Any recourse for a f***ed contract?

Question

Hi HN!Way back in ~2011 I advised a startup, Company1, and got a contract for a small portion of equity in exchanging for advising them. I did some r&d work for them and completed the contract.They moved to SF, I moved to SF, we had a conversation: hey the contract is done, but please keep coming by, after all this only has value if there&rsquo;s an exit. I did off and on for maybe 1-2 years after end of contract.THE DUMB THING I DID: I misread the contract. I needed to execute the contract right at the end of the 2y advising window. It had a clause, options would be good for ~7 years. I misread that as time to execute. I was wrong. The big moral: get legal advice.Company1 is about to merge with Company2 for a $3bn valuation. I don&rsquo;t think there&rsquo;s any recourse at this point (I had a talk with a founder two years ago who was apologetic but said there was nothing to be done,) and I wonder - is there any recourse at this point? Or can I just write up the story and share it so that someone else new to advising doesn&rsquo;t get f**ed the way I did?Clearly the mistake is mine. Curious if there any avenues I am missing.Thanks!

ghufran_syed · Accepted Answer

Get legal advice straight away, from someone with experience in this area. Honestly, even if you don&rsquo;t have a strong case, the company would have to disclose a lawsuit to the purchasing company. So they are likely to settle just to avoid detailing or delaying the acquisition.Facebook settled with the winklevoss twins, and they had a pretty weak case too&hellip;

dweekly · Answer

1) All options expire. Liquidity timelines are such that expiration of some options predates a liquidity event. This is not unusual or the company trying to screw you over.
2) As an advisor, you should ask for early exercise 83(b) rights on your options at time of issue and avail yourself of that right immediately. (Don't forget to file the 83b timely with the IRS!!) You should also ask for full acceleration on change of control. I once helped a startup land some key hires and was 1/24 of the way through my advisor vesting when they were acquired and I didn't have an acceleration clause. Really beat myself up on that one.
Overall shareholders have a lot more rights and privileges than option holders. Exercising does take capital but it starts both the long term cap gains clock (1yr) as well as QSBS (5yr) if company valuation is <$50m (and if you're part of the first $1m in, if the company goes belly up you'll get to claim Section 1244 loss against ordinary income!). Shares don't expire - though yes of course they can get diluted or become worthless via giant reverse splits etc.

toomuchtodo · Answer

> The big moral: get legal advice.Have you spoken with an attorney to have a consultation to review your contract and explore if you have any recourse? If not, that&rsquo;s the first thing on your todo list tomorrow morning.I personally recommend George Grellas [1].[1] https://news.ycombinator.com/user?id=grellas

LurkingPenguin · Answer

You should speak to a lawyer ASAP obviously but I'm confused: you signed a contract that required you to sign the contract at the end of the contract?

fy20 · Answer

This is why freelancers and contractors should not accept lower (or no) pay in exchange for equity. Even if you do get something on paper that says you own equity, there are so many ways they can screw you over to avoid actually paying you in the end.

inshadows · Answer

Could you please explain the option thing in the contract? I don't understand what this means"It had a clause, options would be good for ~7 years. I misread that as time to execute."

a-dub · Answer

kind of a wild idea: have you considered contacting both management teams, explaining the situation and asking if they'll write you a new contract that retroactively allows you to put things in a state as if you had exercised?
you did work for them in good faith, they offered renumeration in good faith. you made a mistake which leaves you out the equity... if they really did intend to compensate you with the equity, i see no reason why they couldn't do it retroactively now.
they may at first blush just interpret the old agreement without thinking, but if they intended for you to end up with that equity, why wouldn't they make it right now... before lawyers get involved.