I used to be the founder/CEO of a hardware startup. We raised over $100k in equity but also about $750k in debt financing from one of the angels who initially invested. We gave away too much equity and the whole thing was set up for failure to begin with. And yes, I know, we should have never gone for the deal and we screwed up in a way. It’s an overseas startup, and finding financing had been pretty tough for young, first time founders of a hardware venture.
To make a long story short, strategic differences surfaced between the investors and myself and I was kicked out. Anyways, now only a few months onwards, I have only few regrets, given that despite all I got a great learning experience out of it.
The company has launched the product, but sales are rather mediocre and disappointing. Much of the team has left. I still hold my vested equity (about 22%) and now the investors want to get somebody else on-board to turn it around and use my shares to do so.
They offered me $20,000 for all of my shares. I asked for more, but they put it this way to me: If I don’t take the deal, they will invest the money owed in debt, and then pay back the debt. As a result of the equity round they’d lose their debt but my equity would probably get diluted to the lower single digits (2~5% – depending on whether they could get away woth a down-round).
To be honest, I don’t think the company will ever result to anything anymore. But they still hold patents to the product made, which may be worth something in the future. But then without a good team behind it, I also have my doubts of this ever resulting into a big sale.
Anyways, I’m torn about what is the best course of action. I have a job at the moment, which pays reasonably well, but getting $20,000 may also do me well. I could live off that for 6-9 months and work on a new product and get something else started. Whereas 2-5% of a dying company may never result in anything.
Thoughts anyone?