Ask HN: Would you walk away or push onwards?

Dear HN,

I'm in the middle of a personal struggle and want to hear what you would do.

1 year ago, myself and 3 partners quit our day jobs to work on our SaaS product full time. I had already built an MVP on nights and weekends. We used that to raise a seed round.

Over the next year we hired a dozen employees, gained hundreds of customers, and achieved profitability.

Everything is great, except for one co-founder. For reasons ranging from lack of cohesion to poor communication to employee complaints, it was clear that this person needed to be removed from the company.

All other founders agreed and we removed this person. We offered this person a reasonable package (equity vested into, severance, keep benefits, etc) and he verbally agreed.

A couple days later, we were served a demand letter from this person's high priced litigator demanding that his full equity be vested immediately.

Due to unfortunate lawyering nonsense, the company is not likely to have this deemed frivolous by the courts.

We're now completely stuck. Our lawyers say it would cost $150,000 to fight this in court and would take 18 months. We don't have that kind of money or time to spare. We're being forced to accept an unfair deal giving this person equity he did not earn.

I don't know if I can live with this outcome. I (and my other founders) have worked so hard for what we've built. I've given up my entire personal life for this company.

I don't know how much longer I can keep pushing through this. Is this a sign to move on or forge ahead and give this person something undeserved from my own hard work? What would you do?

Tl;dr: Scumbag cofounder screwing the company over. No choice to bend over and take it. Would you walk?

If your vesting agreement is as ironclad as you say then what the heck are we even talking about? Just finalise his paperwork according to the terms. Just because he says he doesn't want to accept that outcome means nothing if you have such ironclad paperwork in place.

Which leads to the second question - if your paperwork is ironclad, why are the lawyers talking about a court battle? Does not make sense. Either the lawyers are right and you do not have an ironclad agreement in place, or the lawyers are wrong and you should ask them why they have not brought it to your attention that this is fully covered by the agreement.

Also all disputes have a time profile. What is the time profile here? Does it NEED to be resolved quickly? Or can it be drawn out for a long time, to your advantage? Or should it be resolved quickly, to your advantage?

Don't forget that if this person says what they actually want to finalise, and you agree, or if you put a finalisation offer to them, put a relatively short time limit on it.

AND if this cofounder is smart then he will know that you are trying to raise money and that raising money can't be done whilst there is a legal dispute outstanding. This puts you in a risky position. If they choose to stall then you could be in dispute for a long time. You need an absolute plan to resolve this quickly and if that means shutting down and restarting with a new company structure and freshly built cleanroom software now that you have proven the concept then you should consider doing this sooner rather than later.

And its worth remembering that you are not good and he is not evil. You are equally responsible for creating this situation so take responsibility when you resolve it.

Wow. I can understand how galling it will be to let this person have what he's demanding. Plus, vesting agreements exist for a reason, and if it gets around that an ousted founder can just demand to be fully vested and it happens, that endangers the whole startup ecosystem.

Nonetheless.

I'm not a lawyer, or an expert in negotiations, but my take too is that you should settle. It's a rare and special thing to have built a profitable business from scratch. A certain amount of luck is involved. Walk away from this, and you don't know how long it will take you to do it again. So as much as it hurts, I think you should chalk it up to experience and move on.

Again, IANAL, but I wonder if there might be some way to concede the issue now while reserving the right to countersue in the future, when you have more resources, to try to get the stock back.