Ask HN: My co-founder and I want to split, what to do?

[Lindathefounder]

My co-founder and I (based in California) have been building a startup for the past year, which has been getting some healthy attention from investors. Since we do not get along, my co-founder wants to split the company and its assets between the both of us so that each person will continue building the concept as competitors. Since we each have 50 percent of the company, we are currently locked as I cannot see how this solution works. I've been told this would basically kill both of our startups and that only one person should continue. What do you think the consequences of such a split will be? We are both keen on continuing the venture - although I am starting to believe I might be better off doing something else. I've suggested to give him equity but he refused. Right now there are a few options - simply leave with nothing / split the company as suggested / ask for equity myself. Of course - investors will prefer seeing the first option, but im not sure I feel comfortable with that after a full year's work. What do you think?

[mchannon]

Investors prefer a team that can execute. Less so, half a team that didn't get along with its former co-half. After the split, attracting investment may become more difficult.

I suggest considering an nth option: split the baby.

Can your startup be split into two business lines? One that focuses on enterprise, one on consumer? Commit to noncompetition for say, 3 years. Everybody happy because they're apart.

Finally, an n+1'th option: seal up the business as an IP enterprise, licensing what you've already built to both founders' new ventures. Evenly split the licensing fees. Agree on a licensing structure open to both founders, where it only eats up about 10% of the expected margin, and realize that 5% is pretty much going right back to where it started. Throw on a shotgun clause.

The odds say at least one of your new ventures will fail- this will allow survival of the fittest from an otherwise nasty divorce.

[NumberCruncher]

Harry Browne wrote about how to split up property during a divorce. [1] His idea can be applied in this case too:

One of you two decides what equity the one receives who leaves the company, after that the other one decides whether he wants to take the equity and leave or stay.

[1] https://www.amazon.com/How-Found-Freedom-Unfree-World/dp/096...

[shoo]

pizza slicing protocol. a cuts, b chooses.

[Lordarminius]

If he has refused your offer of equity, then your real options are splitting the company or accepting an equity position yourself in exchange for leaving.

I would advice you hire a lawyer to negotiate on your behalf. His/her brief would be to aim for a 50/50 split of assets or 25% equity shareholding as compensation for leaving the company(although your initial ask would of course be higher). You could also ask for outright cash

(These numbers could be different if your founders agreements dictate something else or your contributions to building the company are unequal)

[Lindathefounder]

Wouldn't 25% deter possible investors? I was thinking of asking for 10% and settling on 5% because I want the company to succeed.

[Blackstone4]

In standard terms from what I understand is 4 year vesting so with 50% ownership that's 50% divided by 4 to get to one year of work....comes to 12.5%... put it forward as industry standard

[Lordarminius]

Its not your duty to mummy the company at this stage. You need to look after your own interest. State your claim and let the other side make a counter offer

[JSeymourATL]

> I am starting to believe I might be better off doing something else.

If that would make your life better/happier -- it might be an area to seriously explore. What would 'something else' look like to you?

Relative to negotiating your split effectively -- Stuart Diamond offers brilliant advice > https://www.youtube.com/watch?v=2QtZ-vObJrk

[samfisher83]

This is an example of the prisoner's dilemma (Game theory). The optimal strategy for both of you is to compromise on a solution. The best strategy for each individual is to tell the other person to quit. So if your partner is insisting on you quitting the he has the upper hand. Now maybe you explain the problem in terms of game theory to your partner.

[lastofus]

I ask as it hasn't been mentioned anywhere, but have you considered one of you buying the other out completely w/ cash?