

Ask HN: What to do about non-performing "founder" - disappointedguy

Posting under a throwaway account for obvious reasons.<p>We started up w/one cofounder accepting reduced equity for the promise of a salary after 3-4 months.<p>This cofounder had been very early stage employee in other startups with me.  However, now going in as a cofounder and having to accept no pay, was apparently a bridge too far.<p>His work was uncharacteristically sloppy and low output.  Clearly, he was sinking under the stress, almost from day one.<p>When it got to 3 months, almost to the day, he demanded that he had to start drawing a salary immediately.  We weren't making any money, or even ready for VC angel money, so my other partner (there are three of us), said we'd cover it.<p>Certainly one of the reasons we were not ready for looking for seed money was due to this co-founders non-performance.<p>When it came time for us to decide whether we would cover partner #3 another month, we declined, it really just wasn't worth it for the reduced output.<p>As a result, the paid cofounder essentially pushed himself back from the keyboard on the last day of the month.  He has been slightly helpful since then, but more along turning over stuff.<p>Amazingly enough, this has all been relatively amicable - I think my other partner and I both recognize that this guy just couldn't hold up under the strain.<p>But I'm also feeling a little abused now, as we sort of nursed/mollycoddled him along.  And we haven't signed off on incorporation docs yet, although they are all drawn up.<p>This is a stupid mess.  At one point, I want to really dock the guy's equity for non-performance.  OTOH, deal's a deal, and over time, assuming all goes well, he'll get increasingly diluted.<p>What would you guys do?  Yes, it was stupid not to have a performance/clawback provision in place, but the three of us had worked together before for several years, and there had never been a blip or complaint.
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anmol
Aargh-- first of all, why don't you have vesting in place? what were you
thinking being irresponsible?

Solution given the circumstances-- if you have any doubts, he has to go. It
would be best to have a frank conversation, explain your reasoning, and wrap
things up cleanly with paperwork from your lawyers. Convince him that its
better to part in a good way and find something that excites him. Give him a
fair separation agreement, e.g. pro-rated stock for the 3 months etc. Get
everything in writing, help him find a good next gig, and you'll salvage the
relationship AND your company.

I would recommend giving some stock even if you had vesting and he hadn't hit
his cliff for a few reasons:

(a) startups are a small world, no point in making enemies

(b) a little stock aligns long-term incentives. If he goes, and the company is
successful because of that, he actually makes $$. When you're getting acquired
he'll be there to help, because he will see a financial outcome. Giving no
stock breeds hate and resentment.

(c) Startups are hard, grueling experiences, not everyone makes it. Its OK.

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throwaway1979
How does vesting work with two or three founders? Is there a commonly used
period? Any links would be appreciated. I recall hearing a while back that
there are some good books on how to set this stuff correctly. Didn't pay
attention at the time :( Any recs?

~~~
anmol
Soak up every bit of venture hacks. Then read brad book called venture deals.

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markerdmann
Like you said, a deal's a deal. If you maintain a reputation as a reliable and
honest person, it'll be much more valuable to you than the equity you could
gain by going back on your word. The SV tech scene is a pretty small world,
and a good reputation will help you grow your business in unexpected ways.

~~~
disappointedguy
I (and my other partner) do value reputation and overall I'm inclined to roll
with this.

The only counterpoint is that the departing co-founder really didn't live up
to his end of the bargain. Work was low output and quality and this isn't in
retrospect. It was like the fellow started crumbling almost from day one &
then, the obvious inadequacy of his efforts just sort of piled back on in
feedback loop.

So while I feel sorry for the fellow, honestly I do, I also don't really in
any way feel that he lived up to any spirit of his commitment to us and his
non-performance has hurt us in material ways.

It sort of feels like a choice of either being a jerk or a patsy.

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ryanglasgow
You do have to respect the terms of the deal. That being said, here's what I
would do: 1) Fire him. Co-founders can be fired, and you and the other partner
have majority vote. You wouldn't owe him any money because he hasn't worked
since you stopped paying him.

2) Decide a fair company value and buy his equity stake. This guy is clearly a
distraction and the best thing to do would be to completely cut dies and free
up equity.

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hnruss
Talk to a lawyer before you do anything. A few hundred bucks now will save you
a lot of headache later. If you're going to be running a business, it's
probably a good idea to get in touch with one anyways so you don't make any
future mistakes when it comes to contracts.

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ajsmith8
Do you have a vesting period? Pretty sure you didn't, but just making sure.

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disappointedguy
No, we all came in under founders common stock. The partner in question took
less equity as it was understood that he would have to draw something of a
salary soon.

This wasn't because of lack of enthusiasm, just an economic reality for the
guy.

But wow, as soon as we kicked off, it was like Jekyll/Hyde. And I've
known/worked with this fellow for ~6 years, in fact I escorted him as first
hire into his last gig where he did an outstanding job for several years.

~~~
sbronstein
When you say "we all came in under founders common stock", you mean that you
WILL all have founders common stock once the incorporation papers are signed,
yes? You said above that they weren't signed yet?

Founders should always have vesting. It is going to permanently screw up your
company if this guy has some large percentage of the company and isn't a part
of its success. Plus the rest of you should have vesting anyway in case
another founder doesn't work out for whatever reason. Everyone should ALWAYS
have vesting.

So my advice is that, if you haven't yet signed the papers, you should go back
and put vesting on all of the founder's shares, including his, of course.

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snaveint
Did you mention to him during the first 3 months that he was not performing?

If not, it seems to me like you might just be looking for an excuse not to pay
him because you can not afford to.

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1123581321
My suggestion is to sit down with him and work out a deal to help him leave
the company for his own good. Let him leave with a compromised amount of
equity and try to help him find a more stable job.

If he does not (whether he does or not, really) write your shareholder
agreement to avoid situations like this.

