Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

Founders divorce

Hi,

Even though this group is about dating, I'd like to throw out there a
question about divorce :)

1. Did anyone go through a successful experience (i.e. the startup did not
fail) of losing a co-founder in an early stage startup?
2. What terms (i.e. equity, etc.) can be used when splitting?
3. It is worth it? If one co-founder does not contribute as expected, is it
worth the divorce, or does a divorce mean the startup is likely to die?

Best,
Israel

7 Replies

Krassimir Fotev
0
0
Krassimir Fotev Entrepreneur
Founder of Peer Belt Inc.

Isreal: Divorces happen. The sooner you do it, the more equity in the pool and healthier the company. A good reason to hurry if things do not improve after a conversation.

The "divorce" does not need to be confrontational. In my startup's case, it was mutual understanding the parting was for the startup's best. The co-founder knew he was not contributing enough because of other engagements. When asked what the priorities were, he opted out. It was all mechanical from this point. The layers prepared a document for the co-founder's signature, he received a certificate for the equity vested. That was pretty much it.

We had unequal equity split, so the company did not take a serious hit. Equal split situation is more difficult, because of the % equity vested. You must negotiate favorable for the company divorce and insist on equity going back to the pool. The co-founder should realize unjustified fight for equity would ultimately kill the company and leave him empty handed.

Hope this helps,
-Krassimir

On Nov 17, 2012, at 11:22 PM, isrsal wrote:

Derek Dukes
0
0
Derek Dukes Entrepreneur • Advisor
Business Development, Startups at Amazon Web Services

I've been on both sides of this issue both as the Founder CEO and a Founder
who was leaving.

There are several things that you can do to help ensure a clean and orderly
break. The two most important is to make sure that each of the founders has
a vesting schedule and that the company has a repurchase right for at least
unvested stock options. These are effective because they are setup before
the divorce issue is on the table and when an issue arrives there is a
method for dealing (equity wise) with the breakup that all parties are
aware of and provides the least risk to the organization.

Beyond the equity issue, there is always the area of 'severance' this is
where you get to make a merit based decision on the parting founder's
contributions and how you'd like to support them (or not) through
their transition. I don't believe that you're legally required to give any
severance and the can be huge latitude in deciding what the terms are. As
part of severance you can do some combination of the following
things: accelerate some or all vesting, provide salary for some period of
time (2 weeks is somewhat standard), extension of benefits like healthcare.
Typically a severance agreement also includes mutual non-disclosure of
severance terms and depending on what the package looks like may require
board approval (e.g. full acceleration of stock options).

Regardless, if you're the Founder / CEO then you'll need to start messaging
the board / key investors in a thoughtful way about the upcoming transition
and what your approach will be and potentially get some feedback, depending
on your relationship with your investors. They'll want to at least have the
option to weigh in and endorse or course correct your approach. You'll also
want to make sure your lawyers are drafting the docs and managing the
re-purchase agreement in case the departing founder decides to sue the
company or that any 83b elected stock can be brought back to the company.

I think it's also important to remember that our ecosystem is small, you'll
likely cross paths with the departing founder again and making sure you
manage the process with respect and good communication will be key to
maintaining that relationship going forward.

Depending on how hostile (or not) the co-founder is you should consider how
careful you need to be with their access to systems / office etc. and when
to cut them off and limit / cancel their access.

- Thanks, Derek

--
Derek Dukes | [removed to protect privacy] | @ddukes

Christopher Dessi
0
0
Christopher Dessi Entrepreneur
TEDx Speaker, Founder, CEO, Angel Investor, Author of Remarkable You, & Just Like You, Inc Columnist

I'm in the midst of a co-founder break-up (going on 7 months).  It's an
arduous process, but that's to be expected when lawyers are involved and
both parties want to protect their interests.  Make sure you have the
appropriate legal documentation in place before you partner with anyone.
 When we went into the agreement we joked how we were just getting married
and already thinking about the divorce. I highly recommend you do the same.
Sorry to be Debbie downer, but divorce happens.  My co-founder did not
contribute as expected (I was the plow horse *and* show pony). It's been
painful, but *so worth it.*

Lilia Tovbin
0
0
Lilia Tovbin Entrepreneur
Co-founder at BigMailer.io

I had gone through a "divorce" of partners, but the company wasn't an early
stage startup at the time of the split although faced many of the same
challenges. I will share my experiences hoping others find them useful.

1. The break up was successful - I bought out 2 of my co-founders last year
and was able to turn things around for better.
2. We used our revenue for the year and negotiated a multiplier to come up
with a total value of the company. There weren't any assets outside of code
itself as it's a SAAS business. I realize this was simple compare to what
might be needed if a leaving partner wants to preserve an equity in the
business.
3. It was worth it for me because I wasn't willing to walk away from all
the sweat equity. I also had more ambitious plans for the business that my
partners didn't want to pursue. I did loose a subject matter and industry
expert in one of my co-founders, so had to  both learn a lot and get
freelancers to compensate for some of the missing expertise.

I think success of the startup will depend on the same factors regardless
of whether founding team went through a break up or not - idea and
execution. If the remaining founder(s) can compensate for the lost
founder's skills, expertise, and funding (if cash contributions are needed)
than he/she/they are not worse off after the breakup. There is of course a
question of what the breakup itself will cost and whether the terms benefit
the remaining founder(s).

