
Ask HN: How best to break up with cofounder? - noirette
So the situation is, we both came up with the idea together. She got a loan from a friend for $10K, out of which $8K was spent on getting incorporated, getting insurance, organizing pilot events, building the website, buying software to plug into the website and some other menial tasks. Overall, we have had little traction on the platform and that is because the idea will result in a huge cultural change so it will take a lot of effort to mobilize customers to try it out. Also, since we are financially constrained we have been bootstrapping and both been working on this ourselves, alongside school and haven&#x27;t been able to spend any money on hiring the right people to market this or to pay for any marketing. Recently, we have very misaligned interests and a lot of ugly arguments so I will like to move on and have informed the other cofounder about this. I however have spent the whole year working on this on the side and will not like to walk ork away with anything gained from it. I am trying to figure out how best to resolve things with the cofounder so we are both able to work away not feeling cheated. How do I go about this. Decide on an equity split arrangement given the effort which has been put in so far or work on dissolving the company assets where everything that has been worked on goes to the debt holder (including the technology, relationships etc). I prefer the later and of course she prefers the later. The third option is for her to only get the brand and the other assets are divided up between us. I will really appreciate is I can get some alternate views on this.
======
whiddershins
Every time I have negotiated hard regarding a situation like this, I have
regretted it.

The reason is that in this moment, you feel the work you've done must be worth
a lot, because it is fresh in your mind, and because cognitive dissonance
dictates you believe you haven't wasted all those hours of coding.

Meanwhile you are still imagining the big payoff from the company succeeding
... which is a great motivator when you're working on the startup, but when
you are parting ways, you should remember being super successful is incredibly
rare. You would benefit from bringing rationality in and remembering it was
all always a long shot.

So you will tend to overvalue the company, based on the work you've done,
while undervaluing the personal relationships and lessons learned.

Take a long view. Do whatever deal will make your cofounder happy. Be nice in
every way to every one involved, make good on any promises, and give it time.

When you look back on this a year from now you will be glad you did.

~~~
Uptrenda
I wish I had of read this when I was in a similar position. I would still have
my best friend.

~~~
scott_s
Send them an apology with a link to this comment, and you may still.
(Personally, I found your comment heart breaking, and I hope you can mend the
relationship.)

~~~
nothrabannosir
Great idea, though maybe leave out the link.

------
iqonik
I'll be brutally honest, just walk away.

You gave it a good go and have decided it isn't for you.

If it is still for your co-founder, thats fine - it sounds like she is the one
with the debt anyway?

There is not point in haggling for equity if your company isn't profitable -
it's worth nothing and you have decided you don't have the resources to make
it profitable.

If you're _really_ worried about it becoming something in the future, then
perhaps you're not done yet and should regroup or pivot the idea.

You can't have your cake and eat it.

~~~
onion2k
_You can 't have your cake and eat it._

Yes you can.

There _might_ be considerable future value in the work done so far. Neither
party wants to give up on that, they both want to work on it, but they can't
agree on a direction. So work out between you what all the non-sharable assets
(physical things, brand, etc) are worth right now, and draw up an agreement
that gives _all of that_ to one party with an agreement to pay the other party
the value of it plus something extra if a business is either funded or sold at
any time in the future using those things.

Which person gets the assets should default to the person who took on the debt
because if that debt is called in they'll need to sell those things to pay it
off (the fact it was from a friend is irrelevant).

All the sharable stuff (code, IP, etc) just get cloned and you get a copy
each.

Everyone's a winner.

~~~
mtrimpe
Or more generally:

You currently have a share in the company which you want to sell. Without real
revenue the company's value is almost entirely subjective. The right price
then is basically what you can convince your partner to pay you for it.

If your partner calls your bluff and is prepared to scuttle the company that
could well be $0. If (s)he believes in a bright future for the company it
could just as well be $10+k though.

