WA state business law, venture capital terminating contract for funding

Clearly, you've got to sit down with someone and walk through the facts in considerably more detail. Nonetheless, a few thoughts for you to turn over pending that meeting ....

Obviously, as both you and I have already recognized, your situation turns on various details, some of which are:

- Your equity position with the company. You say you're the only non-founder, but I'm not sure if you mean you're a "non-founder" in the narrow sense that you showed up two months after the other guys, or (more likely) you have only a modest equity stake in the company, if any.

- How valuable / irreplaceable you are.

- What your prospects are elsewhere.

- How the $380,000 figure you're talking about breaks down between the back bonus and severance.

It sounds like, to simplify things a bit, there are three players here: you, the founders and the VCs.

At the risk of stating the obvious, if you're a full-on "non-founder" without a significant equity stake, the real conflict on the back compensation isn't between you and the VCs, but between you and the founders. Basically, they're asking you to forego earned compensation to facilitate their equity upside. That's something I'd certainly be loathe to do in your shoes. I'd suggest that your booked/unpaid bonus be discharged at closing by having it paid from the proceeds. That should not kill the deal.

Your severance, and future employment agreement, is a little tougher.

Whether you want to insist on having a new employment agreement going forward is a separate question. I'd be surprised if the VCs don't want you to sign *some* sort of agreement -- but it'll be the type that includes confidentiality and non-compete obligations on you, without any assurance of continued employment from them. Whether you can negotiate a "real" employment agreement with the VCs depends on whether you're indispensible to the business and how hard-nosed they are. If they are, as you say, a "respected" VC firm, and they're putting in $20 million, they can probably be pretty hard-nosed.*

So, just thinking about your severance: on the one hand (accepting your assumption that you could trigger it now), it is sort of "money in hand" that you're giving up by accepting a new contract, but only if you give up your job in exchange for it. Given the amount you mention (though I don't know how the $380,000 is split between bonus and severance), it sounds like it may well be the case that the value of the job going forward is more than the value of the severance in hand. But that's your call, and it depends on facts, analysis, risks and trade-offs known only to you.

In any event, it sounds like option 2 is the way to go. I wouldn't just resign now -- even accepting your assumption that it would be a resignation for cause (which is possible ... I have no idea how your contract defines a resignation for cause). I think you want to keep that option in your pocket as a negotiating tool to see if you can work out an outcome that's preferable to just walking away. You really should be able to do that, unless your perception (of the company's future, your value, your prospects elsewhere, etc. ) are wildly at odds with those of the VCs and the founders. On the other hand, if everbody's percepetion agrees that you're not important to the company and you have excellent prospects elsewhere, you might just take the severance and take the prospects elsewhere.

I agree that you shouldn't worry about your reputation with the VCs. Frankly, I don't think they'd hold it against you that you're sticking up for yourself. They might even like you better as a result.

It would certainly create tension with the founders. Depending in the situation, that may just be the way it is.

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*Though, as an aside, if a major executive isn't confident of the long term potential for the business, it sounds like they're already not being hard-nosed *enough*.