Ideally, there is a prenup, e.g. co-founders draft a written agreement
about what each is expected to contribute and how equity is redistributed
if the expected contributions aren't made. I wish I had such an agreement
in place, but I didn't.

There are a lot of great posts and advice on this topic (and many others
relevant for startup founders) on http://answers.onstartups.com

Hope this helps.

Lilia

Stefan Brunner
0
0
Stefan Brunner Entrepreneur
Cofunder and COO at TheTechMap, Inc

I had an event business while in college and we went through a business
divorce. The business had only six figure revenue but essentially paid for
college. In Germany there was (and probably still is) no market for startups
and small shops, beyond selling the raw assets. (There is essentially no VC
capital either - not even today.) The way we split is that my partner got
the Berlin business and I got the Munich business. Our third partner parted
on his own seeking another career - either of us wanted him on-board. We
parted over differences on how to drive the business. I am the strategist
and the scenario planner. I like to think things through and prefer a solid
yield/risk relationship which is vital in the event business where top or
flop in productions are close together. My partner on the other hand was
impulsive and just did things - fast and effectively, sure, but as a result
caused us major losses.  It was not a happy time - but worked out. My
ex-partner threatened to infringe on the Munich market but ultimately failed
in the attempt.

But again, in Germany, there is no secondary market for startups beyond its
assets - at least not then. Back then, an Inc required seven figure capital
and even a LLC was still in the six figure capital which is like a deposit.
The solution was the ad-hoc corporation, often wrongly called a GBR
corporation, each partner is liable  with all its assets. There are no
shares or vesting. The value of a startup is the profits you pull out of it
and the agreement over how to distribute them. Things are a tiny bit more
friendly these days and it is much cheaper to found an Inc and you do not
need partners anymore to do that. Though, I think many divorces end up in
business failure in Germany or at least in a competitive situation.  PS,
left Germany during the dot-com times and live in Austin now.

--- Stefan

From: [removed to protect privacy] [mailto:[removed to protect privacy]]
On Behalf Of Lilia Tovbin
Sent: Monday, November 19, 2012 8:43 PM
To: isrsal
Cc: [removed to protect privacy]
Subject: Re: [FD Members] Founders divorce

I had gone through a "divorce" of partners, but the company wasn't an early
stage startup at the time of the split although faced many of the same
challenges. I will share my experiences hoping others find them useful.

1. The break up was successful - I bought out 2 of my co-founders last year
and was able to turn things around for better.

2. We used our revenue for the year and negotiated a multiplier to come up
with a total value of the company. There weren't any assets outside of code
itself as it's a SAAS business. I realize this was simple compare to what
might be needed if a leaving partner wants to preserve an equity in the
business.

3. It was worth it for me because I wasn't willing to walk away from all the
sweat equity. I also had more ambitious plans for the business that my
partners didn't want to pursue. I did loose a subject matter and industry
expert in one of my co-founders, so had to  both learn a lot and get
freelancers to compensate for some of the missing expertise.

I think success of the startup will depend on the same factors regardless of
whether founding team went through a break up or not - idea and execution.
If the remaining founder(s) can compensate for the lost founder's skills,
expertise, and funding (if cash contributions are needed) than he/she/they
are not worse off after the breakup. There is of course a question of what
the breakup itself will cost and whether the terms benefit the remaining
founder(s).

Ideally, there is a prenup, e.g. co-founders draft a written agreement about
what each is expected to contribute and how equity is redistributed if the
expected contributions aren't made. I wish I had such an agreement in place,
but I didn't.

There are a lot of great posts and advice on this topic (and many others
relevant for startup founders) on  <http://answers.onstartups.com/>
http://answers.onstartups.com

Hope this helps.

Lilia

On Sat, Nov 17, 2012 at 11:22 PM, isrsal <isr...@gmail.com> wrote:

David Albrecht
0
0
David Albrecht Entrepreneur
-

Incidentally (and in good German tradition), this sounds very much like the
division of the Aldi empire. Does everyone know that Trader Joe's is
actually the indirect result of an amicable business divorce between Theo
and Karl Albrecht, of Aldi wealth?

Very interesting story. http://en.wikipedia.org/wiki/Trader_Joe%27s

On Tue, Nov 20, 2012 at 10:49 AM, Stefan Brunner <sbrun...@spamcop.net>wrote:

Stefan Brunner
0
0
Stefan Brunner Entrepreneur
Cofunder and COO at TheTechMap, Inc

Or Adidas and Puma. Both sitting side by side in scenic Herzogenaurach. Or
the split between Bahlsen and Lorenz, the first got the cookie, the later
the chips business.

--- Stefan

From: David Albrecht [mailto:albrechthttp://en.wikipedia.org/wiki/Trader_Joe%27s

On Tue, Nov 20, 2012 at 10:49 AM, Stefan Brunner <sbrunhttp://answers.onstartups.com/>
http://answers.onstartups.com

Hope this helps.

Lilia

On Sat, Nov 17, 2012 at 11:22 PM, isrsal <isr...@gmail.com> wrote:

Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?