4 ms·

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

Posting under a throwaway account for obvious reasons. We started up w/one cofounder accepting reduced equity for the promise of a salary after 3-4 months. 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. His work was uncharacteristically sloppy and low output. Clearly, he was sinking under the stress, almost from day one. 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. Certainly one of the reasons we were not ready for looking for seed money was due to this co-founders non-performance. 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. 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. 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. 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. 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. 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.

1123581321 14y ago
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.
ajsmith8 14y ago
Do you have a vesting period? Pretty sure you didn't, but just making sure.
- disappointedguy 14y ago
  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 14y ago
    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.
    - deleted 14y ago
      [deleted]
markerdmann 14y ago
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 14y ago
  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.
deleted 14y ago
[deleted]
anmol 14y ago
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.
- throwaway1979 14y ago
  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 14y ago
    Soak up every bit of venture hacks. Then read brad book called venture deals.
shareme 14y ago
Let me counter by describing a possible hypothetical: An idea approaches a developer with 'offer' to join start-up. Offer is in quotes as during 2 years idea development idea man was focused on wrong problems and wrong strategy and because no corp formed, no business funding efforts made during the 2 idea period and some major miss-understandings of copyrights, fair use and at what stage a start-up starts worrying about having a business plan actually planned out. I diplomatically stated that to reduce risks and improve odds of gaining VC funding I would have to have power and authority to change both prototype implementation and business model and other adjustments to fix all the defects otherwise I would not even consider developing the prototype or joining the start-up. My first response when push came to shove was to refuse to join with the above defects. It is not someone that currently is my network of people I know or have experience working with. I can state that people do some weird emotional changes under pressure. its of course easier if you are dealing with someone who is transparent as you see it coming.. The only thing I can think of that might prevent your case from re-occurring is diplomatically ask for a financial outlook of the person although you want to be careful as this is a potential employee and there will be a limit to what you can ask for even with the person's signature. In my case I am always upfront that in whether I can do 100% equity or not within the first conversation.
ryanglasgow 14y ago
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.
hnruss 14y ago
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.
snaveint 14y ago
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.

1123581321 14y ago

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.

ajsmith8 14y ago

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

disappointedguy 14y ago
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 14y ago
  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.
  - deleted 14y ago
    [deleted]

markerdmann 14y ago

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 14y ago
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.

deleted 14y ago

[deleted]

anmol 14y ago

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.

throwaway1979 14y ago
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 14y ago
  Soak up every bit of venture hacks. Then read brad book called venture deals.

shareme 14y ago

Let me counter by describing a possible hypothetical: An idea approaches a developer with 'offer' to join start-up. Offer is in quotes as during 2 years idea development idea man was focused on wrong problems and wrong strategy and because no corp formed, no business funding efforts made during the 2 idea period and some major miss-understandings of copyrights, fair use and at what stage a start-up starts worrying about having a business plan actually planned out. I diplomatically stated that to reduce risks and improve odds of gaining VC funding I would have to have power and authority to change both prototype implementation and business model and other adjustments to fix all the defects otherwise I would not even consider developing the prototype or joining the start-up. My first response when push came to shove was to refuse to join with the above defects. It is not someone that currently is my network of people I know or have experience working with. I can state that people do some weird emotional changes under pressure. its of course easier if you are dealing with someone who is transparent as you see it coming.. The only thing I can think of that might prevent your case from re-occurring is diplomatically ask for a financial outlook of the person although you want to be careful as this is a potential employee and there will be a limit to what you can ask for even with the person's signature. In my case I am always upfront that in whether I can do 100% equity or not within the first conversation.

ryanglasgow 14y ago

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.

hnruss 14y ago

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.

snaveint 14y ago

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.