I'm (a co-founder) leaving my startup, how to deal w/ terms?

I helped co-found a company (with 2 others) that isn't in the black yet, I've personally put in at least 30k of my own money and have been in charge of most things. I've recently announced my leave, due to a mixture of financial and personal reasons. The company will be hurt by my departure, but our tech is built and can still succeed.

I generally understand that I can take a buy-out for my shares at current valuation, a payment plan ($ every month), or just a walk-out. (Are there anymore options? S-corp, by the way)

The other co-founders are great guys and I enjoyed working with them - normally I wouldn't mind just a walk-out, especially if I didn't put any $ into the company, but given my current financial situation, it's hard for me to take that option. I'm considering one of the first two options, but given that the company isn't in the black and there's no guarantee that they (or any startup for that matter) ever will be, how do we work that out fairly?

Just wondering what your guys' take was on this, as most situations I've read usually involved someone who either didn't co-found the company, or didn't personally put in a substantial amount of $ into the company. If they were to raise a modest financing round relatively soon, would that also change anything in your opinion?

Thanks in advance!

Kevin

Founder Equity

asked Feb 22 '12 at 12:08

Kevin
16 points

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2 Answers

There are lots of options. You should talk to your partners about it all since it sounds like you are fairly reasonable.

Things to consider

keeping a certain portion of stock and having preferred stock (convert to C corp)
formalizing a loan that pays you first from income/proceeds and giving up your shares on successful payment

there are others - but those are ones I would consider under the circimstances

answered Feb 22 '12 at 14:10

Tim J
8,346 points

Thanks Tim. Could you elaborate on "keeping a certain portion of stock and having preferred stock (convert to C corp)" please? I'm not too savvy with the nuances of the different Corp entities. – Kevin 12 years ago
to have more than one class of stock the company needs to ba a C corp, not an S corp. Read up on preferred stock and why it might be useful for a "silent" investor. – Tim J 12 years ago

All of those options seem reasonable as as @Tim mentioned, you really need to talk with your partners about what's best for them and the business.

My take would be to become a silent partner and put a contract in place to buy back your percentage once the company is cash flow positive.

That seems to be a good way to go about it.

The other option would be for the other two founders to raise some money and buy you out.

answered Feb 22 '12 at 15:13

Jarie Bolander
11,421 points

Thanks Jarie. Seems like I'll pursue something like what you mentioned. Do those types of contract usually have some sort of expiry? Or is it simply a "At any time I can sell the shares back to the company at current valuation" type of deal? Or neither and is completely up to what my partners and I agree on? Just trying to get an idea of what is "typically" done out there, thanks! :) – Kevin 12 years ago
They are pretty flexible. Usually, they have buyout clauses and don't typically expire. The language does not usually include "At any time" since that might be a burden on the company. Rather, they have words like "A partner or investor has the option to sell back their shares to the company given certain conditions, etc." Obviously, it would be wise to talk with a lawyer about drafting such a contract. – Jarie Bolander 12 years ago