Advice needed: not moving forward with co-founder, how to structure alternate deal

JennyPIN·Nov 02, 2021

Hi all!

Some quick background... we've been in business for 4 years, live for 3. Growth has been slow. Haven't had a cofounder since early 2018. I'm willing to keep going solo but would love to have the right person as a partner. Started convo with a guy who had been a sales contact for me in the past. Talked about him coming on as a late co-founder to lead BD. He has a non-compete so we have been working in stealth and working around it.

Anyway... after a few conversations and meetings, it's obvious to me that we can't be partners. We think differently and he started managing me on day 1. I'm a grown woman who's been a CEO for over 20 years. I can always learn and take feedback but don't need someone stepping in to be my boss.

So I've decided to tell him we can't be partners. BUT he has a couple irons in the fire that could be great for the company -- and I want him to continue to pursue them, and to compensate him fairly. (That could include equity since one of these deals could change our trajectory.)

We can't pay him a salary right now so the original deal was sweat equity until a raise or $X in revenuve, where he could earn up to 20% equity. That number is no longer realistic since I want him to work on a handful of deals and leave the company.

Would love advice on what to propose as a model for working together, any tips for the "not moving forward as partners" conversation, and suggestions for compensation.

LMK if you need more info.

TIA!

Filomena21·Nov 03, 2021

This is really tough. The first question would be, can you join any sales/demo calls with these "irons in the fire" so that you can form a relationship with these prospects independently of his relationship? It would be normal anyway for him to loop you into this.Honestly, I'd say you should have the conversation with him as soon as possible and see what he proposes. I think it's highly likely you could lose these sales leads, but you should find out what he actually wants and see if it's possible do to that.You can think about it relative to what "market" would be. Usually the 20% equity would be under a 4-year vesting period with a 1-year cliff. Can you look at the time period it will take him to close on these deals, and offer him the equity amount relative to that without requiring the 1-year period to the cliff? (e.g., if it takes him 3 months, then 3/48 months would be equivalent to 1.25% of the equity)Or can you afford to retroactively pay him a cash salary when he closes on these deals, or simply pay him a cash commission on the deals he closes.Finally, is there any possibility that having a conversation like this might lead him to adjust his attitude or work style with you? Perhaps you can talk, come up with the termination agreement that both sides think is reasonable, and then proceed on a trial basis with a scheduled check-in to see if it gets any better?Apologies. This is all around a tricky situation!

JennyPIN·Nov 04, 2021

Thanks for all your thoughtful feedback. I do believe in having the conversations sooner rather than later. That is my plan and I just wanted to get some thoughtful insights. I already know we can't work together. He's generally condescending in all communications with me. Even if it's just his style, he won't change it and I won't overlook it. He's been quite reticent to share any info on the contacts. One is with a company with 12k employees listed on LinkedIn and he tried not to share the first name of his contact (It was Mike... good luck hunting him down, lol). Obviously once I have the convo, that could all change. I like the idea of erasing a cliff and giving him X% equity based on time, maybe even with a bonus bump.Thank you again!Jenny

Filomena21·Nov 04, 2021

Yeah, though be careful with the time-based thing, because based on what you said here about his reluctance to loop you in, he might drag it out. Maybe you say X% if you close abc deal(s) by xyz date.It could also make a difference from his perspective if he is doing this full-time right now (i.e. forgoing income) or if he has another primary source of income and this is just a side hustle for him until it picks up steam.That is so SO weird that he's being evasive about the name of his contact. It's hard to tell if he's being territorial or if the lead just isn't qualified/interested.It sounds like you have a good handle on the situation regardless. Good luck!

ShanaThomas·Nov 03, 2021

Hi @JennyPIN - I'm sorry to hear you're in this tough situation. I am an Associate at LVLUP Legal, a women-owned law firm focused on business and IP law for startups, founders, and digital brands. We specialize in all things "startup law," from drafting contracts, partnership, and investment agreements, to protecting intellectual property. I am more than happy to set up a free consultation to strategize and discuss this more from a legal perspective. Please feel free to reach out at [email protected] or book a time to connect via the link below:https://calendly.com/shana-thomas/30-min-discovery-call?month=2021-11 Shana

JennyPIN·Nov 04, 2021

Thank you, Shana. I appreciate your offer. We do have legal counsel I've spoken to. However, I'm not concerned from a legal perspective right now. We don't have any formal agreement and he's technically under a non-compete, which I've used as a reason not to move forward more formally yet.

JennyPIN·Dec 02, 2021

Hi Shana,I just booked a time with you. I do have a couple questions and our attorney isn't as focused on "startup law" so I appreciate the consult. Talk to you tomorrow!Jenny

DianePrince·Nov 04, 2021

Hi, Jenny! I agree about having the conversation soon. Question: if one of those deals close, will that mean cash for the company? I would not give this guy equity -- that will tie you to him and could be a nightmare down the road. I'd rather give him a super generous cash bonus if the deals close. With people like this, I've found it works when they come up with the solution. I'd be clear and direct about the partnership not working out and ask him about his ideas for compensation to close those deals.Then I'd get a legal document drawn up that protects him so he knows he'll be well compensated and that also allows you to be involved in his conversations. Feel free to call me if you want to talk it through!

Filomena21·Nov 04, 2021

I totally agree with this!

JennyPIN·Nov 16, 2021

Thanks, Diane!