I have been involved with a technology startup in the UK from day 0, for over 5 years now.
The company is up to 800k+ revenue over the last year and was on track for a 150k profit. Unfortunately some big deals didn't come in until the following month and so the official 'year end' profit ended up closer to 30k.
We are going through an investment process. We're expecting a business valuation of around 1.5mil by the investor though this has not yet been confirmed. The investment is being described as a "management buyout" rather than a take over. As a result they are only interested in acquiring their shareholding from the directors.
I have small 5% holding in this business and am noted in the due diligence process as a "key employee".
From early days I was always assured that when a day like this comes I would be able to sell my shares to the buyer/investor. I realise now that what is happening is about as good/close as it gets for a startup being "bought out". And so I also realise now that it was naive of me to think the investor would be interested in buying my holding which would almost guarantee the exit of a key employee from the business; which is clearly something they wouldn't want.
So where does this leave me? I am really getting quite desperate to leave now (I'm a software developer) as I need to move on with my life and start something new. It is just the right time for me personally. The company is not offering me the kind of working environment and team work experience that I had expected to be second nature to me by now and at this stage in my career. They have no plans to expand the development team from the office that I work. They want to create a virtual/distributed team all over the country, which is something that I do not believe will work and, even if it does, it isn't something that appeals to me. I need to experience a physical team environment first.
The final nail is that the company has always undervalued/underpaid me right from day 0. Whilst others get put on bonus schemes and higher base salaries; like the sales guys. I've asked about salary review recently and, as expected, the profit wasn't high enough to justify it. And that I will have to wait until the investment comes through.
I was asking all year in the run up to the year end report about the company performance. Every month I would ask. It was looking good each month that a dividend would be paid. Then the last month it falls flat and so no dividend was possible.
So that left me with the final option. Sell my shares to another shareholder. I asked the chairman and CEO about this and initially the CEO expressed interest. But after he spoke with the accountants he doesn't want to go ahead with it as it would, understandably, look very very bad to the investors. I was even warned that if the investors got wind of this it could jeopardise everything and that the other shareholders could sue me! Understandable, but this isn't something I intend or want. It was just a question to find out what my options are.
They did however offer me an option of taking out a loan against my shareholding. (I want to buy a house, you see. And they know this.) But I don't really like this idea because if anything it just ties me even tighter to the company that I want to leave.
They keep saying the company will be worth 10mil in 3-5 years time. And yes, I agree that it could be. But it's on the higher end of the scale. I think 5mil is more likely. And of course 5% of 5mil is 250,000. Unfortunately that just isn't enough anymore to me. There are job offers from London that, while perhaps being more hardcore and stressful, would net that amount for me in that same period. And I'd be learning again, and in a team environment. The very things that I want.
They said that basically I need to wait until the investment process is finished. Then wait at least a further 6 months before leaving. And even then there may be noone who wants to buy my shareholding for a reasonable price. Because after 6 months the valuation of say 1.5mil will be considered "stale". Which likely means I will either have to sell them for a almost pointless amount or just keep them. But then after 3-5 years when the next round of investment/shareholding movement happens they are highly likely to dilute my 5 shares to a meaningless amount (there are currently 100 shares total in the company), because I will be forgotten by then.
I really don't know what to do. If I had known owning a shareholding in a private company was going to be this stressful, damaging to my career and depressing, I would never have accepted it. I would have asked for a higher long term salary or bonuses instead (but of course, back then the company couldn't afford those things!)
Vested : you own the shares out right, if you quit then they won't be returned to the company.
I've been in your shoes, I feel your pain. I think you are being sold out.
It is time to play hardball. The director(s) are not just selling the company, but also selling you. They've even codified it in the due diligence documentation. It sounds like some of them have their eye on the exit door and are most likely basing all of their decisions on maximizing their personal payout.
Your moment of leverage will pass once the deal is done. I would act quickly. Specifically:
Year Market Mine Diff
---- ------ ------ -----
2006 41k 30k 11k
2007 42k 30k 12k
2008 43k 30k 13k
2009 45k 30k 15k
2010 48k 32k 16k
2011 49k 32k 18k
The conversation with your current directors/management could very easily go poorly. From their point of view, you will be endangering their own personal financial situation. If the deal goes bust, they will be furious.
If you don't do this now, and quit the company after the shares change hands, then the new investors are getting shafted. I personally would feel bad about that.
As I said earlier, "been there and done that". It didn't work out for me with the company, and we parted ways. I lost a solid £65k "investment" (sub-market salary) and told them to keep the shares. Then I moved onto a well paid gig that was professionally so much more interesting.