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
Office Space ($750 x 9) = 6750
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?
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
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
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.
On Mon, Dec 17, 2012 at 9:45 PM, Shane Robinson <sprobinson1...@gmail.com>wrote:
Unless you have some assets built up such as useful software, a brand or the like, why do you not just shut it down and the party who wants to continue, starts a new business? Any office equipment can be sold and you guys split the proceeds.
This is one way to think about it. Another is how much it would cost that partner to restart which might be higher as he has to rebuy things on the market, perhaps new which impacts cash flow. He might be willing to offer more to you than under the first option.
An accountant might tell you that the value of your company are the discounted profits of the future. Of course this is difficult to determine for any startup and might change dramatically as value is added to the business.
I mean, 3 and half grand is better than nothing. Important is just that you get out of the liability. In an LLC situation, landlords often have you sign privately, too, and you may stay liable.
On Dec 18, 2012, at 12:05 AM, Anoop Kansupada <an...@dapprly.com> wrote:
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.
What matters is not what you invested, time and money, but what it is worth right now. Worth can be measured in terms of resale value of assets (the approach in bankruptcies), in terms is assets on the books, in terms a repurchase of assets you would need to continue, and in terms of future profit. This also includes goodwill, assets like brand value. As you realized, this is not an easy question.
But you can easily answer whether your Website, that you throw away, has any value. Probably not, unless it served some other purpose such as a pilot to something you have thereafter in which the value is built into what comes next. The same thing is true with your investment. You burned money on the way to get to a "now". That now is what has the value. The hope of the entrepreneur is to make that "now" have a higher value than the investment of assets and labor.
Unless you have a vesting schedule and/or an arrangement of some sort of compensation, the amount of time you put into the business does not make a difference in ownership distribution. With that, the point, whether a week has 5 or 7 days is mood. But it looks like that you put about the same amount of time into the business which helps with debating on a personal level so that nobody feels screwed over.
The thing you should ask yourself is what feels fair for both of you given your circumstances. You do not have to be party who is leaving. You also could make your partner a counter offer and pay him out. If you believe in the business, you could also decide to split shares 50/50 and establish an additional vesting schedule for the remaining partner so that he gets compensated for growing the business. You might have to change the LLC into a C corp for that.
In the end, it feels like a major disappointment given all the energy and money you both put into your business. But then, we are all human and make mistakes, and even calculated risk may not pan out. Take it as a learning experience and think about that you overall did not loose that much money - perhaps a lot of money for you right now in your situation, but not a lot once you have a functioning growing business.
If you made that decision to leave, cut your losses and focus energy on something new, more promising, more exciting and rewarding. People who can bounce back and show continuity, are those which are most successful. People which become bitter and hold grouches throw away valuable energy and at best stagnate. Hence it is important, that you guys settle this soon with a solution that works for both of you.
On Dec 18, 2012, at 1:36 PM, Anoop Kansupada <an...@dapprly.com> wrote:
Be honest with yourself: you want out, he wants to go forward with this�
The cold reality of startups is that value is created in a step function: value is not a linear relationship to effort and money� but rather created by achieving milestones
Unless you\'ve achieved critical, business transforming milestones, the real value of the venture is yet to be realized and will only be created by those who stay with it.
So unless you think he\'s sandbagging you, walk away and wish him luck (and if you\'re walking away from potential upside, you have every right to demand he release you of any liabilities associated with the venture).
I also don\'t understand the logic of taking $$ over stock. If there\'s something worth holding onto, call your joint investments a convertible note and let someone else value it at a later date or put an automatic conversion at a later date� if you\'re taking money out of a cash strapped business, don\'t expect any stock for the money, just be happy with the money� sweat equity is usually linked to a clear vesting agreement and in the absence of that, it is hard to go back post-facto and claim it there, especially if he wants you out.
From: Alex Neth <a...@liivid.com<mailto:a...@liivid.com>>
Date: Mon, 17 Dec 2012 21:34:35 -0800
To: Anoop Kansupada <an...@dapprly.com<mailto:an...@dapprly.com>>
Cc: "firstname.lastname@example.org<mailto:email@example.com>" <firstname.lastname@example.org<mailto:email@example.com>>
Subject: Re: [FD Members] LLC breakup
Your partner probably doesn\'t want to deal with you as a shareholder, which is understandable, though it seems it would benefit him to leave you with a token stake so that you are motivated to provide help in the future.
Given that you want out, you don\'t have much leverage and should allow your partner to move forward. If you want equity, you might ask for 5% which even if he is successful may be heavily diluted or worthless, and the amount depends on your tenure and contribution. If you want cash, it doesn\'t sound like there is much value in the business, both with little revenue and having lost its tech founder. Asking for both is of contrary purposes as it is talking money out of a broke company you want a stake in.
As for the cash amount, you are owed nothing. He is buying from you the right to proceed with the business unencumbered by your equity. A payout over time probably unreasonable as you are taking the risk of an investor with none of the upside. He should give you a lump sum or a small chunk of equity.
Or you should just walk away.
My thoughts anyhow.
But not for $3k. The attorney will gladly accept this amount just to shake your hand.
Important is to be released of all liabilities, specifically in third party contracts. (Be careful, your partner may not be able to do this, just the creditor with a changed contract.) Unless you have the feeling that your partner wants to screw you and there is value you do not realize, I would take whatever he offers you and walk.
Book the rest under lessons learned. Going ahead, you will loose more money on other projects, and hopefully win a lot more back. And yeah - never worth burning any bridges.
On Dec 18, 2012, at 1:17 AM, Vishal Parikh <vis...@trypico.com> wrote:
what industry is it? diff industries have different revenue multiples for
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.
I\'d take 10% and let him keep the cash.
$3500 is going to be detrimental to ongoing success of the idea. So, you take equity (pick a number, really), and leave.
On the flip side -- 3500 over 12 months is essentially an offer by him to never pay you back.
Cash is the only thing of real value right now, and only really worth while RIGHT now -- the NPV of "A burger for which I will repay you on Thursday" is essentially nil. Equity won\'t kill his potential, while cash will.
On Dec 18, 2012, at 3:13 PM, Seth Kaplan wrote:
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
On Mon, Dec 17, 2012 at 11:20 PM, Alan Peters <morefroma...@gmail.com>wrote: