Sounds a lot like the "CEO" is a just sales rep for your company who did a great sales pitch to get you into YC, but who didn't even commit enough to the company to want to do it fulltime unless the person could get majority ownership.
As others have mentioned, you might want to try to pull the business out of the company and get a better sales rep, with a more appropriate single digit or less equity.
This kind of ego trip happens all the time in companies, when a sales rep closes a deal for X$ and they believe they just made the company X$ profit, fully ignoring not just all costs, but also every single contribution from everyone else at the company that put them in a position to even try to sell whatever was pitched, and everything that will be needed to deliver it.
That's perfectly fine mentality for a sales rep, but no for a CEO. Which seems obvious.
My experiences with Sales in the driver's seat have been pretty bad.
One Sales exec thought it was hilarious to petulantly insist that our products be "zero cost, perfect, and shipping yesterday", dismissing out of hand small stuff like iron triangle, budgets, P&L, schedules, etc.
Another Sales exec, troubled by our excessive salaries (read: below market), denigrated our dev and ops teams by saying "All y'all do is type on the computer all day. How hard could that be?"
Etc.
(I don't know that engineering lead orgs are any better, overall. I've yet to experience the mythical balanced combo Sales, Engineering, and Support org.)
Yeah, it can really seem like "We closed a x-million dollar contract, we nailed it." But when you really take a step back, anybody can sell an x-million dollar contract. (reducto-ad-absurdem: I can find somebody tomorrow who would a ton of gold for 1-million dollars). The question to the salesman/ceo is --- did you sell a promise that can realistically and cheaply be made and maintained for under the sales price? If not, a huge sale may ultimately be a net negative.
This isn't just some philosophical thing, I've worked at tons of places that have gone out doing ridiculous partnership attempts (e.g. an Italian telecom company) based on this misunderstanding.
This is very true. We had a $1m/year customer that dragged us down. I went over the development costs that were exclusive to that client. It was not worth the money. We were developing custom features. They since had to dump a lot of their locations which were picked up by another of our clients but maintained the entitlement.
Getting into YC is an accomplishment, but you clearly don't have a real business yet. To paraphrase a saying... the reason that startup politics is so vicious is because the stakes are so small.
It's painful but in general I'd try to move on and be thankful that you were able to end your journey with that CEO early, after only a year and a half! Life is too short.
Still it's worth the effort to do a few legal consults to know your options. Litigation is one, but it's emotionally draining and could drag on for years. How good was your bookkeeping? Did you have a vesting agreement? Did you sign away your IP? Did you sign any non disparage agreements - you could be sued for damages, especially if those communications are written.
What I’ll share (not a YCer): I’ve “lost” out twice in power deals at companies, and even if everyone supports you and says you’re in the right, it can be disconcerting when the staff simply align themselves with whoever won. If you’re in this position, you have my sympathies.
YC gives you a very modest amount of cash, thanks to the risks involved. It’s not really anything that should go to your head - if it does, that’s a red flag and something to be actively addressed because you’ll be dealing with larger amounts later on (if you’re lucky). This founder is from a LCOL country so the equation may be a bit different.
Furthermore, even if YC valuation were sky high (which it isn’t), it’s not synonymous with success in any way - it’s not even an indicator. You know what is an indicator, though? How well the cofounders get along.
I’ve been through YC twice now and have had this happen to me before in different ways and heard many stories firsthand. Some people just seem to drop whatever mask they had as soon as they see one ounce of success.
There is even one case of a yc company where the cofounder went off and made a complete clone of the company a year later. Then an intern of that new company went off and made a third clone within a year. I just checked and all 3 are dominating the market and still running.
For my own story, I partly blame myself as the signs of this type of person are pretty obvious in retrospect. I was able to do much more with another company 6 years later while my cofounder ran an mvp I built with 10 customers I got with millions of funding right into the ground.
Good for this guy on finding out and acting quickly. It would have been so much worse with millions of dollars on the line. He has a good attitude, I hope he realizes he could start a similar company if need be or approach a competitor.
Nothing that isn't obvious. Maybe they aren't pleasant to be around. Maybe they actually drove customers and an employee away. Maybe they are condescending. Maybe they talk a lot and don't actually get work done.
In short, they're an asshole.
If you have a bad detector for these type of things (like I did) ask your friends. Every single one them knew before I did.
Alt account. This happened to a few companies in our batch too. It seems normal that 5-10% of companies game the character test. 100% of these companies basically end up with solo dictator CEO/founder and underperform. 100% of big companies from our batch had difficult founder heart to hearts on level ground, equal equity, and are still together.
Landing an opportunity or a windfall sometimes wakes up new extreme character traits that previously were either dormant or perceived as minor "idiosyncratic inconveniences". I've seen it happen before as well.
Some really emotional comments on here. Definitely an emotional situation but take a step back -
If your cofounder fires you and you keep 45%, you're basically getting half the value for none of the work. Aside from the pride, this is actually very favorable. Probably the best way to handle it is to realize you own half of this thing, and offer to write a resignation letter to minimize the drama, swallow your pride, and hope all your eng team doesn't quit.
Potentially talking to YC/investors would be good because they might be able to talk the CEO out of such a huge mistake.
Posting on reddit, not so good. Eng employees will read it and potentially leave, turning your 45% into less value.
