Started with 4 partners, equal financial investment. I've done 90% of the work, startup is now doing well and they now want a say. Please advise


11

I started a site with 4 friends about a year and a half ago, I'm the only technical person of the lot, we all put in an equal amount of $$$, we spent most of the first year in discussions and sending documents back and forth, while I was building the site.

All the partners eventually drifted off or lost interest. In the meantime I launched the site and it's turned into a bit of a success (I've been spending the money put in by the partners). Suddenly the last few weeks everybody's excited again and wants a piece of the action.

I've put in an insane amount of effort into this venture, I've done at least 90% of the work and I feel this is no longer an equal partnership and I'm entitled to a much larger share of the pie. I'm not too sure how to bring this up.

Any advice ?

Partner Partnerships

asked Oct 7 '10 at 23:22
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Sherif Buzz
462 points
  • What is the outcome of this? How did this idea, the answer, perform? Did it help? – Herr K 8 years ago

5 Answers


14

How about this.

I agree that you have put in a lot of effort and got it the required traction while others just drifted.
Now give it another couple more months. Let others put in their effort too(for marketing, sales, advert) and help take it to the next level.

But before you do that, be upfront in telling everyone that its their time now to add their share of sweat equity.
Put in some tangible metrics and "area of responsibility" for everyone in the team. Also put in the clause that if someone is not performing, then they need to leave.

This way, you can leverage the bandwidth/expertise of your friends and also test how serious they are. All without any heartburn.

If anyone is not performing, then automatically your share increases. If they do perform, the company's valuation goes up. In either case you are a winner.

-Vivek

answered Oct 8 '10 at 00:30
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User4635
156 points
  • Sounds great Vivek, as much as I'm angry and there's a bit in me that says "just ditch them" - I've been screwed badly before and I have no intention of every doing that to anybody, no matter what the situation. I will take your advice to heart and hope to post back here with a positive update in a few months. – Sherif Buzz 8 years ago
  • That's a neat way to sort this out. Good one Vivek – Viv 8 years ago

2

what was the agreement that you all made in the beginning? Maybe you can ask to have your initial investment returned and your work can be substituted for the money.

Are they willing to work now that they see some promise? If so, then focus on that - on moving forward.

The best thing to do is talk to them as ask them how they think it should be handled. Ask them what would they want if the situation were reversed and they did all the work.

They might have been willing but not sure what to do. Take a leadership role and ask them to take on tasks that you are not able to do or that you see aren't getting done.

Let us know how it works out.

answered Oct 7 '10 at 23:31
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Tim J
8,346 points
  • Actually we had several such discussions over the last few months where everybody says "i was busy but now I'm gonna put in the hours". And nothing changed. Basically I want out, but I do not want to screw anybody. – Sherif Buzz 8 years ago
  • Can you buy them out or will they buy you out? – Tim J 8 years ago
  • Actually we had several such discussions over the last few months where everybody says "i was busy before but now I'm gonna put in the hours". And nothing changed. Honestly speaking I will not invest any time going down that path, I just want to restructure things so that the other partners keep a certain (and much reduced) equity % and not do any work. – Sherif Buzz 8 years ago
  • What valuation model would we use if somebody was going to buy out the other ? If I count the hours I put in, it dwarfs the financial investment we've made. – Sherif Buzz 8 years ago
  • Well, that is up to you and your partners to figure out. There is certainly not enough information for us to decide that. I suppose you have to be prepared to walk away from it and start again on your own. Once they realize that they may discover that x% of a real business is better than 25% of nothing. – Tim J 8 years ago

2

Welcome to vesting. You should have put that in place earlier. After one year, they clearly aren't performing, so you have a friendly chat.

They all lose 75% of their equity, period. There is no question of buying back the other founders for any money.

There is really no excuse for using vesting from day one. If you had used something like our dead simple alternative to incorporation, it would be built in.

answered Oct 8 '10 at 09:41
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Alain Raynaud
10,927 points
  • Do you think waiting a year is too long? How soon would you intervene if a partner was slacking off? I don't think I could let it slide more than 4 months or so (and that's if they had a really good reason!). I would be feeling too resentful and needing to talk it out. I do agree that vesting is the best tool to ensure that founders stay on task (especially if they still have another job or business competing with your startup that doesn't produce direct income for them yet). – Kelly Rued 8 years ago
  • Kelly, I didn't mean to wait a year, it's just that the way the question was phrased, a year has already passed. Definitely intervene as soon as you detect trouble. – Alain Raynaud 8 years ago

0

It's time to start drawing a salary and possibly a sign-on bonus for work done, goals met etc. Take this against any revenue gained. You may have to consult with tax lawyer to get it all setup right.

If others want a salary make sure you get it all in writing what the pay is and how it works if there is insufficient funds. Hours must be documented, get a time tracking tool, there are many online.

answered Oct 8 '10 at 05:15
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Bill Leeper
123 points

0

Exactly how much of their money did you spend? What value did their money give YOU that you had to use it? If I felt the way you do about these partners, I would not have spent their money or I would have returned their investment from my own funds and said "it's not working out, here's your money plus interest comparable to if you had this in the bank the past year. Sorry, but you just didn't come through on any work and startup ownership is a lot of hard work."

It sounds like you did not have any formal agreement with shares/vesting and the usual contingencies, so you should be in a decent position to return their money but keep your code and walk/start a new project on your own.

Now, on the other hand, if you relied on their money to get where you are today... for example, by purchasing advertising to get traffic which provided the traction you needed to find an audience... then as little sweat equity as they may have, they did contribute something valuable. When you get investors, a lot of them don't want to work much on anything but the high-level strategic stuff (what you called emailing back and forth might be the level of hands-on work they wanted to do at that point in the project since they aren't technical).

I also don't know how you allowed this to go on for so long unchecked? It's kind of hard for them to retroactively fix anything in this situation and I can tell you didn't push on them hard enough as they started slacking because you're now in this situation where they think they have entitlements and equity in something that you mentally wrote them out of already. Honestly, at this point, there is not a lot of great advice to fix this because it's gone on too long and they may (justifiably) be wondering what's the big deal at this point? You didn't give them the boot when they started slacking and you spent some of their money. So I'm glad you're not thinking of ditching them now because it sounds like it's a little late to just say "deal's off, I'm on my own" unless you pay back all their investment $.

Good luck, and hopefully you won't loose any good friends in the process. When I "fired" friends in my first startup, it ended the friendship and after that startup tanked, I don't miss the project but sometimes I miss those friends.

answered Oct 25 '10 at 05:31
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Kelly Rued
231 points
  • Kelly thank you very much for the detailed feedback, on hindsight I would have done things very differently and not spent a cent of their money the moment I felt things were not working out with them. We had no formal agreements about anything, it was just a bunch of guys who got together and decided to get something done. I've brought up the issue with one of the "partners" (the one who's a close friend of mine) and I will get back to them with two options, either give them their money back or take a (very small) equity %. Thanks again. – Sherif Buzz 8 years ago

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Partner Partnerships