How should I leave a startup. I own all their source code


5

I asked a question recently here, discussing options for what to do in my current situation.

The other co-founders let me know they no longer think I deserve 20%, and I decided it was the last straw, and let them know I plan to leave.

Since I am the lead developer, and since I have never signed anything relinquishing my ownership of the code, if I just left the company would probably fail. Since I don't wish this upon them, I would like to find a fair way to leave.

What is the best approach for me to leave without harming the future potential of the company (while getting a fair share myself)? There has been very little money spent by the other co-founders (around $2000 total), however I feel that my product (an Android application) is quite valuable, and them purchasing it makes the most sense to me.

What options are available for this purchase? What have others done in this situation, and how can I ensure my financial reimbursement while not directly harming the future potential of the company?

Intellectual Property Licensing

asked Mar 29 '12 at 12:56
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Phil
210 points
  • Time to walk away, as life is too short. If they begrudge you the 20% they probably won't even be easy to get along with. Ask them to buy you out and negotiate the best exit you can, even if it is $0. Good luck. – Steve Jones 8 years ago

6 Answers


7

As you understand, you have basically two choices:

1) Reach an agreement that everyone can live with, although perhaps no one will like.

2) Leave without reaching an agreement.

The process of attempting to reach an agreement (negotiating) should clearly be your first step. Are you familiar with the concept of BATNA?

In negotiation theory, the best alternative to a negotiated agreement
or BATNA is the course of action that will be taken by a party if the
current negotiations fail and an agreement cannot be reached. BATNA is
the key focus and the driving force behind a successful negotiator.
BATNA should not be confused with the reservation point or walkaway
point. A party should generally not accept a worse resolution than its
BATNA. Care should be taken, however, to ensure that deals are
accurately valued, taking into account all considerations, such as
relationship value, time value of money and the likelihood that the
other party will live up to their side of the bargain. These other
considerations are often difficult to value, since they are frequently
based on uncertain or qualitative considerations, rather than easily
measurable and quantifiable factors.

You should take some time to clearly understand what the best outcome is for both you and them if you are unable to reach an agreement. Presumably any agreement where both of you have an outcome superior to your respective BATNAs is superior to not reaching a deal.

If personalities are getting in the way of discussions, then perhaps an independent third party (mediator) can help all of you identify possible outcomes that are superior to no agreement.

You gave us your prospective on the situation, and we have not heard theirs. As they say , there are two sides to every story. I am not saying you are wrong; what I am suggesting is that they may see the "facts" differently than you do. If any of you proceed on your own without reaching an agreement first, and become successful, then the possibility of a lawsuit down the road is very real. In such cases the lawyers get very rich. Go watch the movie Social Network and consider the Winklevoss twins who got hundreds of millions.

Finally you state: "since I have never signed anything relinquishing my ownership of the code". Be careful, not all agreements need to be in writing. Oral agreements can not be ignored. Further a court might infer and agreement based upon the actions of the parties. For example in the previous question you stated:

This app is the thing that the other guys (who started the company
before me, but said I would be a co-founder) have been flashing around
to potential customers.

It may be that the potential customers inferred form these presentations that the company had the right to offer the application to them. Have you ever done anything to either support or dissuade this inference? If you have previously acquiesced to such presentations, then you may have given the company some rights in your software (like the right to present it to potential customers as theirs) already.

The real point is that if you proceed to use your software without first reaching an agreement things could become messy for all parties and the only big winners would be the lawyers. Things are seldom as clear cut as we would hope.

answered Mar 29 '12 at 20:15
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Jonny Boats
4,848 points
  • thanks for the detailed advice. It was very informative, and I plan to take it into account, however I am more interested in agreement options than I am in future risk (plus, I currently don't have *plans* to reuse my code -- but I merely want the option to since I spent so much time on the project). – Phil 8 years ago
  • Note that under 17 U.S.C. 204, copyright assignments have to be in writing unless they occur by operation of law. – Chris Fulmer 8 years ago

6

The first thing to realise is that unless you are prepared to take the code you have written and use it as a product (eg compete with this team), you must consider it a sunk cost. Therefore get the best you can, for the least effort and move on with life.

Further, there is no right answer to this question, other than talk to your co-founders, let them know your thoughts, and come to an agreement.

What might that agreement look like? something like the following seems to fit:

  • Outright payoff: You agree a price, they pay it, you sign and walk. If they are strapped for cash, this will be low amount but immediate.
  • Future payoff: you agree a price, to be paid upon a revenue/funding/time milestone. This would be for a higher amount as you are still investing some risk.
  • Maybe even consider gifting it to them.

Using your 20% as an anchor/deposit until they've paid might seem tempting, but is likely to cause more frustration/upset. A good signed agreement will make life easier for all.

answered Mar 29 '12 at 18:54
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Nick Stevens
4,436 points

4

Unless I misunderstand your situation you may not be able to "take" anything with you. You are not required to relinquish rights to the code, unless you brought it all with you. Even as an owner you are likely considered an employee of the company and therefore your code falls under Work for hire rules, and is therefore wholly owned by the company.

At the very least this would enable them to tie you up in court, and could prevent you from taking even a single copy of the code with you, and may even eventually require you to prove, or at least certify that you posses no copies of the code.

