Business Strategy · Startups

What's the best agreement to cede my startup to other entrepreneurs?

Márcio Leite Entrepreneur by nature, manager by nurture.

Last updated on June 29th, 2017

I'm a single founder and after more than two years being single founder of my start-up, although having had several interns throughout the times, I just can't go on anymore. I tried to find a co-founder and I failed to do it. Nevertheless, I raised money, my own and crowdfunding equity (total of 100K €). The company built a product (two iOS and Android apps). The first version of it was 1 year ago. Since then the company experimented a lot and has a lot of lessons learned on how to do it, and some brand awareness in the market. The company has a fully functional MVP and first paying customers in two cities. The concept is highly scalable, and just needs capacity of executing. Now I'm thinking on passing it to a team of entrepreneurs (still looking for them) that can execute. My idea is that the investors in the crowdfunding campaign remain shareholders like they are now (16,8%), and I retain some equity (something between 5% and 10%). The company has a debt to me on the amount of 50K, and that's all I want to get back. Naturally the payment of the loan would be gradual. I want entrepreneurs that can make the company sell more, and raise some investment. I think it is a very good deal for a team of entrepreneurs that takes over the company. They have already a scalable innovative product with an MVP on their hands. The total cost just to build the product would be more than they would be paying for the whole company, and on top they have already the lessons learned of more than 2 years and brand value. What kind of conditions should I put on the new entrepreneurs? Am I asking too little, too much?

Peter Khokhlov NY licensed attorney, cross border experience

June 29th, 2017

From what I understand, you are looking to exit and to have some protection for (i) your minority interests, (ii) crowdfunding investors and to make sure that you get the loan back. The common way would be to have a share purchase agreement with the investors. The purchase price would consist of loan repayment. You would need to set out what % of revenue needs to be allocated to loan repayment, their regularity, etc. You also want to have a shareholders/participants agreement with the new majority owners in relation to how the company will be governed. This agreement would set out protections for the minority shareholders (anti-dilution, rights to access information, etc).

VAIBHAV JAIN Founder @StartupFlux

June 29th, 2017

I think it's a little too much. (Though i cannot be sure without seeing and understanding the complexity of what you've built)

If they want to, Smart people can easily replicate the software that you've built with much less money and much less time.

Another issue that i and they are bound to have is over the course of time, the software is bound to get bulky and lots of junk/redundant code. will be really difficult to understand and maintain.

Also, i would not buy since I'll always doubt why would you want to leave a rocket ship or maintain just 5-10% equity. No matter what your answer is, its really difficult for me to trust the product. (There are ways to cope with burnout etc)

Instead, if you can wait for the money, why don't you try hiring smart folks(maybe freshers) against equity and let them handle most of the job. You can keep a little more equity, be on the board as an advisor, interim ceo maybe, groom them and leave. You can also structure a royalty to get your moneyback gradually.


sonia walker cofonderand ceo of angel investment company

June 30th, 2017

are you in need of a loan and investor?if yes just email is at angel.investor.net@outlook.com for more details