
Ask HN: Co-founding - zalter
I was recently asked by a friend of mine to join him in his startup that he had been developing for some time. In the midst of our increasingly serious conversations a few things have emerged that worry me:<p>The site scrapes statistical sports data from another site to provide part of the core functionality. The founder assured me that he consulted a lawyer regarding this issue and informed me that it is a gray area, but it should be okay. I am told the fee to get this data directly would be $25,000/yr which is currently unaffordable. He says once he can afford it he will pay -- is this illegal? Unethical?<p>Given that the startup does not yet have any formal limited liability structure, the aforementioned gray area seems all the more worrying if I could be held personally accountable. I am told that at most the initial risk would be a cease-and-desist.<p>Lastly, the founder informed me that since he has been working on the site for years he would take the "lion's share" of the equity in the startup, and have the final say on all matters. This did not sit very well with me, and I asked him if he saw me as a consultant/contractor or as a partner/co-founder to which he replied that he saw me as a co-founder and would reasonably consider whatever I had to say and try to come to a compromise in any dispute -- but he would ultimately have final say.<p>Both he and I would like to start working together ASAP. But I feel that despite the time and effort he has already invested, the terms seem harsh. Should I wait for an officially drafted contract? For a corporation to be setup? Even though this is someone that I know and trust it seems a little bit dubious to get involved without a legally binding (and satisfactory) agreement.
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cmos
Bail.

If I can summarize your words: worry, illegal, unethical?, gray area,
personally accountable, lions share, 'did not site well with me', final say,
dubious.

At no point did you say 'exciting' or 'amazing' or anything remotely exciting
about it.

~~~
zalter
The truth is, that the focus is currently on a very specific niche which
doesn't excite me too much. But what does excite me is the future prospect of
expanding to a broader user base and do some cool things in an old space.

I guess you could say I approach it somewhat naively hoping just the
experience of being a co-founder would be worthwhile

~~~
mechanical_fish
_The truth is, that the focus is currently on a very specific niche which
doesn't excite me too much._

Some people say that co-founding a company is kind of like getting married.
And other people say that marrying someone based not on what they are, but on
what you imagine they might become, is the height of folly.

Anyway, the problem doesn't excite you, and your co-founder's approach doesn't
excite you, and your stomach has obviously figured out that this would be a
mistake for you even as your brain continues to debate the issue, so it's time
to discover a prior engagement and politely decline.

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edw519
_He says once he can afford it he will pay_

Run, don't walk, the other way!

Ethics is the bedrock of any relationship or business.

It is also binary; you have it or you don't.

You don't.

I once had a partner who disconnected his speedometer to increase his resale
value. No big deal, huh? Next thing you know, he was "compromising" all over
the place, with customers, vendors, and eventually, me. Don't make the same
mistake.

The simple fact that this discussion is here is evidence that you already know
the answer.

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tstegart
On the equity division issue, if its bothering you, then you need to let him
know that and negotiate a compromise. If you can't do compromise on that
issue, you probably won't be able to compromise on much, and thats a bad
recipe for starting a company together. I would also suggest nailing down an
exact number, the "lion's share" isn't exactly accurate.

As far as majority control, I'm a big fan on someone having majority control
to prevent deadlock. But with minority protections built in. You can have one
person with majority control, but at the same time require two votes to make
certain decisions, like selling, buying another company, changing
compensation, changing the operating agreement, etc. That way, even though one
partner has more equity, that can't completely screw the other one over.

------
tptacek
Psychology aside --- obviously you're talking yourself out of this gig:

* It takes 1-2 days to set up an LLC. Without the LLC, you can't invoice and you can't buy insurance. Unless you get to manage the incorporation on day 1, don't sign on until they incorporate.

* The risk with scraping isn't just that you'll get sued, but, more likely, that you're simply going to be locked out. If your business model depends on the data, sneaking it out seems like a bad strategy.

* You have to make the call about whether you're ok with a subordinate role in the company. There's nothing inherently wrong with demanding more equity to compensate the work already done.

~~~
mattmaroon
It's pretty trivial to determine if someone is scraping your stats too, just
by purposefully putting in erroneous data. I've been told people have been
caught this way and sued before.

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tstegart
I think the price of obtaining limited liability is so low these days it
doesn't make sense not to do it. It also seems obtaining limited liability
would go hand in hand with putting your agreement in writing, so I'm failing
to see your potential co-founder's reasons for not doing this. Unless you're
going on a handshake (which I doubt), you'll decide on how much equity is "the
lion's share" and then divide it using some form of agreement or equity
division. You can't have equity division without a company to divide, and the
company you start will hopefully limit your liability.

------
webwright
Hard to tell about the lion's share issue. If the site has traction or good
IP, it MIGHT be fair. Probably not. The question to ask is, "how hard would it
be to duplicate the effort"? The way to ask HIM is: "How much have you reduced
my risk with your headstart?" and "If we take 4 years to build this and win,
what percentage of the total effort/work/risk is your headstart?".

If he's flailed for several years with limited success, that time is
(unfortunately for him) not worth very much.

If he wants blanket veto power over all decisions, I'd say bail if you aren't
comfortable with it.

The legal gray area is up to you-- YouTube certain was in gray territory.
Given the risk, asking for a formalized corporation to throw up a little
liability screen isn't a bad idea.

Regardless of all this DO NOT PROCEED without an agreement in place. It
doesn't have to be bulletproof. It can be as simple as an memo of
understanding, but there is too much up in the air right now and it'd be easy
to be 6-months in and be wondering, "wait, how much equity do I get?".

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mattmaroon
What data is he scraping? Unless he's doing streaming stat updates, it's a lot
cheaper than that. And if he's doing live stat updates, it's a lot more
expensive than that.

Also, I'd tend to disbelieve that there's any gray area there at all, seems
flat out illegal to me. Might want to talk to a lawyer yourself about that. I
can recommend one who does a lot of work in the area if you need.