There's 0% chance someone who left early on would be able to hold on to 45%. They'd need some very heavy duty protections, and even then. The CEO, given their actions, would find a way to recover that stock later, probably at the behest of other investors.
> There's 0% chance someone who left early on would be able to hold on to 45%. They'd need some very heavy duty protections, and even then. The CEO, given their actions, would find a way to recover that stock later, probably at the behest of other investors.
Yeah. If nothing more subtle is possible, they can always take a round that dilutes the heck out of everyone's stake and have an agreement in place to 'make whole' some of the current team with extra stock grants or options.
I agree, there is no way to raise a new round with an ex-employee owning 45%. At best, new investors will convert the equity to a note that limits the upside in dollars.
An anecdote, and something to think about next time...
A friend was the co-founder & CTO of a company that was doing quite well...or the CEO was telling everyone that.
In an investor meeting, the CEO inflated numbers, and deflated the amount of salary he was taking, etc. Just basically lying.
After the interview, my friend contacted the investor and told him flat out that the CEO had lied and that he didn't want to be involved in that environment and he was therefore leaving the company.
The investors response "let me know when you get on to your next thing, I'll be very interested to talk". I'm not positive, but I think the investor did invest in the next start-up.
I've seen SO many founders lie during pitches where there was absolutely nothing on the line, just to make themselves feel bigger.
It's a major problem in the industry, but you can stand-out by taking the moral high road and being honest.
I suspect this company won't go very far if this is the way they treat people. It's a hugely valuable lesson for you.
The startup is effectively doomed at this point. It's almost impossible to recover from
> We get accepted and he calls me on to a meeting with the other founder just 2 days ago and essentially tells me that in order for him to quit google and be fully committed to our company he thought he deserved more equity so that he could feel like he’s valued here. CEO and COO proceeded to tell me that at that point i was less valuable than them and how my skills and expertise where subpar to theirs so I didn’t deserve the equity I had.
Basically, my advice is to register trademarks, domain names and incorporate the company with the same name, and try to get everyone who is on your side to quit.
It's not sabotage, at this point it's certain the startup will fail. You are just making a failed company fail in a week instead of maybe 6 months.
sometimes people (the CEO and COO, here) pretend you (the CTO, here) are a bad person so that they don't feel bad about how they're treating you.
that's why all the nonsense badmouthing was happening and why it was so sudden and allegedly not based in reality. they had to do that in order to justify to themselves that taking CTO's shares was valid.
humans are piles of shit, as a species. we really don't deserve to last, in my opinion.
Keep the shares, its part of your passive investment portfolio now
Check the operating agreement or bylaws, some changes require either unanimous vote or gives all distinct voters equal weighting regardless of percentage of the company
There are all kinds of sneaky ways to make his shares worthless.
For example, issue 100x the existing share base, and distribute them to employees (as compensation) and sell them to existing investors (except him) at way under market rate.
all because he randomly gave 6% to the COO so now he can’t veto lol
I bet the same logic is how him and the CEO wound up with 50% to begin with
I bet it was the CEO that originally suggested varying percentages which was probably more correct and is now acting on it. The reddit post said they fought/debated over that.
I actually do find it offputting when founders are equal, it means they avoided/cant deal with confrontation or they have no idea how this sector works and just tried some out of touch pleb logic.
So yeah he is playing by a totally inefficient set of rules and got screwed
I forget where I read it (venture deals, perhaps?) but it has always stuck with me: founder stock should vest! Nobody should get any equity whatsoever until and unless they've been working full time on the project for a year or more, founders included!
That wouldn't have solved the problem here, however, where blowing up the whole company is the best outcome, as you don't want to be in business with greedy, dishonest people. Building inside of a crab bucket is a huge waste of time.
This is a pretty bad deal IMO. If I’m the technical cofounder the first months are basically me getting the (software) product to the point where it can be shown to customers. The next few months will see a sales founder get our first deal.
Once the product is ready to launch, A bad technically founder could find a cheaper CEO. Once the first deals are in a bad CEO could find a cheaper technical founder.
The vesting strategy encourages thinking about founders as employees that can be replaced rather than as partners.
A startup is just so difficult that you really can't get away with stuff like that and survive.
It's very rare you can fire your dev team and get away with it, your product will not be good enough for years on end while you learn and grow. On the flip side customers will wonder why their point of contact is now gone if you fire the main contact they were dealing with. Plus how are you going to get more of these customers now?
There should be some sort of vesting schedule. If you really don't think a standard one is fair, It doesn't have to be over 4 years. It is also normal to have events that accelerate vesting (like an Acquisition) which in yours case could be the delivery of an MVP.
Also if your co-founder thats doing sales can't close without a product, you should get someone who can that is a very bad sign.
It doesn't help in retrospect of unfortunate circumstances, but it does for the future and the big picture:
Don't be friends, or get "in-bed," with greedy, selfish a*holes. Sales is notorious for attracting people with win-lose, psycho/sociopathic tendencies that would destroy a venture because they can't help themselves. In the end, their myopia and morale-murdering behaviors win 95% equity in a dumpster fire where they poured the gas and they threw the lit match. They're losers. Avoid these kinds of people as much as possible.
Steve Jobs was kicked out of his company and look where that got him. I'm sure YC is notified when founders change so I wouldn't worry too much here. Maybe they will fund you separately to do the same thing. I would if the idea is promising.
