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LLC breakup

I wanted to get advice on how other people would handle this.

Here is the situation:

Founder 1 - Me, invested 10k, wants out
Founder 2 - V, invested 10k, wants to continue with startup

I tried working on this project but it is far more time consuming then I
originally realized.  It's not a sexy or interesting business, and my
business partner is not very interested in the tech side of things, which
is where I came in.  But we don't see eye to eye on very much.  We made
countless mistakes and now he wants to continue but requires me to be full
time or not at all.

Initial Cash: 20k
Gross Revenue: 7k
Cash on hand: $900
Operating Costs:
  Office Space ($750 x 9) = 6750
  Website: $12k
  Assets: 5k
  Failed SEO: 2k

These are numbers off the top of my head, but they are pretty spot on.

He is offering 0% equity and a buyout for 3500 spread out over the duration
of 2013 (with no guarantee)

How would you guys/girls handle this?

--
Anoop Kansupada
Founder & CEO, Dapprly <http://www.dapprly.com/>

Facebook: Dapprly <http://www.facebook.com/dapprly>
Twitter: @Noop212 <http://dapprly.tumblr.com/>
My Skillshare Class: Living Like a rockstar while backpacking around the
world<http://www.skillshare.com/Living-like-a-rockstar-while-backpacking-ar...>

21 Replies

William Grosso
0
0
William Grosso Entrepreneur
CEO, Scientific Revenue

What percent do you own? And is there a formal operating Agreement?

Bill
 On Dec 17, 2012 9:05 PM, "Anoop Kansupada" <an...@dapprly.com> wrote:

Shane Robinson
0
0
Shane Robinson Entrepreneur
Entrepreneur, Army veteran, MBA/MPA joint degree student

what industry is it? diff industries have different revenue multiples for
valuation.

do you guys have any debt?

did you raise any prior funding that put a value on the company? his buyout
of 3500 is putting a valuation on the company of 7500 which is roughly 1x
revenue, assuming you are split 50/50 on ownership.

i don't like payout over one year either. if you both invested a lot of
time and money into this and if you aren't getting to retain any equity
stake, whatever you do try to push for lump sum payment and to retain at
least 5%-10% post buy out.

Shane Robinson
0
0
Shane Robinson Entrepreneur
Entrepreneur, Army veteran, MBA/MPA joint degree student

sorry, meant 7000 valuation*

On Mon, Dec 17, 2012 at 9:17 PM, Shane Robinson <sprobinson1...@gmail.com>wrote:

James Bond
0
0
James Bond Entrepreneur
CTO at SupplyBetter

What percentage of the equity have you been granted, and how much of that
is vested? Without knowing that, there's no way to say whether $3500 is too
little, fair, or generous. I suggest starting the other way -- try to come
to an agreement with your partner on what the company is presently worth;
then buying out your share is a simple matter of arithmetic. And if you
think the value is going to increase, you can simply keep your equity
instead.

The bottom line is that (absent an agreement to the contrary), you can't
force him to buy you out, nor can he force you to sell out. So it's in your
mutual interest to come to an agreement.

Shane Robinson
0
0
Shane Robinson Entrepreneur
Entrepreneur, Army veteran, MBA/MPA joint degree student

id also ask yourself what your partner's motivations are behind wanting you
out. if you think he's got another offer on the table for a greater value
than what he is offering you (which sounds unlikely given the lack of
operational traction), then you could put something in the buyout agreement
stating that if a buyout of the company happens within the next 6 months to
a year AFTER you leave, then you'd be entitled to proceeds under that
valuation. if he agrees, this ensures you get to share in any upside based
on your current share.

Chipit Promotions
0
0
Chipit Promotions Entrepreneur
Software Architect
Hello Founders. I have a web app that I need to setup a Terms of Use and Privacy Policy for. The web app grabs users' e-commerce items from etsy, ebay, and amazon and puts them on Facebook. It also comes with some built-in promotional tools.

