I might be leaving a startup I co-founded. What are my options?
I co-founded a startup and have been with them for almost a year now. I own around 40 percent of the company, which is to be vested over 3 years. So far, about 1/3 of it has been vested. On top of that, I put in 23k to get our product built. My partner owns more than half of the company because he came up with the initial idea, but has only put in about 4k. We are now live in about 30 locations, but have not got the traction we wanted with consumers. As it stands, my partner and I don't agree with where the company is headed, and I just don't get along with the guy. He proposed that I leave, so I am assessing my options. What are my options regarding what I should do with my company? I have put in way too much time and effort to walk away with nothing. If I were to leave the company, how can I reach a settlement with him? Can I get my money back and still retain equity? Can someone buy me out? Any help would be great! Thank you!
Legal Founders Agreement Founders Business Selling Business
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You've got 13.3% vested already, that's not nothing. You can retain a director position on the board, and have some influence (or at least possibility of oversight) of what's going on in the company while it grows. – Littleadv 12 years ago
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Do you have a "bad leaver" agreement, or if you walk, will the equity just be dead? Check out Noam Wasserman's blog on the subject of founder dilution and dead equity http://www.inc.com/noam-wasserman/the-dead-equity-problem.html – Nicko 12 years ago
3 Answers
Start-up shares are by definition not liquid. Would you buy start-up shares in a company that has "not gotten the traction it wanted with consumers" to become a partner with someone you'd "just wouldn't get along with". You'd have to disclose that to any prospective buyer as part of your motivation to sell. Besides, anyone with any experience would know that the reason you're looking to sell is that something is wrong; otherwise why would you be selling? Start-ups are inherently risky: high downside, huge upside, sometimes. Assume you've lost everything, think of everything you've learned, and move on to the next. AND, you still have 13% anyway, lucky number no? OR, make it work: adapt. Adapt to your partner and adapt your product to the market's reaction. Here's something that might interest you: Why are Daily Deal sites "hard to scale'? Good luck.
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Maybe the OP is the problem? There could be a buyer that sees value in the new direction. – Jeff O 12 years ago
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@JeffKO: that might also be the case, who knows. – Frenchie 12 years ago
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@SusanJones: I rolled back your edit. The link I'm providing the OP is directly related to his line of business (local B2B marketing) and can only help provide additional insights into the challenges of his business. – Frenchie 12 years ago
It sounds like you should take the offer to leave. If I were in your shoes I would work out an arrangement that allows a buyout over time if he's not willing to pay your cash expenses back.
For example - you get paid off the top from revenue until some threshold, then the shares are all his.
The imbalance of cash invested seems unfair and I have trouble with the notion that a person gets more than half the company because they came up with the idea. However, you don't say how much work each has done, or is doing.
In any case, you can't change the original agreement, but from what you wrote and the tone it seems to me you should split and move on.
Even if you have to just walk away, do it. You can get either shares or money - not both. Again, it sounds like you should just get what you can and hand over the shares and move on.
Good luck.
TimJ's answer is the closest to what I think.
In 2 words: move on.
- Going/staying: Your initial agreement seems to have been biased, and you were not the right team. The company is not really valuable right now, and it will obviously not be the case in the future is cofounders disagree strategically. You lost enough time now, so keep your feet on the ground and make things simple. Your partner will then hopefully stay your friend, and a friend with a successful startup is worth all the money the startup will make.
- Selling shares to a 3rd party: If there is nobody else who's obviously ready to buy your stake, I guess that looking for someone is just a waste of time. You seem to have nobody with whom to negotiate apart from the major shareholder founder.
- Debt: It seems you didn't put money in proportion with equity (you put more). So if it's debt (the company owes you this surplus), the company has to handle it (knowing that you'll maybe never have it paid back if the company has no cash + will not make any revenue/get any investment).
- Equity: For equity, if you have no real faith in the company, just sell it to the founder (with as few valuation calculations as possible, but if you put more money don't get screwed either!). If you think the company can go somewhere, and even if you can stay in civilized terms with the founder, I would still definitely not recommend to keep the shares: indeed, then you will want that the company goes to success, but as a non-involved shareholder who disagrees with the strategy, you will be a huge burden. Then, if you really think it can make money and you really really want some part of it, maybe negotiate about sharing profits over some months (but it will still be a burden for the company!).
