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>Ecquire evolved from Dropcard, even if it is an entirely different product now" What does that even mean, really? If they have nothing in common (and they mi

>Ecquire evolved from Dropcard, even if it is an entirely different product now" What does that even mean, really? If they have nothing in common (and they might in this case, I don't really know), then the evolution is irrelevant. You can't stake a claim on all my future ideas because we once shared an idea together. >"If one contributes substantially in the founding stages of a company, I believe one should end up with something, even if it is a reduced stake." This has to be determined case by case, which is why I think the early equity split is meaningless. What did they contribute? Money? Code that is still being used? Other ideas that got implemented? It's pretty easy to put a price on these things. If you can't point to tangible contributions to the new business you don't deserve anything. I think the courts would agree.

macspoofing 14y ago
>What did they contribute? Sweat equity, most likely, for which they were rewarded with an ownership stake. >I think the courts would agree. Courts would side with Arel and Anton, should they decided to retain their shares.
- tatsuke95 14y ago
  >"Sweat equity, most likely, for which they were rewarded with an ownership stake" Sweat equity doesn't occur in a vacuum; something is created from that effort. If they wrote code and that code earns money, they are entitled to a portion of those earnings. That's inarguable. It is my understanding that the original "idea" (I have trouble calling it a company) didn't take hold. If nothing is created and the company never amounts to anything...what are you getting an "ownership stake" in? Had Zuckerberg and a friend opened a candy store on the Harvard campus in 2002, and it had failed, that friend is not entitled to anything Zuck does with Facebook because he put in labour on the candy store. Now, if Zuck was operating Facebook under the same legal entity as the candy store in which his partner had equity, said partner might have a claim, though it would be hard to establish if the partner produced no work for the new idea. That said, if this is analogous to the situation in the article, what on earth are these guys doing getting bogged down with convoluted equity agreements when they should be working on the product? I'll repeat: if the other co-founders provided something tangible --be it an idea, code, money, whatever-- to the new project, they deserve "their share". If they can't point to something tangible, they deserve nothing.
  - deleted 14y ago
    [deleted]
  - aneth3 14y ago
    > if Zuck was operating Facebook under the same legal entity as the candy store in which his partner had equity, said partner might have a claim, though it would be hard to establish if the partner produced no work for the new idea Now, IANAL, but to my knowledge this is just patently false and represents a complete mischaracterization of the purpose and legal implications of a corporation. In this case, Facebook would be owned by the flower shop entity, not Zuck. Regardless of what work his partner put in, Facebook is still owned by the flower shop entity, and each has ownership stakes as contractually or legally established. Neither Zuckerberg nor his partner would have any personal claim to Facebook, only to their equity in the owning entity. Zuck would not suddenly get more equity in the entity because of the work he did. This is one of the most basic functions of equity and the reason for investing time or dollars in exchange for equity - so that your wealth increases disproportionately from the work of others. If ownership was determined by judges proportioning by sweat equity, those who left Facebook after 2 years and now have $10M+ would be in trouble. There are numerous legal complications if Zuckerberg claimed that Facebook was NOT under the flower shop entity, however given your statement that he explicitly placed it under the flower shop, the case is quite simple. Zuck would not have been able to extract Facebook without buying out his partner. I am way over my head in trying to get into this part, but depending on state law, I understand there are de facto partnership agreements in the absence of a written one (generally an equal split) and sometimes ways of getting rid of "dead weight" partnerships. These are not things you want to happen. This sort of situation occurs all the time in small businesses and often leads to their demise. You are doing a great disservice to anyone who takes your advice.
    - deleted 14y ago
      [deleted]
    - tatsuke95 14y ago
      >"Now, IANAL, but to my knowledge this is just patently false and represents a complete mischaracterization of the purpose and legal implications of a corporation." So, these guys filed the paperwork and were running a corporation, rather than just a business partnership (you realize there's a difference)? Before they even had a business model? Again, that's ridiculous and a complete waste of resources at an early stage start up. >"This sort of situation occurs all the time in small businesses and often leads to their demise." Really? Do you have source for this assertion? >"You are doing a great disservice to anyone who takes your advice." Oh, spare me. You realize that these guys essentially followed what you recommend doing, and if it wasn't for the co-operation from minority shareholders would have been stuck with dead weight partners owning part of a business in which they did not participate. Establishing an equity arrangement before they knew what they hell was going on in the business was the cause of this problem. If there was no formal agreement, no partnership and in the end no business, none of this would have happened. The two founders would have moved from Dropcard to Ecquire, and the old co-founders would have no claim on the new product. Just as a reasonable person would expect. But by all means, have people heed your advice, and form corporations before there's a business model, so that the shareholders have a claim on anything you do in the future. That's spectacular advice.
philwelch 14y ago
If its completely different and shares nothing that can't be affordably transferred, why not close the first startup and open a second?
- tatsuke95 14y ago
  I completely agree with that, and myself don't understand how it wasn't done over the course of four years and the development of a completely different product. I'm sure it's being argued somewhere in here!
  - krobertson 14y ago
    Four years in and just now doing a seed round. They were likely young, inexperienced, and mostly technical. Unfortunately, technical people don't always think of those ramifications. And it was probably a series of pivots along the way that individually didn't look at big, but over time transformed immensely.