~~~
TeMPOraL
> _If your partner calls your bluff_

If you _ever_ find yourself using those words when considering an action plan,
run in the other direction as fast as you can. There lie antagonistic business
practices. Ruining a friendship over a petty startup issues is not worth it.
Nor losing your dignity. You're still friends, settle this as friends, each
trying to make it beneficial to the other party.

~~~
mtrimpe
Either you're projecting a lot into my choice of words or it's because English
isn't my native language.

From my experience almost all cases where one party wants out and the other
wants to continue (not just in tech) involve some amount of cash changing
hands.

That amount being zero is just a special case for when very little value was
accumulated. In that light giving "just walk away" as the general advice, even
though it might be right in this case, is quite overly simplistic in my
opinion.

And if your partner is also your friend you should also take that into account
of course but from what I could tell the OP didn't mention anything about
that.

~~~
TeMPOraL
It's definitely about the words you used, whether I'm projecting or not. I
didn't want to assume any ill intent on your side, so I answered in general.

Saying that the other party may 'call your bluff' implies that you're
attempting to cheat them and hoping they won't notice. The word "bluff" is an
euphemism for lies and deception. It's used positively in poker because the
game rules allow it. But in real life "bluffing", i.e. deceiving and cheating,
is frowned upon and often illegal.

The OP seems to have a relationship of trust with their partner and I'm urging
him to keep it that way. I also meant it as a general business advice - it's
important to keep friendly, trust-based relationships with people. Having to
constantly look over your shoulder afraid of your co-founder stabbing you in
the back, which is when phrase like "them calling your bluff" makes sense, is
a lot of unnecessary trouble.

~~~
mtrimpe
Ah okay. I meant 'bluff' in the sense that there's no _objective_ value here
so any discussion over created value is basically just a matter of opinion/gut
feeling/confidence.

For me it was basically just a metaphor for negotiating over intangibles;
without the apparent connotation of cheating your partner out of something.

------
chillydawg
I did this once. We were a 3 man team and 2 of us decided to call it quits. We
each got a perpetual, total licence to all the IP invented to date including
copies of code (it was all software, nothing physical). We then gave a new
company, which the third co-founder owned 100% of, total rights to everything.
We then wound up the initial Ltd company we had formed. The third co-founder
then went on to work on a pivoted version of the idea and recently got a $1m+
seed funding round. He spent well over 18 months working with new partners on
that so it's 100% his success and neither of the two of us that left have any
hard feelings.

Ultimately, if you believe in it, stick at it. If not, walk away and realise
that opportunity cost is a very real thing and hanging around for years is
very expensive.

~~~
djloche
This seems like a great solution if there are bad feelings re: equity in a
company as early stage as this.

------
orthoganol
This sounds like a scrappy side project, not a company. Why did you work on
getting insurance, getting incorporated, any of that, and why didn't you wait
to do that until you had something with validation or growth?

Depending on a 'cultural shift' sounds incredibly dubious, and IMO sounds like
you all don't really know what you are doing. I would walk away and take these
lessons out of it, reflect some more, and take a sharper approach for the next
project.

~~~
the_mitsuhiko
> Why did you work on getting insurance

Yeah, why would you want to be insured ...

