#StartupDrama #CoFounderIssues #LegalAdviceNeeded
Hey fellow founders! 🚀 Have you ever found yourself in a situation where a co-founder just isn’t pulling their weight? 💼💔 I recently had to let go of a co-founder due to underperformance, and now I’m facing the dilemma of whether or not to refund him his initial investment. 🤔💸
Here’s a quick rundown of my situation:
– Co-founder agreed to certain responsibilities, but failed to deliver on them 📉
– I ended up doing most of the work myself 🛠️
– Co-founder focused more on raising funds than growing our platform 📈
– I decided to part ways and offered to refund his investment as a gesture of goodwill 💰
– Co-founder responded by threatening legal action and contacting business partners and YC 🙅♂️📞
Now I’m wondering:
– Is he legally entitled to a refund if he was fired for performance? 🤷♂️💼
– What are my options if I choose not to refund him? 💭💰
While I don’t want to escalate things to court, I want to handle this situation in a fair and amicable way. Any insights or advice on how to proceed would be greatly appreciated! 🙏 Let’s share our experiences and help each other navigate these tricky co-founder waters together. 💡💬🌊
Off topic: Just today I have read 3 different post regarding founder issues and all of them met in YC cofounder. Is hiring from YC cofounder not a good option? Asking genuinely.
I don’t think yc founder match is good at all, generally you want a cofounder with many years of relationship not this…
I’d get him to sign a contract in exchange for the money. Put all the good stuff in there: NDA, no legal action, handover of all work product.
As for whether or not he’s entitled to a refund: IANAL, but, I’m sure it depends on what legal documents you guys have signed. How did he “give” it to the company? A loan? Purchased equity?
If you don’t run, not walk as a co-founder then you are not a good fit. Instead of solving any issues by yourselves, he went public. What other proof you want?
Typically there’s a year cliff in signed founder agreements. This is a good example of why these terms are important.
You should build together and get to know each other for at least 3 months before putting in any money
This all complaining and no details. What did you agree to? Was it on paper? Who put what in?
There is generally no such thing as a “refund”. Either they hold equity or believe they hold equity or they don’t.
If they hold equity you can’t just refund them. You have make an offer and they have to accept.
If they don’t hold formal equity it may just be a case of seeing if they can sue you.
Based on what you have said here it seems like you have nothing on paper so maybe it is best to return the money and they relinquish claims.
If it’s a few hundred bucks? Just give it to him
Not sure what you’re supposed to owe him, is it equity? Did you not do a 4 year delayed equity plan like you’re supposed to, if you did, he should get nothing
Do you really want to overthink a few hundred bucks over a clean break (given you really did hold him out as your co-founder) and perhaps a written agreement documenting there are no more claims and liabilities?
If you want to be a founder, think bigger.
I was in this situation a while ago and stupidly refused to pay. I was right about not needing to paying the guy, but he ended up suing and the case dragged on for 3 years because the magistrate was a dumbass and didnt understand basic corporate law so she ruled in favor of the plaintiff and told me Id need to argue my case in district court because she wasn’t a corporate lawyer and couldn’t make an informed decision. It ended up costing me a lot more money, time and stress than if I just paid the guy from the start and moved on with my life. We ended up settling before district court but the court messed up the paperwork and that caused us both to have to travel to the courthouse together on multiple occasions and eventually do a zoom hearing at 6am my time and explain to the guy the court messed up the paperwork and we had stamped copies of all the proper paperwork. My lawyer probably hated dealing with it, I think he only made a few hundred from the case through my insurance and it dragged on for a long time
I have some bad news for you — as things stand you probably owe this guy half your company. Depending on the state. A verbal agreement can be binding, especially if you both performed on the agreement after (and you did; you just don’t like the results of your cofounder).
There are probably four basic paths here: some of which involve some legal work, but not a lot.
1. Amicable Breakup, no cash involved: Tell him you’re sorry, even if you hate saying it, and offer to part ways in a way that leaves him in a good place. I’d suggest you just literally agree that each of you could have a copy of the code and the decks and etc, and can do whatever you want with it as a start — if he’s ineffective, then you‘ve given up nothing, and he can say he’s running his own company now. If you’re worried he might succeed, you could do a 90/10 split each way.
2. Amicable breakup, cash involved: ask him what he wants for his part of the company. Before he gives a price, I’d suggest you try and talk him into a ‘mutual buyout’ scenario, where each of you gives a number for the whole company, and the winner (higher number) has to buy out the other guy for their half. This will keep numbers low and reasonable.
3. Quit, keep your equity — Phase 1: “You’re right, let’s get the shareholder agreement and cap table done.” Once signed: Phase 2: “Sorry about this, but I can’t keep working here, I’m just not sure it makes sense to me. Of course, I’m keeping my stock, and a board seat, let’s have our first meeting, I’m looking forward to supporting you and your progress.”
4. Winddown (as a strategy to renegotiate, or just because it’s simplest and life is short): “Cool, I’m winding down the company; I’ll be selling the assets, and will send you half the value”.
These, remember, are *tactics* — you offered this guy half your company, he put some time and money in, and you’re not going to like what happens if you don’t resolve this soon and just happen to make some money or get investment — you owe him based on that agreement, and you’ll look like the bad guy if he hires even a moderately competent attorney.
Obviously, I’d get agreement on a non-disparagement, and also that he send out a note to whomever he complained to saying “sorry, got heated, we worked it out, OP is a good guy”.