Co founder negotiation
My partner had a previous company which had a loss and was a money pit. He wants our new venture to pay for part of the bill because we are basing off of previous design and concept. The problem is that this guy doesn't know much about technology and the previous company was basically a learning lesson. Any suggestions dealing with this negotiation.
7 comments
Hope you're not too committed to this partner. Based on the way you've described it, I'd run screaming from getting in bed with this individual.
Let's try a marriage analogy for giggles. My girlfriend is divorced, and she has a lot of bills from the former marriage. She wants us to get married and pay off her bills because that marriage was similar to what this one would be. She doesn't know much about men and the previous marriage was a learning lesson.
Let's try a marriage analogy for giggles. My girlfriend is divorced, and she has a lot of bills from the former marriage. She wants us to get married and pay off her bills because that marriage was similar to what this one would be. She doesn't know much about men and the previous marriage was a learning lesson.
My personal opinion is that if you are negotiating with a cofounder then the relationship may already be off on the wrong foot.
Cofounders should be figuring out what the other person wants and needs, not what they can get. Treating the startup as a finite pie just doesn't make sense.
If it must be addressed for the sake of fairness, any sort of previous IP should be handled as a loan from the new company with terms highly favorable to the new company's growth, e.g. a note payable in four years with a low interest rate because if the idea has significant value the payoff from the new company's value will be significantly greater than the loan amount, and if it has little value, then the company will probably be defunct when the note comes due.
With two of you, it should be 50-50 with a vesting schedule or walk away.
Cofounders should be figuring out what the other person wants and needs, not what they can get. Treating the startup as a finite pie just doesn't make sense.
If it must be addressed for the sake of fairness, any sort of previous IP should be handled as a loan from the new company with terms highly favorable to the new company's growth, e.g. a note payable in four years with a low interest rate because if the idea has significant value the payoff from the new company's value will be significantly greater than the loan amount, and if it has little value, then the company will probably be defunct when the note comes due.
With two of you, it should be 50-50 with a vesting schedule or walk away.
The two entities are completely unrelated, except for having him as an employee of both.
If the first venture was truly a company, as in a corporation, then frankly any vendors/bills related to that can be left hanging without making him personally responsible. I know this isn't the "ideal" thing, but it happens frequently.
If he personally guaranteed any debt for that company, then that is is personal problem and has no bearing on your new company (which I hope for multiple reasons is being properly incorporated).
I don't see where it makes much sense to handicap the new venture to cover his personal issues, that is what is usually chalked up to "learning experience" and is, if anything, part of the value he brings to this new venture vs. a person with no experience. Or, to put it another way, if it were not for that experience he might have zero value in the current case, in which he would have the same debt obligations, but no potential income to cover them...
If the first venture was truly a company, as in a corporation, then frankly any vendors/bills related to that can be left hanging without making him personally responsible. I know this isn't the "ideal" thing, but it happens frequently.
If he personally guaranteed any debt for that company, then that is is personal problem and has no bearing on your new company (which I hope for multiple reasons is being properly incorporated).
I don't see where it makes much sense to handicap the new venture to cover his personal issues, that is what is usually chalked up to "learning experience" and is, if anything, part of the value he brings to this new venture vs. a person with no experience. Or, to put it another way, if it were not for that experience he might have zero value in the current case, in which he would have the same debt obligations, but no potential income to cover them...
To offer somewhat different advice, you could simply try and value his earlier efforts, not based on how much he's lost on his earlier company, but on how much the knowledge is worth to you.
For example, if you two started out as 50-50 partners and wanted to buy this knowledge from someone else, how much would you pay for it? Divide that cost by two, and that's how much you should "pay" your cofounder, whether in equity or cash.
The common wisdom is 50-50 no matter what, and it's a good rule of thumb; you don't want to feel like you have more or less at stake than he does and vice versa. If you're going to compensate him for his previous work, issue debt from your new company or pay upfront; I'd avoid changing the 50-50 split as much as possible.
And, of course, as other posters have mentioned, it could be that your current negotiating position indicates something negative about your cofounder, which is possible, but I don't think that's necessarily true.
For example, if you two started out as 50-50 partners and wanted to buy this knowledge from someone else, how much would you pay for it? Divide that cost by two, and that's how much you should "pay" your cofounder, whether in equity or cash.
The common wisdom is 50-50 no matter what, and it's a good rule of thumb; you don't want to feel like you have more or less at stake than he does and vice versa. If you're going to compensate him for his previous work, issue debt from your new company or pay upfront; I'd avoid changing the 50-50 split as much as possible.
And, of course, as other posters have mentioned, it could be that your current negotiating position indicates something negative about your cofounder, which is possible, but I don't think that's necessarily true.
On second thought, forget what I said about dividing the value by two. Brain fart.
I'd say... lawyer up?
If you haven't seen it already, grab a copy of "Getting to yes". It's a quick read and research based.
Best of luck.
Best of luck.
thanks guys!