My co-founder wants to bring his wife as a late joining co-founder
Recently, a month ago, we welcomed a new research assistant into our group. Subsequently, she and my friend started a personal relationship and are planning to marry. Amidst this, we began preparing for a venture competition submission. She has indeed contributed significantly, facilitating discussions with other companies and forming some partnerships, though often with my friend's involvement. My co-founder now proposes to grant her co-founder status with over 10% equity.
I'm concerned about the fairness of this decision to other team members who have been with us for over a year, contributing significantly to our project. Additionally, I feel somewhat sidelined, as my friend and the new member often reach consensus without involving me in the preliminary discussions.
I seek advice on handling this situation, especially regarding the proposed equity distribution and the changing team dynamics. How can I address these issues while maintaining both our professional relationships and the startup's integrity?
Thank you.
73 comments
[ 2.6 ms ] story [ 146 ms ] threadYou do need to think carefully about what a breakup would look like. Relationships can go sour and if that happened what would the arrangement be if they couldn't work together.
Also, who makes the decisions? Does her allocation give them both a majority of voting rights?
It's not a typical arrangement, that doesn't mean it can't work but your co-founder has added complexity into the process.
There is no way for this to go forward without creating problems for everyone. You need to talk to your cofounder about the long run issues they are going to create.
Literally just say that to them. You said they're a close friend, so you should be able to start off with a frank and reasonable discussion about it without beating around the bush. If you somehow can't come to an understanding, then involve a lawyer.
Honestly if I were in your position, I'd be more worried that my close friend and co-founder is already planning to marry someone that they've only been in a relationship with for less than a month. But maybe I'm just ignorant of their culture.
Yeah, this is very unusual and could indicate some other "issues" (love-bombing? both sides simply being well-natured but immature?)
This. Not to mention any type of drama this may continue to bring into the workplace.
If you are 50/50, you should create a milestone plan. After the milestones are hit, she begins vesting.
I would maybe be more gentle, but not saying a version of this will hide the biggest issue, which is the blatant nepotism.
This seems rather quick.
Would you hire her at 10% if she weren't sleeping with a co-founder? You could suggest to your co-founder that he give her some of his equity.
If she’s supposed to be part of your founding team, this is something you should be able to work through.
If you can’t come to an agreement, be glad you found out now rather than in a year or two
As other said, he doesn't just want to give 10%, he wants you to give 5%.
Getting a cofounder is like getting into a marriage, you should be able to discuss this with your cofounder and explain plainly the issues you're seeing.
Another way of framing this is that the co-founder wants OP to just grant him control of the company by switching from the original 50-50 arrangement to a 45-55 arrangement.
I personally wouldn't accept it, it dilutes your team's equity and opens up a huge can of worms around conflict resolution, and founder conflicts kill companies. I would think of this as-if your cofounder is asking for an additional 10% on his or her stake, because that's de facto what it's going to be. Your cofounder frankly also hardly knows this woman despite the fact that he or she rushed into marriage.
It sounds like even without the 10%, this already creates an unfair (harassment?) environment for other team members. Even without equity being assigned, the message to your team is "if you manage to become a serious romantic partner or fiancee of one of the founders, you get greater influence and involvement in making important decisions."
If the marriage is actually going to happen, one of them should work elsewhere. Possibly already enough damage has been done, and one of them should work elsewhere. If their relationship is strong, it will still be strong if they're not also co-founders. If their marriage is going to last the test of time, they may be better off not having both their careers in one company basket. And team members should not need to constantly second guess whether their advancement is dependent on their work or the degree of intimacy of their relationship with their founders.
OP: 45%
Partner: 35%
Partner's wife: 10%
Team: 10%.
That way the balance remains equal and the team has the final call when there is a deadlock.
get a lawyer.
Regardless of what you do, make sure there is a vesting schedule in place (e.g. a 4 year vest + 1 year cliff).
There are a few principles that I think can be helpful here:
1. The vast, vast majority of work remains to be done, and the vast majority of value your startup will have has not yet accreted. Unless your startup depends on some like critical patent or something I'd wager that 90%+ of the value is yet to be created.
2. At exit, a person's equity ownership in the startup should be roughly proportional to how much they value they helped accrete over the life of the company.
3. The above is the only thing that matters. Opportunity cost, professional reputation, relationship status, prior experience—all of those are irrelevant. The only thing that matters is contribution to the value accumulated by the startup over its lifetime.
Unfortunately, most big equity decisions are taken at the beginning of a company's life, not at the end--where most of the information needed is not known!
Because of that, no matter what you do, you will probably end up with something that is significantly far from optimal. There's just not enough information. Tough luck, them's the breaks, that's the price of success.
However, there are a few things you can do now to help guide the process:
1. Agree, explicitly, to the above principles. That is key.
2. Agree, explicitly, to everyone's role and responsibilities over the next year.
3. Given the above, distribute equity in a way that is simple, broadly aligned with the stated principles, and probably over-indexing on "fairness" than accuracy. It's better to make other people a bit richer than they "deserved" and be happy than the opposite.
4. Make sure that everyone's equity has a vesting schedule. The longer the better. 4 years is standard but honestly a bit too short when in the current world startups exit after 10+ years.
5. So that might look (at very first approximation) like you and your cofounder starting with 35% each and your new cofounder with 30%, or 40-40-20, or something like that.
5. Get to work.
Good luck!
* Have y'all formed a corporation already? * What sort of equity split did you decide in the early days and do you have it in writing? * Did you have equity splits for the other students that helped?
It's probably best to work through an equity conversation for everyone whose contributed and not treat your friend's wife as a special case. If indeed, her contribution was significantly more, then it would make sense for her to have more equity than others once you establish the company, if you haven't already. Also note, that if you don't already have a vesting schedule you should institute one, not only for yourself but all the employees. You can potentially backdate that to the "start date" for each individual.
As for founder status, if you do end up determining that her fair equity split is significant portion of the company, it may be warranted.
All of the above probably requires a lawyer to do incorporation, write equity vesting policy, etc.
If the only reason she is being given cofounder status and all this equity is because they are banging and your friend is horny, you either need to step in and tell them no or leave.
I am concerned that two of your cofounders are engaged in a new romantic relationship. The fact that they are already talking about marriage says a lot about how unseriously they are taking everything.
Why stop at 10% ?