~~~
myNXTact
What is there to insure?

~~~
junto
Negligence.

------
jacquesm
Walk. Chalk it up to your education fund and call it a day, a start-up of this
size is not worth fighting over. Keep in mind that you're technically on the
hook for half of that loan so simply return your stake in the company in
return for your co-founder assuming your part of the debt.

------
brudgers
After he retired from the Navy and before I knew him my father in law tried
his hand at a string of businesses trying to get out of the life of a
musician...he was working at Rosie O'Grady's and he swore that his first
grandchild, Jon, would never see him slide down a fire pole. So he and Larry,
another retired from the Navy musician, decided to start a band camp on some
land in St. Cloud with the sensible idea that Disney would be a draw for High
School bands.

They were undercapitalized as most businesses are and went under. 1970's
interest rates didn't help nor did the 1970's economy and St. Cloud was still
the boondocks and brutally hot and humid in the Summer months. Years later
when he told me about it, he said:

    
    
      We didn't lose our shirts, 
      but our sleeves were shorter.
    

He wasn't hung up on sunk cost and quickly found a path to success elsewhere.
He's eighty now and Larry remained a friend until Larry died a few years ago.
Though they never did business together again. Maybe it worked out because
Larry was a hell of a lot nicer than my father in law, maybe it was just that
they both realized that there was nothing worth fighting over. Maybe they both
realized that it wasn't anyone's fault and shit happens.

Anyway, the most valuable thing a person can walk away from failure with is
their values intact.

Good luck.

------
frabcus
I highly recommend a four year vesting period for any startup ownership, as
described by Fred Wilson here:

[http://avc.com/2010/11/employee-equity-
vesting/](http://avc.com/2010/11/employee-equity-vesting/)

Everytime I've seen a company do something else, somebody leaves early on with
too much stock. Then on the next round it has to be negotiated down anyway.
The amount always ends up similar to what a 4 year vest would have been!

So if you've done one full year of work, and so has she... And you each "own"
half, that means you would keep a quarter of your half that has vested if you
walk away. i.e. 12.5%

Hmm, that still sounds like quite a lot to be honest, but it really depends on
how much you've actually both built. Maybe you haven't done a year of full
time startup work.

My view is, BTW, not from Silicon Valley, but UK companies.

------
annnnd
Walk away and heal your wounds.

You know the saying "experience is what you get when you don't get what you
want"? You didn't throw away 1 year on this project, you learned valuable
lessons. Just make sure you do learn them, then time is not wasted. Been
there.

Maybe it's too soon for this advice, but still: next time try making something
that doesn't require cultural shift, because, let's face it - you won't be the
one who will cause it. Cultural shift is something you can anticipate and help
with, but it's not up to a single person to do it. You could just as easily
say "I have something people don't want".

The real question is whether you feel obliged to return some of her debts
(there is a difference between time and cash). Other than that, forget the
brand, forget equity (it's not worth anything and it won't be in the future
unless she pivots - and that has nothing to do with you anyway). Move on. The
faster you do it the better chance you have of starting something better. And
try to learn from the experience. What went wrong? How can you avoid it in
future projects?

Best of luck.

------
adventured
> The third option is for her to only get the brand

Don't worry too much about that, there is no brand.

It also doesn't matter who came up with what idea, that's completely
irrelevant for this context.

Is the loan owed by the corporation or by her personally? I'm guessing it's on
her head to pay that back.

You're very likely going to have to walk away with nothing material, if you
plan to walk away now. Rather than literally nothing, hopefully you learned
something.

I'd suggest that your best possible options are to either walk away completely
(probably your best bet), or to negotiate your equity down substantially and
let your co-founder know that you would like to retain a modest stake in
exchange for all the work you put in. She is going to be putting in the work
going forward, it's unlikely she'll be ok with you retaining your full co-
founder stake if you're going to be gone this early into the venture (meaning
it's an extra incentive for her to close the corporation and move on, given
the present stage of the company, if she can't reduce your equity).

If you're really confident you have something valuable in the corporation (it
doesn't sound like it based on what you've described, it sounds like it's
extremely early), then talk to a lawyer.

------
swingbridge
Honestly if she brought $10k to the table and you brought nothing then you
can't expect much out of this. A company with no revenue has an entirely
subjective valuation. A company with debt and no revenue is, in most cases,
worthless. There are very rare exceptions but if you believe you're one of
these exceptions then why do you want out?

Just walk away.

------
bjacobel
> Overall, we have had little traction on the platform and that is because the
> idea will result in a huge cultural change so it will take a lot of effort
> to mobilize customers to try it out.

Or it's a bad idea and nobody wants the product. Not every startup deserves to
survive.

Sorry for the harsh words, but is sounds like what everyone involved in this
project needs most is a brutal dose of honesty. There is no potential upside
to miss out on. Just walk away.

------
ronreiter
My suggestion is to take something like 1-2% (definitely no more than 5 by any
means) and stay as an advisor in the company. If you don't believe in the
company without you being in it then don't take anything and just let it crash
and burn.

Whatever you do, LEAVE NOW. It is a waste of both your time and her time.

~~~
vonklaus
I think this sounds good. Maybe 1%. In all likelyhood, this company will not
have any measureable value without significant outside contribution. At a
certain point, even if it were possible to win enough equity from the
cofounder, that would likely make it impossible for the company to parcel out
equity in the future.

A product with few customers and a largely allocated cap table, would likely
assure no one would work on this in the future. Try and leave on amiable
terms, and ask for a percentage or a flat rate warrant.

If the company pays back the original investor and makes a profit, your time
will be valued at /some rate/ and you will be paid that back.

The most important thing is try and leave on decent terms.

