My co-founder and I have been working on my idea for the past 18 months. Throughout, despite statements of their commitment, I have always done the vast majority of the work. We have had serious conversations and each time the response is I know, I will work harder, or some excuse/explanation. But always the same slow/unreliable effort. I want to reduce the equity of this person (currently 23% to my 65%) to something in line with his effort level.
I have known this person since college, but at this point, I worry about morale as we get more people looking at this person's low effort/equity quotient. Our third partner has already asked what he does. He has not made 1 sales call and literally refuses to reach out to potential friendly investors who have asked him to to contact them about investing in an early round. I have put up all of the money we have spent so far. I suspect if he was financially committed in the same way, the effort would be better, but who knows.
The equity award is in the corporate docs at this point. I am sure he will be upset when I broach the topic
Any thoughts would be appreciated.
Create a rule book and make everyone agree to the rules.
1) Have an standup meeting every day and discuss the achievements for that day.Appreciate and distribute points based on the achievements. Discuss on roadblocks and provide suggestions.
2) Have a clear log of things that has to be achieved within a week's time.
3) Have a meeting at end of each month and check the points each partner is having. Decide what to do with the person who is having least points as per the rule book.
YOU HAVE TO DO ONE THING - figure out what you want (and what is best for the company). Do you want this guy to do more work? Or do you want him totally out of the picture?
If you want him out, tell him that this is your dream and you want to be friends but he is killing your dream right now; startups aren't for everyone. Most sane people will acknowledge, feel bad / guilty and remove himself from situation (#2 is achieved). If you want him to work more, you need to spend a couple of weeks giving him the carrot (look at this great oppty - look at what our competitors are doing); if he doesn't change, you know he's not right guy for you and give him the speech above.
As a Kiwi, I believe in a fair-go ... whilst there are many options ranging from letting it slide (at expense as you've pointed out of moral) to kicking the deadweight out, one option is to move the shares (or component thereof) into a bonus pool with clearly defined targets (whether sales, or bringing in investors). Then make it open to anyone (or potential next hires) including the existing partner. So
Being a founder comes many challenges, and much as in life, just because someone is a friend doesn't make them a compatible flatmate or even business partner. It can be a difficult situation feeling divided loyalties to friendship but in some ways, the business is also your baby. I found out one outcome when I choose partner. Only you can decide the right balance.
First thing to do: go through the documents and see what your rights to reduce his equity are. Typically his equity would vest only as long as he's an employee or consultant or otherwise providing services (which doesn't really help unless you want to, and can, fire him), but some arrangements would have more specific requirements that must be met for equity to vest. Also, typically you can repurchase his equity if he leaves.
That said...check your documents. Your lawyer should be happy to strategize with you.
You could also consider making a mutual agreement to buy part of his equity out.
In terms of how to approach the situation once you've carefully figured out what leverage you have, it really depends on how firm your position is.