Lawyer involved in co-founder dispute. Partner threatening to quit.


1
Long story short, approached a friend who is already a co founder of another technology start up that has investment with an idea. He liked the idea. It was my idea, and we started working on it building the mobile application. As a first time founder, I approached him because I felt I needed to work with someone I trusted, and wanted to work with someone with experience. We had been friends for 4 years before this. Before beginning the project, we signed an Intellectual property agreement. (my idea)...I felt that I needed to play it safe. It is a 50/50 partnership.

1 Year later, as it stands:

  • 95% of the application is completed. We were going to launch the mobile application next month
  • the 5% being his work remaining. However a massive dispute has erupted causing the lawyer who has drafted our contract to get involved. Without going into an amazing amount of detail. To summarize, my partner (who is an equal partner):

  1. Has not paid half of the total costs incurred, to the point out of urgency I would have no choice but to pay them.
  2. He would invest less time into the project to the point he would miss deadlines. Recently, he missed a deadline 3 weeks in a row (to do the web site for the mobile application) leaving me no choice but to do it out of urgency.
  3. Temperamental personality. If I confronted him about the issues above, he would basically call me "demanding". When I needed the work to get done in order to move the project forward.
  4. Technically gifted when he does his work (one of the reasons why I approached him)
  5. Partnership ended up being one where I put in more hours during the day due to him not helping out with recruiting. Leaving me to negotiate on his behalf, but unable to close deals due to him making it awkward (I needed his consent).

Anyway, the dispute errupted last week, when I needed him to help me close a deal during negotiations during the day. Instead, he cut communication and blamed me for disturbing him at work the next day, leaving that deal hanging.

I had to then get the lawyer involved as he was uncontactable. Ignoring text messages, blocking me from skype, not answering his phone etc.
Long story short:
  • He is threatening to quit
  • He is not willing to do his work, and is about to breach the contract
  • I am probably going to get the intellectual property.
  • We have not decided on a settlement for shares yet.
My dilemma:
  • His work is left incomplete.
  • I have been bootstrapping on his behalf, so lost out financially.
  • Never gone through the process of getting investment before. I have read that venture captalists do not like investing in sole founders. As he has worked on a project with investment I was hoping he would help me, if he leaves it is unlikely.
  • How much shares should I give him as settlement?
What is the best way to move forward? Should I try to keep him on board?

Co-Founder Contract Equity Dispute

asked Dec 4 '14 at 03:46
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User34199
46 points

1 Answer


1

Your description is typical of the situation where two co-founders are making progress at vastly different speed. It happens especially often when one co-founder is full-time and the other is part-time (or has a day job).

I recommend having an honest discussion with your co-founder to find a mutually agreeable way to move forward. Then get the lawyer involved if some paperwork needs to be done, but try to get to a gentleman's agreement first before involving lawyers.

The discussion would start something like this: it's clear to you that the current deal cannot continue. Ask the co-founder if he wants out. If so, work out a fair compensation (in shares) for his past work, and move on. This will not be anywhere close to 50/50. If he says he wants to stay involved, you need to be first on the only two possible options: as an advisor, with a tiny amount of shares, but little pressure, or engaged full-time (he would have to quit his job).

answered Dec 4 '14 at 16:24
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Alain Raynaud
10,927 points
  • Thanks for your reply. Did what you suggested above, before the lawyer got involved, he wasn't responsive, which is why I had to get the lawyer involved. Suggested those terms, part time technical/advisor, loss of equity. He doesn't like the idea of myself being in full control of the commercial decision making process. He wants to remain as an equal partner, on a part time bases at lower equity. Contactable by email. I am worried about: 1) Dead equity affecting future investment (we have none at the moment) 2) Becoming the sole founder, with an ex founder affecting investment Should I? – User34199 3 years ago
  • I did not accept his terms for being an equal partner, on a part time bases at lower equity/contactable by email only, because a) he was not willing to act as an adviser (only tech) and b) Only being contactable by email (and have equal say) will make it difficult to run the business as it grows. Was I right to do this? He did not like that. What do you think I should do now? Thanks again. – User34199 3 years ago
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Co-Founder Contract Equity Dispute