------
antaviana
If you both believe in the project but your project implies a cultural change,
then it is best that you part ways with an agreement to share the code
developed until now, and the relationships developed until now, and work on
your forks from now on without sharing anymore.

This way there will be two companies trying to evangelize the prospects
(sometimes the same) with the need for a huge cultural change.

Your smallest problem will be competition from your former company, compared
with customers not even considering your solution because they feel it is an
overkill.

------
gmanis
For what it's worth, your best bet is to just walk away after making sure
you're covered for any liabilities arising out of any future work. Life is too
short to waste on little issues and you'd better serve yourself by leaving and
maybe starting up something in future on a product which you sincerely believe
in. My two cents having gone through an elaborate dissolution and founder
disagreement on things which in hindsight are worth exactly $0.

------
hyperpallium
Not your question, but: "cultural shift" sounds like changing mainstream
behaviour - which people don't like to do. It seems to only happen indirectly,
through smaller groups: firstly, people who just like the new idea for its own
sake (not practical issues like whether it's useful or reliable or value for
money etc). Secondly, people who see new benefits from it, that give them a
big advantage. Thirdly, people from the mainstream - but because they
cautiously check with their friends and colleagues, it's a small subgroup of
the mainstream (e.g. in an industry, or geographical region, etc - provided
people in that subgroup consult with each other). And then another subgroup,
then another, til it becomes validated enough for the mainstream to switch as
a whole.

But if no such route exists (idea-likers -> 10x advantage see-ers -> subgroup
-> subgroup -> subgroup etc), then it _can 't_ be adopted by the mainstream.
Because when they check with their friends, no one has heard of it; not even
anyone demonstrating how much advantage it gave them. And none of _them_ will
try getting a 10x advantage unless the idea in itself has been previously
validated by idea-lovers.

On your question: I really emphasise with you, losing your hard work and
sacrifices; I'd also want to get something from it, to not feel "cheated". Two
points: (1) be aware of the cost of spending _additional_ work and sacrifices
on a long drawn-out divorce; (2) do you really want a memento of this
unpleasant breakup? Wouldn't it be freeing to walk away, clean, without any of
it hanging on to you?

I agree with the other comments about not burning your bridges. The real
startup is your whole life, over decades. Do what will work out best in the
long term, as if this was just a frustrating little bug in some minor
component - that turned out to not be the best way to do that bit anyway.

------
wpietri
Having been through this a couple of times, I agree with others: you'll be
much happier later if you work to preserve the relationships than if you fight
hard for 7% of nothing.

20 years after my first business break-up, I don't even remember what we were
fighting about or how we resolved it, but I remember that it ended poorly and
that I wish it weren't so. For better or worse, co-founders are big parts of
our lives. That will be true long after you've spent and forgotten whatever
money you get in a bitter settlement.

This month, on the other hand, I'm leaving something after our venture didn't
work out. We just did a big project retrospective a few days ago. It wasn't
easy, but talking everything over meant that the team walked away stronger
than ever even as we go our separate ways. We're all very proud of that.

------
erikb
Why is there anything to discuss? As far as I see you have a coding project
together, not a brand or a company (both needs actual paying customers).
Everybody gets a copy of the code, release all contracts of shared interests
and there should be no problem.

------
ojbyrne
Walk away, and be thankful you're not (some part of) $10k in debt. The words
"menial tasks" to me suggest you're not really seeing her contribution
properly, and as far as I can tell, all you did was give up some of your free
time.

------
cheerioty
This might sound a bit unfair but..

Either stay on-board, keep on fighting (and investing time/money) and make
your mission a success together.. or leave it to your co-founder to do so! If
you walk away now - considering the broken state of your company, the debt and
all that - you basically give up all your rights. Especially when somebody
else turns that ship around after you're gone.

Your co-founder will most likely end up with sleepless nights, 16+ hour days ,
pitching the idea to potential customers/partners/investors/buyers, worrying
about financials and whatnot to get shit fixed.. while you, well, walked away
starting something new or going a vacation as some already suggested. There's
nothing wrong with that, but don't expect people to invite you for cake after
you did. You can sell your shares to your co-founder for the initial value, or
just give it to her for all the money she invested/lost. Your idea/work so far
is worth nothing when you or the company can't monetize it right now.. See it
as a very loooong marathon that you quit after a few miles of sprinting.
Executing an idea means executing it to the very end where it became
successful.

