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Ask HN: How do I reach a fair agreement with my co-founder?

5 points by throwaway55022 ↗ HN
Hey HN, I need your advice. I'm re-negotiating equity stakes in my start up and want to be fair to my co-founder but don't see his long term role in the company. What should I do?

At the beginning of this year I participated in a hackathon with two co-workers. One of the guys is a web developer and techie like myself, and the other is a database admin and project manager with no programming background. We built a pretty cool web app and won the top cash prize at the event. We decided to use the cash to continue improving the app and were accepted into an incubator program over the summer. At that time the other techie guy had to stop working on the project because of a new job.

So my co-founder (the db admin/project manager) and I went through the incubator program. I was working part time 2 days per week at our old job and 3-5 days on the start-up. My co-founder was working 4 days a week at our old job (where he is a minority shareholder) and 1-2 days a week on the start-up. After graduating from the incubator program I decided to quit my job and work on the start-up full time. My co-founder is continuing to put in 1-2 days per week.

Now we're at a crossroads. We've got the product to a point where we can start selling it, and we've both been talking with potential customers and investors. Sales is neither of our strong suits and we agree that we will need an experienced CEO shortly after landing our first customer and raising additional money.

I envision my role as CTO and doing primarily product development, but am having a difficult time imagining what my co-founders long term role will be. He is not interested in sales or the CEO position, but can't do any technical work other than database design and maintenance.

We've been renegotiating equity stakes because we are rasing a small amount of angel money to keep the doors open as well as bringing on a subject matter expert to help with improving the product. I know this is all pretty vague, but I wanted to get your advice on the situation. I'm asking him to drop down to a <10% equity stake if he's unwilling to start full time. He can't be full time now because of other financial responsibilities, but I'm willing to wait until we can raise some money to pay him. Maybe this is a mistake... I don't know that his full time involvement is what the company needs right now.

I've talked to him about my concerns, but I get the feeling that he doesn't agree with me. The conversation didn't really end in any sort of agreement or mutual understanding.

Am I being unreasonable? On the one hand I want to be fair and I doubt the company would exist without his involvement. I've done the solo founder thing once before and wouldn't do it again. On the other hand I don't want the company to have a bunch of equity held by anyone who isn't working full time or 100% dedicated and even if he were, I'm not sure what his role would be. Has anyone gone through a similar experience before? Any suggestions for how to evaluate the situation in a fair way? I am stressing out about this and would really appreciate advice.

9 comments

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keeptrying
One option is to make equity based on achievements. So both of you can create a list things that need to be done by a specific time and then split it between you two. This should make it very clear to the non full time partner that he isnt getting much done. If he is able to achieve the milestones then its probably a good thing to have him on board even if he's part time.

A startup is all about getting shit done. Dont worry about hte time he;s spending at the job.

[deleted]
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throwaway55022
Thanks for the advice. I tried suggesting the idea of attaching equity to milestones but he didn't see the need. I probably didn't explain why I thought it was important well enough. I think this is a good idea and I'll suggest it again.
mControl
Check out the 'founder's pie' calculator (google it) not a perfect tool, but a great place to start in weighing the stuff that needs to be/has been done plus a way to view, categorically, what each person brings to the table - and if you haven't already locked in ownership equity you may want to consider a performance based profit equity that leads to the promise of ownership once he's willing to commit full time to the project. Good luck!
billswift
If both parties don't agree to a re-negotiated agreement, then it is not "fair". If you can't come to an agreement, dissolve the partnership and start over.
chris_dcosta
This doesn't always work if one of the parties has something invested and the other doesn't - there's an imbalance. One party stands to lose and the other party has nothing to lose. Big difference!
trevelyan
Some brutal advice: your team has failed and the project has no customers and no revenue. You have an overloaded executive team (3 founders) of non-contributors whose main form of involvement is working with you to maintain the fiction of their constructive involvement. Meanwhile, there is vital work that no-one wants to do (sales) and a misguided belief that the only solution is getting someone else to do the heavy-lifting of figuring out how to make money.

Wake up! Are you so desperate not to call yourself a single-founder that you are willing to be one in practice? In this situation your BATNA is closing down the old site and building something from a clean base. If you want someone else to tell you how to make money get a job and go on salary. If you think you can do it yourself, a clean-room build should take no more than a month.

The only question is whether to continue using the original domain/code/design assets. Try pricing them and let your partner come up with an alternate estimate if he thinks you are being unfair. Once you do this you can make a more generous equity offer (1-2 percent) as an alternative to cash payment. Just remember that the value of the time and money you will be putting into the project over the next three years will dwarf the value of any existing assets.

throwaway55022
I appreciate the honest feedback. Not that it matters but the executive team is only myself and co-founder (2 total). I think you're absolutely right about the heavy lifting though. I need to bite the bullet and go get that first sale myself.
j45
The short of it:

Split up the IP (everyone can use it for their own thing) and go your separate ways. If he's not putting in his time he won't do anything with it. Whatever you build from this point onwards to make it a product would be your IP anyways.

The long of it:

A startup is a baby. Don't feed it time and resources, it doesn't grow.

Ideas are worthless. Execution is the only thing that has value.

What you have is a broken marriage. Unfortunately, partnerships are harder than marriage. Getting on the same page and staying on the same page is very hard.

Based on that, one option you might want to consider:

Every project needs a driver. To make decisions one way or the other. Design and development by committee is lethal to productivity, clarity and progress. Usually with good co-founders they defer to each other where they aren't strong.

There's no sense in belabouring negotiations or trying to convince each other of who or what is right or how it's best to move forward.

Good luck, and share what you end up doing here!