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Only founder left… What do I tell investors?

My cofounder left the company and now I am the only one that is left in the business. Big problem is that we did not have a vesting schedule in place so he is going to be freeriding. My fear is that potential investors will be turn off by this structure. Thoughts?

13 Replies

Roger Wu
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Roger Wu Entrepreneur
co-founder at cooperatize, native advertising platform
I would talk to him and see if he is willing to have a smaller piece of something than a huge piece of nothing.
Matt Harrigan
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Matt Harrigan Advisor
President & CEO at PacketSled
Did the company issue him shares?
If so, tell your investors the plain truth andif you plan to continue with the business,try to work out a plan to buy back his equity.
Larry Shiller
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Larry Shiller Entrepreneur • Advisor
Grit: The new dimension in college admissions
Syam, If your ex-partner has equity, get a lawyer and explore a) how you can get that equity back; b) start a new business where you're the 100%; or c) something else.
David Johnston
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David Johnston Entrepreneur
16 Patent Claims Granted in Artificial Intelligence, NLP, IoT & Mobile SMS/Chat/Text Messaging
I went through this. We were able to get an "Exit Agreement" in place with a partial buy-back. Having peacefully settled departures is worth a lot more than the cloud of doom that can hang over your head if you have an ex-founder'spotential lawsuit.
Frank Tahmasebi-Shaw
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Frank Tahmasebi-Shaw Entrepreneur
Agent for Growth - Revenue and Business Development
The reality is, that if your co-founder doesn't cooperate there most often not going to be an infusion of cash.

Sidenote (reflect on this), I would rid yourself of fear - this is business. In my view having fear, is scarier, for others to get involved with you, invest in you, partner with you... When your business comes from value, it almost always solves the cloud over it.

Back to the point. Most often in these situations, the co-founder/shareholder convert it some other amount that maps to both the work and risk they took in the beginning, as well as some bonus to get them to agree. Similar to offering warrants or grant for work completed.

It's the usual statement of owning zero percent of zero is nothing...

The way to get there is by communication. That is key, that's first.
Shams Juma
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0
Shams Juma Entrepreneur
Founder
Worry about investors later. First priority is to protect the assets of your business. Even though you did not have any "schedules" in place, you need to put an agreement in writing and retro back to the date of when the organization was found. If it's too complicated, my suggestion is that you reach to lawyer and him formulate the right approach.
Justin V. Calvillo
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Justin V. Calvillo Entrepreneur
Team and Business Builder
Syam, your instincts are right but it depends on the current equity holdings. Who owns what?
Joseph Wang
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Joseph Wang Entrepreneur
Chief Science Officer at Bitquant Research Laboratories
Your choices right now are to either buy out the partner, or leave the company an empty shell and start over with a new company.

Yes potential investors are not going to like the situation so you need to see what you can to fix the situation.
Thomas J. Kaled
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Thomas J. Kaled Advisor
Business Development Consultant @ thomas.kaled@gmail.com
I think @Matt Harrigan's thoughts are in line with my experience. Structure a 'buy-out' agreement as a part of the cash infusion. If the deal is worth it both your co-founder and the investors should be willing to work with you and if not my guess is someone in the party has an unrealistic expectation. Best of luck.
Don Ross
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Don Ross Entrepreneur
Managing Partner Digital Health at Life Science Angels
I have encountered this situation. You are correct, investing in a company with 50% dead equity is unattractive. This is a "case-in-pint" showing why vesting agreements are important from the beginning.
Several pieces of information are important:
--How old is your company and what was the co-founder's contribution to date? There is a big difference between a 10-month contribution and a 10-year contribution.
--What is your relationship with your co-founder? Is he/she amenable to doing what is best for the business?
--If you need investment to be successful, this can be a lever. Unless the co-founder is cooperative, you'll close the doors and move on. He/she will get nothing.
--What assets belong to the business? Can you close it and simply open a new business on your own?
Hope this helps.
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