And in case you two decide to leave that ship together, share your earnings
(debt) together.. Same as if you decide to turn things around together :)

Good luck with whatever you decide to do, as long as you play fair!

------
unabst
1) Anything gained? What about the people, the lessons, and the experience? No
new insights about yourself and the world? You didn't have any fun doing it?
Didn't meet your future spouse?

No money no gain, is really a horrible philosophy to live by.

2) If you kept track of what you loaned the company or any assets you bought,
then sure, ask for it back. If not, next time keep a tab.

3) You're deciding on an equity split now? You're not really co-founders until
you've figured out who owns what %. So it sounds like you didn't even have a
company yet. But now you want to claim ownership because you are quitting?
That's backwards.

4) No one owes you anything for your time and effort. Just imagine if she
tried to bill you for hers.

Entrepreneurs do not get paid by the hour.

If I were you, I'd have a heart to heart and just honestly tell her why you'd
like to move on. Entitlement will lead to an argument, but vulnerability
hardly ever does. But if you're both butting heads because you both feel
entitled then that was probably part of the problem. And seeing you don't have
any legal ownership documents, her leverage is as good as yours. Unless you're
willing to fight in court, it's a toss up. No one wins. And until you have
ownership documents, she can't claim ownership against you, nor can you
against her. So you both can walk away with non-exclusive rights to 100%. Why
bar each other? If she wants rights, then ask her to buy you out. Come up with
a round number, and that's that.

------
ryporter
Quickly. Obviously don't initiate the conversation right after an argument,
but do not drag this out. Realistically, the value of the company is very low,
so you're not fighting over a huge amount. Moving on with your life is much
more important.

It's almost impossible for any of us to give concrete advice on the specific
terms of the breakup just based on only a one paragraph description. However,
as an angel investor, I will caution against an equity split in which only one
of you continues with the startup. A cap table with a departed founder holding
a significant stake is a yellow flag. Even holding constant the terms that I,
as an investor, will invest at, I want all of the remaining equity to be
"working" (i.e., providing incentive to the current team, or in an option pool
to attract talent). Of course, sometimes an equity split is the best choice,
but, if it's a close call, I'd lean towards another approach. In your case, if
the brand can be easily separated from the assets (likely, since you are
early), a split based on your third options sounds appealing (though, again, I
am in no position to recommend anything, just to throw some points out there).

------
jonkiddy
At this point, it sounds like you are leaving the company. There should be
provisions for doing so in your company's organizational document.

However, if the company hasn't made much money and doesn't have any customers,
then there is virtually no brand/identity and the IP is nearly worthless. Your
goal now should be to avoid being liable for the company's debt and
documenting a clean break while leaving on good terms. This will allow your
cofounder(s) to continue on if they wish to do so while leaving you in the
clear to pursue other interests.

If I were you I'd sign a document giving all IP and rights/equity you may have
had back to the company and walk away. Hire a lawyer first before doing so to
verify that you are in the clear.

I'd write off the time you put into the startup and consider the effort you
put in as an educational investment in yourself. And congrats!, you just
walked away from your first failed startup, I hope you learn from it and get
back on the horse asap.

------
repomies691
What kind of equity do you have currently?

However remember that the equity is worth nothing if the cofounder doesn't
believe you deserve the equity. He can just start a new company. Maybe you can
sue him, but that would be idiotic at that stage.

The smartest thing is to just walk away, to the next venture and forget about
this. There isn't probably much to gain.

------
hectormalot
When I decided to leave my co-founder we asked advice from the local chambers
of commerce (In the Netherlands they provide this). I remember feeling the
same: surely all my effort put in must be worth something.

The advice was clear. The value of the company is based not the future
expected cash from my work, not my effort. In small start-ups, a leaving co-
founder often takes about as much value away (e.g. relationships) as he/she
thinks he/she deserves.

Difficult to accept. In the end I told my co-founder that it was important for
me to see some compensation for the things we had build up. I got a few
percent of the next project he did, and walked away with 10-20k EUR.

Looking back, that was totally fair. It has been 2 years since, and the
company is still going well and generating good cashflows. Most (all?) of the
income now is due to his work, not mine. I've come to appreciate over time how
we solved this.

