen grants like this diluted to almost zero. I would think carefully and strategically about how you can get some sort of value for the equity you vested. Its probably harder than you think to get decent liquidity on it.
Went through a similar scenario a few years ago, similar valuation range and stage. The person was nice, so we amicably decided to settle at around 3% sweat equity.
interesting, i might end up doing something similar. if you don't mind me asking, how much did you sell the remainder of your shares for? was it close to your FMV? i feel like i'm already being negotiated hard by being forced to sell my equity to minimize dead equity and then instead of selling at the 409A valuation, being sold at the FMV seems like i'm losing another battle. thoughts?
Curious, what was doing your friend, who is ready to take over and lead? Why not switch sides, take over his functions, and offer your stake for sale during the next raise at that valuation?
Why not offer your stake to the company’s investors at the previous valuation?
What’s a fair exit package in this situation?
What is fair is to be open with your cofounder and investors.
Should I just keep the vested equity?
Should the other stockholders just dilute your holdings?
Is a cash buyout common or appropriate?
Probably less common that telling you to pound sand. Cash is the life blood of a company and giving you cash is very damaging to the startup.
To put it another way, you need to negotiate. To negotiate you need to care about the interests of the other people and in the case of a startup recognize that the vast majority of the work is in the future. And that there is no value in sunk costs. Good luck.