I was hoping to get guidance on a situation a fellow entrepreneur friend is going through. I’m not personally going through this, but getting feedback for her would be incredibly great. And could be instructive others.
Here’s the deal:
My friend founded a company with another entrepreneur and they divided up equity in a 40%, 40% split. The remaining 20% is designated for other potential founders and advisors. It seems in the bylaws of the company, both he and her have to come to a consensus on major decisions. In other words, there is a large probability of a stalemate if they disagree on something big.
Turns out, the guy she is co-founding with is making operations of the company impossible. He is not completing work, getting emotional and irrational during decision-making, and is generally abrasive towards another potential co-founder.
So she has come to the point where she would like to come to some sort of terms where he gracefully exits the company. Or takes a backseat role as an advisor. She has been thinking of an arrangement where he could retain a small percentage (~5%) and the $100k he has personally invested could convert to some sort of note with a return. She also has invested money herself, around $50k. And she has deep experience in the space and will be the key driver of the company.
She mentioned to me a few things:
How might she best proceed in a meeting with him? What might be fair terms in this case?