Maybe it's just because I'm an outsider, but startup finance is complete nonsense to me.
>Same goes for giving you the 40%... there's no way they can build a company when someone not involved owns a huge stake.
This actually happened to one of my professors, which represents the opposite end of the absurdity. He started the company with a friend. The company pivoted to a completely different direction and the friend left because it was outside his expertise. My professor wanted to "do the right thing" and preserve their friendship, so he let the friend keep all the equity. In the end, the friend ended up getting millions of dollars despite producing 0 value to the company.
There has to be some middle ground here, like offering options to the company to buy back OP's shares at the current valuation plus interest. If company still can't afford a buyback a few years later, then they didn't grow the company enough to deserve to own those shares anyways.
I don't think it's really a solvable problem. There's a very wide range of hard-to-predict outcomes, from total failure to massive wealth, with a lot of just-bumping-along-for-years scenarios. The value of money varies drastically over time. The people involved are generally novices. Labor and skill contributions are impossible to predict in advance. Social conventions and ties add more layers of difficulty. What everybody is doing is essentially buying lottery tickets. And any serious dispute resolution can be more expensive than makes sense early on.
So what the industry has mostly converged on is a pretty basic, simple-to-understand solution that has a small enough number of dials that people can work it. It covers the main outcomes reasonably well if people are not too terrible. And if people are terrible, well, no mechanism is really enough.
They only have to buy his vested equity. His unvested equity, for all practical purposes, reverts back to the company. In standard 4/1 vesting, you get 1/4 of your equity on your first anniversary, and then equal-sized chunks every month thereafter for 4 years. Prior to that first anniversary, the idea of 4/1 is that you get nothing; the whole idea is to avoid allocating equity to people who don't last a whole year.
The professor probably had other options, but decided that this is the route to go. And once the decision is done, there is no turning back.
In the early phase of a startup it quite often happens that equity is given on very relaxed way on good terms. For example someone can work only short time in the company and still get nice piece of equity, just because other founders are lazy or careless.
A lot related to startups is "play stupid games, win stupid prizes". Sometimes you can get lot of equity & money if you just happen to be in the right place at the right time. Other times you end up working a lot and get nothing.
Shares are not connected to the work done. Why would they? It's an investment. That friend got rewarded for making right choices and meeting right people
To me as an outsider too, it seems one middle path is to pay people doing the work in equity thus gradually diluting away people who left. In the beginning, the guy who left owns a large piece of a small pie, as time goes they will own smaller and smaller piece of a larger and larger pie.
>Same goes for giving you the 40%... there's no way they can build a company when someone not involved owns a huge stake.
This actually happened to one of my professors, which represents the opposite end of the absurdity. He started the company with a friend. The company pivoted to a completely different direction and the friend left because it was outside his expertise. My professor wanted to "do the right thing" and preserve their friendship, so he let the friend keep all the equity. In the end, the friend ended up getting millions of dollars despite producing 0 value to the company.
There has to be some middle ground here, like offering options to the company to buy back OP's shares at the current valuation plus interest. If company still can't afford a buyback a few years later, then they didn't grow the company enough to deserve to own those shares anyways.