~~~
zalter
He's not scraping live updates, sounds like he's crawling pages from reference
sites and extracting the stats in that way.

I would like to talk to a lawyer who has experience in these matters (my email
is in my profile)

How does draftmix obtain its stats? And if I may ask, how much does it cost?

~~~
mattmaroon
I sent you an email.

------
sutro
Your prospective partner's positions on both legality and equity seem
reasonable to me. A startup is going to be full of risk regardless. I say take
the leap of faith and go for it. Even if it all goes to hell, you'll learn a
lot.

------
netcan

       "He says once he can afford it he will pay"   
    

There's a few things that I never could believe:

A woman when she weeps

A merchant when he swears

A thief who says he'll pay -

A lawyer when he cares

A snake when he is sleeping

A drunkard when he prays

I don't believe you go to heaven when you're good

Everything goes to hell, anyway...

(Everything Goes to Hell, Tom Waits, )

------
gojomo
Right now he owns 100%, even if it's not incorporated.

If you ask for 50%, at some level you're implying that [your value going
forward] is equal to [his value going forward] plus [the value he's already
created]. That might be insulting to him.

------
gojomo
Lots of successful and respected startups have begun with questionable reuse
of easy-to-collect data from others. Whether it really crosses a dangerous
liability line, or is indicative of other ethical stretches, would require
more details not in evidence here.

You should do the research to assess the risk -- and that means sharing more
specifics with people with relevant legal or business expertise. But it's also
possible that if these are the kinds of things that especially worry you, this
isn't the right startup for you.

------
ninjaa
As someone who has been screwed before: Make a buyout date and clause. Value
the IP based on time, calculate your share and set an end date on your
agreementpast which you can demand cash from him for your stake. This way he
may have final say on all issues, but if you disagree with the general
direction after a couple months you can deal him a punishment by demanding a
cash out. It is vital to set said date and amount in writing at the outset.

------
gojomo
Someone has to have final say -- practically, even if not formally. A perfect
50/50 partnership can deadlock or dally when any decision is better than more
discussion. So it's not unreasonable for the person who created the idea and
first working version to resist giving up the control they've had so far.

------
timcederman
It is not a grey area, it is illegal and a copyright violation. What is it
with all these supposed lawyers offering supposed advice to people that what
they're doing isn't wrong?

~~~
burnout1540
Statistics and straight up facts are not covered by copyright. There's a
landmark case about this:
[http://en.wikipedia.org/wiki/Feist_Publications_v._Rural_Tel...](http://en.wikipedia.org/wiki/Feist_Publications_v._Rural_Telephone_Service)

There are some grey areas around the legality of scraping (mostly due to the
added load on the servers), but for the most part it is legal. Google is one
big giant scraping machine and it's scraping a lot more than non-copyrightable
statistics.

~~~
sethg
If the company hosting these stats is charging $25K per licensee, then either
they're _really_ good at bluffing or their lawyers have made sure that their
data is protected in spite of _Feist_.

For example, if they use some kind of clickwrap "you must consent to this
license before you can see our statistics" page, then the company doing the
scraping could be sued for _contract_ violation, even if there's no
_copyright_ issue. So the site owner can't hit you for statutory copyright
damages and has to settle for actual damages, i.e., the $25K of license fees
that you're not paying, plus attorney's fees, plus whatever else their
attorney can think to lather on.

And your would-be partner hasn't even set up a corporate veil to protect his
personal assets from this kind of exposure? That's...insane. And not in a good
way.

------
trevelyan
It isn't clear what you bring to the table, which makes it difficult for
anyone to give you an answer. What can you do for the company that this guy
cannot do for himself.

~~~
zalter
He's more of a design guy (though he did write a lot of the site's current
core functionality), but I would be more the hacker.

~~~
bluelu
If you were working on the site for a few months, and you would ask another
person to come in, wouldn't you want to have the final word in important
matters?

I think it's very reasonable to ask for that, or you pay up for the time he
invested plus a little something to cover the risks he made first, and then
you are at equal level.

------
rubentopo
You should be equals, that's what i'd demand, i don't see a partnership where
the partners are not equals...but that's my opinion.

