Founder Agreements -- COD
Sim Simeonov has a great post on founder agreements, which I have noted before. One of the classic issues (terminating an agreement with a "co-founder") came up for one of my clients last week. I was surprised that it was the first time for this particular client because it seems to me to be almost an obligation on the part of start up clients that they make clear promises to pay (money and equity) to people they heartily believe will perform some much needed function, write some much needed code, obtain much needed financing – whatever, and those people don’t perform but nonetheless seem to think they should be paid in full.
Outrage is the first reaction-- "I am not going to pay that SOB…" I sympathize, but legal action is not a solution. (It is like taking an overdose of chemotherapy.) You are a start up. The distraction and the cost are rarely worth it. Ignoring it is not the solution either. (Best case, you are going to have to explain the potential dispute to some investor. Worst case, it could cloud your IP rights (do you really own your software?). I promise it wont go away.)
In the end we negotiate these things away (almost always). While I don’t think this problem (the nonperforming co-founder or consultant or early hire) ever totally goes away, I think you can help yourself by being very clear about performance expectations up front. (You get paid against delivery; you vest upon delivery etc.) You can also help yourself by careful hiring. In the end, though, I am hard pressed to think of a start up client that has not hit that speed bump.
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