How to fire a co-funder on non funded company


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How to fire a co-founder, which means mainly how to remove him from the funding process. We decided to get ride of one of our co-founder, we didn't fund yet, and we wanted to give him 20% share, that's what we agreed on, but only on the verbal way. He worked for almost a year with us 100%, whereas some of the other co-founders just did part work.

He expect to get a fair price but what is a fair price. We target investor for 300K/10%, which means he should expect something like 600k? Should we pay him his days (he is experienced and target a 70$ hourly rate), and leave him a static part of the company (like 5%)? We want to find the best fair way to end that partnership.

Any advice/answer would be greatly appreciate.

Funding

asked Feb 2 '13 at 05:32
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John
3 points

2 Answers


1

Ultimately you are talking about buying and selling so it is a negotiation and as horrible as it sounds negotiations are not normally fair.

You had a verbal agreement of 20% assuming all parties still agree thats the case use that as the base line but modify to take in other factors.

He is not really obligated to move from that point, the fact you want him out means you presumably have had a breakdown in communication the fact he worked solidly on the project without pay from the sounds of things means unless you come to an agreement that he feels is reasonable and is looked over by a lawyer you will be looking over your shoulder when you do get funding for a law suit.

From an outsiders perspective and without knowing (and I don't want to know) why you wish to fire him he holds a lot of cards. Come time to fund, you will have to disclose the partner you fired the reasons why and the settlement in detail. Investors don't like the idea someone other then the founders may have any claim to the project.

Ultimately you need to sit down and talk to your partner, but someone who has worked 100% for a year on a project when others did far less is going to believe they are entitled to a decent return now and if the company is a success. If you want to close this chapter you have to take into account his feelings and needs now, and take steps to limit liabilities in the future. You may find asking him to stay a lot easier perhaps in a different role and let him naturally drift away making the negotiations totally different.

answered Feb 2 '13 at 20:13
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Tim Nash
1,107 points
  • For sure, right now we have no money, so we can't pay him anything, so how can we found an agreement on virtual things ? We thought of 2 proposition : we live 10% to him as an "early investor", we will fund with him, and he will have no other rights than just owning. Or we buy him out, by saying we owe him something like 200 days of work (so around 100k at his rate). This seems to be a lot tho. How to contract this, shall we use a lawyer ? – John 6 years ago
  • You are not in a good position, so the first attempt should be to come to some agreement and then have it passed through a lawyer. By your own admission his role has been pivotal to success and unless you can come to an agreement he is in a strong position to take you to the cleaners down the road. – Tim Nash 6 years ago

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Ask him. What does he think his contribution is worth this far? What would he expect at various exit points? What do other owners value their holdings?

answered Feb 2 '13 at 07:24
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Yorick
826 points
  • Hi. He thinks his contribution was really important which is true as he is by far the most experienced of all of us. What are exit points ? – John 6 years ago

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