I have seen many "Privacy Policy" generators out there? is there something similar for Terms of Service?

If I go to an attorney to create one, how much can I expect to spend?

Just looking for ballparks. Thanks!

Alan Peters
0
0
Alan Peters Entrepreneur
VP Product and Technology at BusinessBlocks

Any paperwork before you started?
On Dec 17, 2012 9:05 PM, "Anoop Kansupada" <an...@dapprly.com> wrote:

Richard Shank
0
0
Richard Shank Entrepreneur
Software Engineer at PICR

The thing that caught my eye was he wants all or nothing from you. Is that
in an established agreement or a new term of the partnership? If its new, I
would think the burden of changing that is on him and he would need to buy
you out.

On Mon, Dec 17, 2012 at 11:20 PM, Alan Peters <morefroma...@gmail.com>wrote:

Vishal Parikh
0
0
Vishal Parikh Entrepreneur
Co-Founder at HealthEquity Labs

First of all, you should really talk to a lawyer about this.  Corporate
lawyers specialize in this sort of thing, and often will work with startups
for a reduced or even completely deferred fee (though, coming in at this
stage of the company, it may be a different story).

My experience is with C corps, so I'm not sure how much this will apply to
an LLC, but here goes: In general as others have said, stock is subject to
a vesting schedule that you would have laid out when you incorporated.  Any
unvested stock, the company can buy back (whether you like it or not) at
the lower of the price you paid for it and the "fair market value" of the
stock.  However, if the stock is vested (and if you didn't have an
agreement, then it is vested), the company cannot force you to sell them
the stock.  Typically if an employee leaves early on with a significant
amount of stock, they are bought out.  However, in that situation, the
employee basically holds all the cards.  As I said he cannot force you to
sell the stock, and he will not be able to raise money if someone outside
the company has a huge share of the company.  Of course, it is not in your
interest to refuse to sell because that will prevent the company from
progressing and then your stock will be worthless.

If it was me, I would ask for all $10k back and 0 equity (or maybe 9k and a
small amount of equity).  Trying to value the company on its present
revenue doesn't make sense for a consumer web company (I assume you're
talking about dapprly and not like a dry cleaning business or something).
 He could raise a million dollars tomorrow if he meets the right investor.
 If he doesn't have $10k on hand, then agree to sell him the equity back
over the next year prorated to $10k.  If he finds another founder or raises
money or finds a better revenue model, that money can be used to buy you
out.  You can (and should) put this in writing, which should make him feel
better.  If he doesn't get any of those things, well, then this is all moot
isn't it?

The most important thing, however, is that both of you part ways as
amicably as possible.  The valley is a small place and you don't want to
burn any bridges.  He could land a partnership at a VC firm and 2 years
from now you may be begging him for an investment (Yes, I am speaking from
experience).  Hope that helps.  Happy to talk more offline.

Cheers,
Vishal

On Mon, Dec 17, 2012 at 9:45 PM, Shane Robinson <sprobinson1...@gmail.com>wrote:

Andy Hoffman
0
0
Andy Hoffman Entrepreneur
Principal, Creative Direction, Content, Gamification at Quest2Excel

Anoop,

You say the company is an LLC, so I'm guessing you and your partner are the only members, and that you each own equal interest in the company. I think your best solution is to deed back your interest over time -- 20% now, 20% more in six months, and so on. At the end of two years your partner will own it all, and in the intervening period he will have the majority -- and therefore determining -- interest in the company. Construct the agreement so that either of you can opt out at any point. That way, if your partner gets lucky, or you find some aspect of the project's IP has value in another venture, you can renegotiate. He gets what he wants at no cost, and you get what you want with potential upside.

Andy Hoffman
[removed to protect privacy]

On Dec 17, 2012, at 10:17 PM, Vishal Parikh <vis...@trypico.com> wrote:

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