Since you have a 1-year cliff and have only been there 11 months, sounds like as of today you have 0% equity. So the immediate question may be whether your co-founder can fire you.
In 1 month, you've vested 25% of your grant, or 10% of the company. So I would try to get to that mark to strengthen your negotiating position. Any references to 40% are red herrings at this point.
Unless there's a specific buyback clause in your stakeholder agreement, they're under no obligation to buy you out at any time. (They may have the right to do so. That's not uncommon.)
Of course, you're under no obligation to resign, either. So this is a negotiation.
So the way I see it, you have a few options:
1. You take your 10% and leave. You "don't want any equity", but better something you don't want than nothing.
2. You agree to a buyback, potentially at a discount to FMV. If you don't know what FMV is, it's hard to negotiate one way or another. It's v. likely not $1M. Sounds like this is a no-go.
2B. You agree to a non-cash buyback, e.g., in IP. You spent 11 months building the tech: what if you took that with you?
3. You flip the script and buy your co-founder out.
In any case, your relationship is over. You might walk away with nothing.
10% might be a good target from another perspective -- the investor put in 100k to get to 10% -- is that about how much "sweat-equity" that the OP has put in? Alternatively, just pretend the vesting was happening monthly.. how much is that 9.16%? The surviving founder does need enough incentive to continue. The OP should make sure it is hard equity of the same class as the investor's shares, where there are tax liability distributions and other preferences. If the OP is before the vesting cliff and your co-founder is fixated 4%, then perhaps think about the balance as unpaid sweat equity, disbursed as deferred compensation at a reasonable interest rate, as a percentage of revenue, to be paid off before co-founder raises their owner draw? Critically, the OP should assume best intents and look for win-win situations. Finally, seek competent legal advice!
I think people should be careful with the "seek legal advice" thing. Obviously, you need to talk to a lawyer. But:
(a) You need a lawyer who deals with this kind of stuff regularly and has a realistic and well-informed view of what the outcomes are going to be. Most lawyers aren't like this.
(b) Legal gets expensive very fast, especially as it transitions from advice to negotiation and document review. At this scale of opportunity (the way the company is described), I'd stick to get getting advice!
(c) Past the "can I be fired" question, which I agree is urgent (and probably predictable), a lot of the negotiation here isn't going to be about the law so much as it's going to be about what both sides are willing to accept. If you have friends who have been in founder disputes like this, their input is going to be just as valuable as the lawyer's.
Agree completely that poster would want the right kind of lawyer – someone who specializes in this kind/scale of business, and that reaching out to acquaintances/etc who've been in relevant situations may be as valuable or more than legal advice.
Agree also that lawyer-billing-on-the-clock gets expensive fast. But unless poster already has a go-to trusted counsel – which seems not to be the case – the mere act of "shopping around" can get 15m-1h of unbilled pre-engagement discussion from a bunch of lawyers. Essentially, poster could type up a 1-2 page brief, in more confidential detail than the post here, and have dozens of short conversations with lawyers (some of which would read the brief 1st) about key issues, tactics, & potential outcomes. The contrasts between what lawyers say, & what they ask about, will be as informative as any one conversation.
> the investor put in 100k to get to 10% -- is that about how much "sweat-equity" that the OP has put in
Another way to look at it: their sweat equity is more like $1 million e.g. $100k “time” invested with a risk of success of 1 in 10 means you need to get $1 million out to be “even” (ignoring Kelly Criterion).
Obviously there is some Bayesian that goes on now that there is more information, but it seems like it has a better chance of success than when it started, which makes numbers more difficult to calculate than complete failure ($0).
In 1 month, you've vested 25% of your grant, or 10% of the company. So I would try to get to that mark to strengthen your negotiating position. Any references to 40% are red herrings at this point.
Unless there's a specific buyback clause in your stakeholder agreement, they're under no obligation to buy you out at any time. (They may have the right to do so. That's not uncommon.)
Of course, you're under no obligation to resign, either. So this is a negotiation.
So the way I see it, you have a few options:
1. You take your 10% and leave. You "don't want any equity", but better something you don't want than nothing.
2. You agree to a buyback, potentially at a discount to FMV. If you don't know what FMV is, it's hard to negotiate one way or another. It's v. likely not $1M. Sounds like this is a no-go.
2B. You agree to a non-cash buyback, e.g., in IP. You spent 11 months building the tech: what if you took that with you?
3. You flip the script and buy your co-founder out.
In any case, your relationship is over. You might walk away with nothing.