No founders agreement.. what are my options?

#1

Post by MakeThingsWork » Mon, Apr 24, 2017, 4:00 AM UTC

Hello,

I've been working on a startup for almost a year. Even though it was co-founders idea/concept and some work had been done previously, product was dormant for years as co-founder couldn't take it to the next level due to other obligations and lack of interest. We've known each other for few years and have worked on other failed concepts in the past.

A year ago, I insisted we pursue that product more seriously as I saw potential so we both rolled up our sleeves and worked on our free time for more than a year keeping our full time jobs. When we started, we verbally agreed to 50/50 split. No founders agreement or vesting schedule. Just an LLC was formed which we both are members.

Long story short, product has now started to generate revenue (not a lot) and we have no employees. Recently, we really don't have good working chemistry. We tend to get into pointless arguments about strategy, direction, features to develop and way things need to be done. Is this normal reality in a startup?

Most recently co-founder scrutinizes every bit of my work and points that it needs to be done differently. Recently as we have started making money, co-founder continues to highlight how important their contribution is to the company's survival every now and then unsolicited and without their contribution the company wouldn't be successful. We're both responsible for building and selling, each of us are focused more on one than the other.

Both of us had no prior leadership experience and know nothing about management or leadership. Perhaps we don't know how to deal with this new found success? What are my options now? Ask co-founder to sign founders agreement on terms verbally agreed upon? Probably wouldn't agree and get suspicious. Lawyer up which may be counter productive due to cost/benefit.

Not asking for legal advice but I'm hoping some of you had similar unfortunate experience and have some insight to share.

Thank you!

Re: No founders agreement.. what are my options?

#2

Post by brudgers » Mon, Apr 24, 2017, 4:16 PM UTC

Random advice from the internet.

Sit down and discuss the future.

  1. Discuss the financial prospects of the company.
  2. Discuss future products/business lines
  3. Discuss each of your professional goals
  4. Discuss each of your personal goals
  5. Discuss how you can both help each other achieve those things.
  6. Decide if you want to try to work things out.

Pointing to a document would not solve the problem. At that point you're already lawyering up and curtailing dialog and arguing over who gets what share of the present rather than building a bigger future.

Starting to make money is a change and change is stressful and starting to make money is an inflection point for the company and neither of you has experience dealing with that. If the company is successful things will continue to change and this is an opportunity to gain experience in dealing with change together.

Good luck.

Re: No founders agreement.. what are my options?

#3

Post by MakeThingsWork » Mon, Apr 24, 2017, 8:52 PM UTC

brudgers wrote: post #2

Random advice from the internet. Sit down and discuss the future. 1. Discuss the financial prospects of the company. 2. Discuss future products/business lines 3. Discuss each of your professional goals 4. Discuss each of your personal goals 5. Discuss how you can both help each other achieve those things. 6. Decide if you want to try to work things out. Pointing to a document would not solve the problem. At that poin…

Thanks for the feedback. We've tried somewhat close to #3, #4 and #5 before to no avail. I often have to be an audience of unsolicited outbursts of co-founders past and ongoing accomplishments. Here is an example, "I did X and it resulted in Y which is very very important and amazing, what have you done?" or "If I hadn't done that for the company we wouldn't be where we are now. You should appreciate that more." along those lines in addition to constant scrutiny on how things needs to be done exactly the way they want it (no other way). We each have things to accomplish week over week and it's all tracked in Jira and visible to both of us so there is no need for me to announce these randomly.

I've have 10 years worth of professional experience at a big shop having people work below and above me but I've never experience someone behave in such a way or control every part of the business in a way it just ins't necessary. Perhaps they no longer need my contribution and want to create such atmosphere so I can walk away?

I'm embarrassed to be complaining about this on the internet rather than going and talking about this to resolve conflicts like and adult like you said but having tried multiple times it just isn't working out. Almost feels like the way author describes his experience here https://techcrunch.com/2017/02/18/co-founder-conflict/

I get your point that focusing on the bigger future is far better than figuring out who gets to keep what. But what if you no longer enjoy each others company and can't deal with the environment? I'm looking to move on but don't want all the time and effort I've put in to go in vain either.

I'm thinking of notifying that I'm stepping down and come to terms regarding equity that we both feel is fair? Perhaps, I can get compensated at an on going basis if not lump sum? What if I'm told no to any equity or comp what are the options that folks have used before?

Sorry for the rant and thanks in advance.

Re: No founders agreement.. what are my options?