------
filvdg
I would find an arrangement that allows both of you the best of options to
digest the situation an go on with your life. For the moment i would take the
assumption the project is a failure and don't count on "hopes on continuing" .
when everything is settled you can re-look at the pieces and see what is
salvageable but for now the biggest problem seems to be the loan of $10K. Even
if you both would be able to walk away , you both are responsible for paying
back the loan. Even if your co-founder is not your friend anymore, try to fix
that situation. Sell assets , do some contracting work and try to end up with
a 0$ debt situation. The world is a small place , don't make casualties, only
blame yourself and take with you everything you learned from this job and
apply it in the future. This failure will be a useful lesson.

------
glossyscr
> we have had little traction on the platform

> we have very misaligned interests

=> walk away is your option, offer a split, if this doesn't work, stop to
contribute and wait and see

Cofounders are the #1 reason you start a startup and they are the #1 reason
when a startup fails

------
rushabh
I agree with the sentiment here, you spent a year and you learnt a lot out of
it. Your co-founder would probably have to put in more money (maybe for a few
more years) before she sees any profit, if any. So the risk is far greater on
her side.

If this works, ask your co-founder to let you keep a small minority stake and
the let her convert all her debt to equity.

This way, if that company does succeed, you will get some value out of it, and
you will be recognized as a co-founder. If you just walk away with the
"assets" (whatever they are worth), you may get some money, but a load of
heartburn.

------
e2e4
If you decide to take that route, one of dispute resolution techniques
(couldn't remember its name); is to ask side A to name the price for the
equity; B can then either sell at the proposed price, or inversely purchase
the A's equity at the same price (one-shot only; no back and forth re-
negotiations).

p.s. one of potential disadvantages is if one of the sides has access to
larger capital; they can still lowball the offer (knowing that the other side
would not be able to do a reverse offer).

------
rrggrr
My friend and attorney just completed a two week trial on the issue. In the
end the Judge viewed the company like a child in a divorce. Every decision the
partners hated, but it kept the company intact. No winners at all, everyone
lost. My takeaway after hearing about it was this - if the two of you can't
work it out attorneys will be delighted to drain you both of cash for a result
you'll both hate.

------
axx
As many before me said, walk away. In most cases situations like these end up
costing your more money than you gain from it.

If your company isn't worth a lot of money, "walking away" is the best option
in my opinion. Oh and a brand that doesn't make any money, is worthless.

------
bosky101

         will not like to walk work away with anything gained from it.
    

You never will. You can walk away with the experience. I wouldn't re-attemp
the same idea/market. may get messy later. refresh. recharge and when you're
ready again - startup again.

------
jonesb6
All the value from your past year working will be in the form of experience
gained as an engineer and as a cofounder. Don't throw away a personal/business
relationship over scraps that will turn out to be worthless.

------
bojo
Sounds like your cofounder invested $10k and realized you didn't make a
comparative contribution. You can promise the world, but people have
lives/better investments to move on to.

Just move on and chalk it up to experience.

------
h_o
I can speak from experience as I've been through this. Although my co-founder
and I never actually argued/quarreled. I even decided to leave before we got
funded (€50k) as I was sure there was no substance to our product. Over a year
later and I am glad to believe I still made the right decision.

I thought about it for around a week (how I would do the break up) - I only
really ever broke up with one girlfriend in the past and that was hard, even
at 15.

We went for a coffee and I'm pretty sure he knew it was coming. Much respect
to him. He knew I was confident in my decision and didn't try to persuade me
to stay (and muster and broil resentment in the future as humans typically
do).

He was still adamant about pursing the startup regardless of having no
technical skills (I was the developer, and it was only two of us). I helped
him get the funding and promised to do a code swap with any new developer that
comes in; in return for being washed free of the startup - regardless of
funding (which I didn't want to touch).

No new developer came on board needless to say, and I never asked him what he
did with the money. We are still friends and meet from time to time to catch
up.

We had previously discussed 50/50 equity split, but when I walked away I said
I wanted to be totally free of it. It wasn't about the money, life is long and
it's not a race to get the most money _.

_ I was going to say 'to get rich', but richness can be found even in
chocolate so I don't agree with calling people with a lot of money 'rich'.