macspoofing 14y ago

>What did they contribute? Sweat equity, most likely, for which they were rewarded with an ownership stake. >I think the courts would agree. Courts would side with Arel and Anton, should they decided to retain their shares.

tatsuke95 14y ago
>"Sweat equity, most likely, for which they were rewarded with an ownership stake" Sweat equity doesn't occur in a vacuum; something is created from that effort. If they wrote code and that code earns money, they are entitled to a portion of those earnings. That's inarguable. It is my understanding that the original "idea" (I have trouble calling it a company) didn't take hold. If nothing is created and the company never amounts to anything...what are you getting an "ownership stake" in? Had Zuckerberg and a friend opened a candy store on the Harvard campus in 2002, and it had failed, that friend is not entitled to anything Zuck does with Facebook because he put in labour on the candy store. Now, if Zuck was operating Facebook under the same legal entity as the candy store in which his partner had equity, said partner might have a claim, though it would be hard to establish if the partner produced no work for the new idea. That said, if this is analogous to the situation in the article, what on earth are these guys doing getting bogged down with convoluted equity agreements when they should be working on the product? I'll repeat: if the other co-founders provided something tangible --be it an idea, code, money, whatever-- to the new project, they deserve "their share". If they can't point to something tangible, they deserve nothing.
- deleted 14y ago
  [deleted]
- aneth3 14y ago
  > if Zuck was operating Facebook under the same legal entity as the candy store in which his partner had equity, said partner might have a claim, though it would be hard to establish if the partner produced no work for the new idea Now, IANAL, but to my knowledge this is just patently false and represents a complete mischaracterization of the purpose and legal implications of a corporation. In this case, Facebook would be owned by the flower shop entity, not Zuck. Regardless of what work his partner put in, Facebook is still owned by the flower shop entity, and each has ownership stakes as contractually or legally established. Neither Zuckerberg nor his partner would have any personal claim to Facebook, only to their equity in the owning entity. Zuck would not suddenly get more equity in the entity because of the work he did. This is one of the most basic functions of equity and the reason for investing time or dollars in exchange for equity - so that your wealth increases disproportionately from the work of others. If ownership was determined by judges proportioning by sweat equity, those who left Facebook after 2 years and now have $10M+ would be in trouble. There are numerous legal complications if Zuckerberg claimed that Facebook was NOT under the flower shop entity, however given your statement that he explicitly placed it under the flower shop, the case is quite simple. Zuck would not have been able to extract Facebook without buying out his partner. I am way over my head in trying to get into this part, but depending on state law, I understand there are de facto partnership agreements in the absence of a written one (generally an equal split) and sometimes ways of getting rid of "dead weight" partnerships. These are not things you want to happen. This sort of situation occurs all the time in small businesses and often leads to their demise. You are doing a great disservice to anyone who takes your advice.
  - deleted 14y ago
    [deleted]
  - tatsuke95 14y ago
    >"Now, IANAL, but to my knowledge this is just patently false and represents a complete mischaracterization of the purpose and legal implications of a corporation." So, these guys filed the paperwork and were running a corporation, rather than just a business partnership (you realize there's a difference)? Before they even had a business model? Again, that's ridiculous and a complete waste of resources at an early stage start up. >"This sort of situation occurs all the time in small businesses and often leads to their demise." Really? Do you have source for this assertion? >"You are doing a great disservice to anyone who takes your advice." Oh, spare me. You realize that these guys essentially followed what you recommend doing, and if it wasn't for the co-operation from minority shareholders would have been stuck with dead weight partners owning part of a business in which they did not participate. Establishing an equity arrangement before they knew what they hell was going on in the business was the cause of this problem. If there was no formal agreement, no partnership and in the end no business, none of this would have happened. The two founders would have moved from Dropcard to Ecquire, and the old co-founders would have no claim on the new product. Just as a reasonable person would expect. But by all means, have people heed your advice, and form corporations before there's a business model, so that the shareholders have a claim on anything you do in the future. That's spectacular advice.

philwelch 14y ago

If its completely different and shares nothing that can't be affordably transferred, why not close the first startup and open a second?

tatsuke95 14y ago
I completely agree with that, and myself don't understand how it wasn't done over the course of four years and the development of a completely different product. I'm sure it's being argued somewhere in here!
- krobertson 14y ago
  Four years in and just now doing a seed round. They were likely young, inexperienced, and mostly technical. Unfortunately, technical people don't always think of those ramifications. And it was probably a series of pivots along the way that individually didn't look at big, but over time transformed immensely.