How to "Divorce" a co-counder in a way that leaves everyone happy
I had the idea for my startup two years ago. I discussed it with a friend and over time we agreed to be partners in the venture together, with a 50-50 equity split. We signed a tentative agreement to that effect (an agreement to form a company we would own equally). As we moved into developing the company I noticed our contributions of labor were not equal. I posted another question about this before.
I spoke to the friend after I posted that question here and we agreed to split up equity based on labor put into the startup. Since then he has not put that much labor into the venture. Nor has he contributed much in the way of any creative ideas. I've been trying to write/find a founders agreement contract that would work for both of us in the long term. After having little luck finding such an agreement (and thinking about it more) I have come to the conclusion that having a co-founder is not a good fit and I would like to be a solo founder.
One thing to note is that he isn't being lazy by any means, he just has many family obligations that have precluded his involvement. Those family obligations will not be going away in the future.
As he and I do a lot of business together in our day jobs (he as a dba and project manager at a major client of mine, me as a solo software developer) I need the divorce to be friendly and worthwhile on both of our parts.
I see my options as the following
- Do nothing, just live with it. The company would not operate as efficiently a possible and there would be resentment over time.
- A cash buyout from me to him for the work he has done so far.
- A cash buyout down the road once the startup starts making money, i.e. the first X thousand dollars would go to him.
- A set percentage of the company in return for the work that he has done so far.
The first option is not desirable due to the above reasons. The second option isn't desirable at this point due to my cash flow situation. The fourth isn't desirable either as it maintains ownership complexity into the future. I'm currently leaning towards option 3.
Am I missing some possible scenario? Is there some standard way these breakups happen?
2 Answers
You cannot force a divorce to be friendly. No matter how reasonable you be, you don't get to decide whether he'll see it the same way.
All you can do is what you feel is right, with rationale to back it up, and to offer one or more options for his consideration.
2-4 all sound like reasonable and friendly ways to say "This isn't working out the way we both hoped. I'd like to compensate you for the time you spent but also agree that it's not working out moving forward."
No there's no "standard" ways break-ups happen. The lesson here is to address these possibilities in the original agreement. It's like a pre-nup -- you hope you never need it, but you make it anyway so that later it's in black and white.
....not that having it in writing forces the other party to not be upset about it...
I agree that you cannot predict or control how your co-founder will react. At the same time, doing the best you can to find a way for him to exit gracefully is important…maybe he will be relieved to no longer have this commitment? Some people cannot say no and will not directly say they are not able to fulfill commitments they make for fear of upsetting the other party