None of the prevents you from making the exact same application, from scratch, but any code from the original source could not be used, even in a derivative work.

answered Mar 29 '12 at 23:23
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Joshua Drake
141 points
  • thanks for the insight, however I have not actually signed any piece of paper -- in fact, I don't think i ever signed an NDA... – Phil 8 years ago
  • @Phil It doesn't matter if you've signed anything or not. If the company exists as a legal entity, and you wrote code on company equipment and/or time in any respect, then the company as a legal entity owns it. This assumes only US jurisdiction, _nothing_ else is required. – Joshua Drake 8 years ago
  • Joshua has it right. If you accepted payment from the company to write that code, the company most likely owns it. Course, you don't need to help explain anything that others can't figure out, but still. If you brought the code in with you, or if you took stock entirely instead of any payroll, then you probably own the code. – Justin C 8 years ago
  • JoshuaDrake and @JustinC, I get that part. +1 for your dedication to the conversation. I've actually received nothing - not money, no equity, no equipment from the company. There is also no "company time," just my spare time. I get where you're going with this, and you are definitely right, but the situation is definitely different. – Phil 8 years ago
  • Phil: question is whether your work was a "work made for hire," and that depends on whether you're a common-law employee. While not getting paid certainly helps your case that you're not an employee, that's not the end of it -- they'd say "look, you were under our control, you did what we asked you to do, you used our equipment, etc...." In the end, it turn into a nasty legal fight that they might win. So, your negotiating position is NOT "You need to give me something, or I'm taking my code." Instead, it's "You need to give me something, or we'll have a nasty legal fight." Big difference. – Chris Fulmer 8 years ago
  • There has actually been some interesting case-law recently where the paid employee of a company took the results of work product (That was produced from his home office) And later resold them. The company sued for remuneration and was defeated in court. I do not know the case intimately, but it would be worth some research. – Bwasson 8 years ago
  • @bwasson: any keywords to narrow down what the case was in a google search? – Bart Silverstrim 8 years ago
  • It was mentioned tangentially in a class I was in, I'll see if I can get in contact with the guy that brought it up. – Bwasson 8 years ago

1

In your previous question you detail how the company you work for promised you equity then didn't provide it. Based on that I would recommend you don't offer any Future payoff as an option.

Say you want to leave and want some amount of shares or cash (assuming your happy with shares?) to compensate for your work so far. See what they offer and negotiate. If they wont give you anything reasonable then your options are limited to walking away with your source code or giving it to them.

I personally would go for the former but the latter is a more mature option :)

answered Mar 29 '12 at 19:17
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Tom Squires
1,047 points

0

Just want to add a comment to the excellent advice offered above. I can't claim I came up with this, I read it here on onstartups somewhere. But at sometime during the negotiations you might be offered some stock which they'll buy back from you at a low low price.

What you do then, is offer to buy their stock at that same low low price. After all, they did it was only worth that, right?

answered Mar 29 '12 at 21:34
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Paul Cezanne
649 points

-2

Read Sun Tzu.

What is the best approach for me to leave without harming the future potential of the
company (while getting a fair share myself)?

Walk out, send them a cease and desist to use your intellectual property attached with an agreement to transfer over all the rights.

After receiving a cash payment for the regular hourly rate for your work as contractor TIMES 3.

Alternativley offer them to accept transferring you 80% company stock (by issuing new shares so you have 80%) for a purchase price of USD 1 + the intellectual property rights.

Point.

When you get scewed, there is no sense in not having them burn. When leaving a startup on getting screwed terms, not harming the company is the LAST thing I am interested in. Actually having them burn to the grounds and loose as much as possbily is the desired outcome. I see it as a service - teaches my ex partners a lesson to take responsibility for their action.

answered Mar 29 '12 at 15:41
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Net Tecture
11 points
  • The OP has specifically stated that he doesn't want them to fail, and by following your advice, that's exactly what will happen. Your apparent need for vengeance is not shared by all. – Nick Stevens 8 years ago
  • It is not vegeance. It is an unustabilable business model from the peopel trying to betray him. His only alternative is to shut up and walk away, give up his work and learn the lesson that you onl have the rightsyou are willing to fight for - a lesson the US founding fathers knew that the modern people have forgotten. – Net Tecture 8 years ago
  • Your statement "Actually having them burn to the grounds and loose as much as possbily is the desired outcome." is pretty much vengeance. Sure, you can dress it up as business, if that makes you feel better - but there are other options than those you state. – Nick Stevens 8 years ago
  • Nope. It is "you come to my hosue and steal, you have to live with the consequences". GOod parts of the US lwegislation follow that - for exampel teh right to shoot a thief with a gun. The build their busines on stealing? thThey live with the consequences. – Net Tecture 8 years ago
  • @NetTecture - Is this the Aerosmith theory of negotiation? http://www.youtube.com/watch?v=TdsUY7rNStIJonny Boats 8 years ago
  • No, and I do not care. I strongly believe in first making sure that whoever crosses me pays. My freedom and integrity has never ever been on the negotiation table. – Net Tecture 8 years ago
  • @NetTecture "I strongly believe ... whoever crosses me pays" Sounds like vengeance to me. Eye for an Eye... You can call a seagull a cat, but it still squawks and poops on me at the beach. Your attitude is obviously different than the OPs. The OP obviously has honesty and integrity available on his table ("I would like to find a *FAIR* way to leave", emphasis mine) and doesn't seem to believe in burning bridges. – Werner Cd 8 years ago
  • No, it is a matter of freedom. I understand you dont know what that means. Fair - when someone steals from me - is the full weight of the laws the thief works under. – Net Tecture 8 years ago

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