#4

Post by brudgers » Tue, Apr 25, 2017, 8:44 PM UTC

MakeThingsWork wrote: post #3

brudgers wrote: post #2

Random advice from the internet. Sit down and discuss the future. 1. Discuss the financial prospects of the company. 2. Discuss future products/business lines 3. Discuss each of your professional goals 4. Discuss each of your personal goals 5. Discuss how you can both help each other achieve those things. 6. Decide if you want to try to work things out. Pointing to a document would not solve the problem. At that poin…

Thanks for the feedback. We've tried somewhat close to #3, #4 and #5 before to no avail. I often have to be an audience of unsolicited outbursts of co-founders past and ongoing accomplishments. Here is an example, "I did X and it resulted in Y which is very very important and amazing, what have you done?" or "If I hadn't done that for the company we wouldn't be where we are now. You should appreciate that more." alon…

Honestly, if you're leaving, the amount of equity that is equitable is probably pretty low for the same reasons that what your cofounder did in the past does not deserve super-sized slice of the pie: To a first approximation all the work is still in the future and a person who leaves is not going to be contributing to it.

Or to put it another way, the time and effort each of you has spent is a sunk cost not a future value. And anyway, a passive owner who is paid a large share of future revenues is highly demotivating for those who stay -- I mean how would you feel paying 45% to your cofounder if they were the one leaving and you were the one staying.

Business partnerships are a lot like marriages with the business being the child and shared property. Splits are often messy and this looks like one and when splits are messy pretty much everyone loses.

As an aside, working at a big company is usually poor preparation for working at a small one. Nobody at a small company has to be on their good behavior. There's no HR department to handle things. And the owners have to take the trash out to the dumpster.

So years ago, when I was going through a somewhat similar business breakup, I decided that it was best to get on with life and stop fighting with my former partners. Part of the problem was all of us lacked business experience. They were being assholes. I was being an asshole right back. Then I decided to stop and just get on with my life. It's been nearly twenty years and I don't regret that decision or the dollars I left on the table. Not for a minute.

Re: No founders agreement.. what are my options?

#5

Post by siegel » Thu, Apr 27, 2017, 3:11 AM UTC

MakeThingsWork wrote: post #3

brudgers wrote: post #2

Random advice from the internet. Sit down and discuss the future. 1. Discuss the financial prospects of the company. 2. Discuss future products/business lines 3. Discuss each of your professional goals 4. Discuss each of your personal goals 5. Discuss how you can both help each other achieve those things. 6. Decide if you want to try to work things out. Pointing to a document would not solve the problem. At that poin…

Thanks for the feedback. We've tried somewhat close to #3, #4 and #5 before to no avail. I often have to be an audience of unsolicited outbursts of co-founders past and ongoing accomplishments. Here is an example, "I did X and it resulted in Y which is very very important and amazing, what have you done?" or "If I hadn't done that for the company we wouldn't be where we are now. You should appreciate that more." alon…

Well, if you are thinking of moving on and he won't offer you any compensation, you probably have leverage. Did you actually sign anything assigning the IP you created to the company? If not, you're in a good position to demand compensation, as he'll lack clear title over the company's IP. Bad position for him to be in.

Re: No founders agreement.. what are my options?

#6

Post by brudgers » Thu, Apr 27, 2017, 1:02 PM UTC

siegel wrote: post #5

MakeThingsWork wrote: post #3

Earlier quoted context omitted.

Thanks for the feedback. We've tried somewhat close to #3, #4 and #5 before to no avail. I often have to be an audience of unsolicited outbursts of co-founders past and ongoing accomplishments. Here is an example, "I did X and it resulted in Y which is very very important and amazing, what have you done?" or "If I hadn't done that for the company we wouldn't be where we are now. You should appreciate that more." alon…

Well, if you are thinking of moving on and he won't offer you any compensation, you probably have leverage. Did you actually sign anything assigning the IP you created to the company? If not, you're in a good position to demand compensation, as he'll lack clear title over the company's IP. Bad position for him to be in.

In my opinion, both people are in a bad position. The odds are that this is a lose-lose.

Re: No founders agreement.. what are my options?

#7

Post by siegel » Thu, Apr 27, 2017, 1:33 PM UTC

brudgers wrote: post #6

siegel wrote: post #5

Earlier quoted context omitted.

Well, if you are thinking of moving on and he won't offer you any compensation, you probably have leverage. Did you actually sign anything assigning the IP you created to the company? If not, you're in a good position to demand compensation, as he'll lack clear title over the company's IP. Bad position for him to be in.

In my opinion, both people are in a bad position. The odds are that this is a lose-lose.

I can't disagree with that. But there are ways to make the best of a less-than-ideal situation.

I've seen many situations like this and I didn't want MakeThingsWork to feel like he has no leverage here. He probably does. That will help if he wants to negotiate a resolution.