[megaduck]

As my cofounder and I are currently finalizing our own incorporation, I look at Fundable's sad situation and think, "Wow. What if that were us? Is there any way we can avoid ever having that kind of situation with a clever bit of legalese?"

Unfortunately, I suspect the answer is "no". As soon as you give one partner the ability to eject the other (for whatever reason), you open the door for all sorts of abuse. Besides which, if a partner wants to cause chaos and destruction, you're in for supreme nastiness, regardless of the legal situation.

So, at the end of the day, I think the best you can do is choose your business partners carefully, keep things above board, and do the best you can to behave morally and ethically. That way, even if things go to shit, hopefully you'll still be able to walk out with your head held high.

I'm sorry Fundable went out this way. Sounds ugly as hell.

[wmf]

http://en.wikipedia.org/wiki/Shotgun_clause

[megaduck]

A shotgun clause is probably the best method out of a bad lot, but it still has the potential for abuse.

If a partner is going through financial difficulty (outside of the company), then the partner with a better financial position can force a sale at a depressed valuation.

Say my mother has a massive stroke and requires expensive ongoing medical care. After a while, I'm financially drained. At that point, my partner can trigger the shotgun clause at an amount larger than my ability to scrape up cash, and wham I'm out. Out with a small payout, but out regardless.

There isn't a silver bullet to these kinds of issues. At the end of the day, people are involved, and people are complicated and difficult.

[mr_luc]

I agree with your premise, reasoning, and conclusion. However, I'd disagree about what your biggest fear should be.

A horrible, Fundable.com meltdown should be, by far, a bigger fear than getting abused by a shotgun clause.

Even in the land of the do-over, I can't see how this won't destroy the confidence that investors would have in either party going forward. Your future is so very much more important than your ownership in a startup with a co-founder who has no qualms about ripping you off.

As you say, there is no legal solution to the problem of bad humans. But there's no legal solution to death or car accidents, either; what we have are legal measures to manage those risks, in the form of contracts of some kind.

A shotgun clause is a last-resort clause, and from its very nature, it appears to me that it would only be invoked when you would most want it to be invoked.

( disclaimer: mr_luc has no personal experience with shotgun clauses and may very well be talking out of a suboptimal orifice. )

[eru]

See http://en.wikipedia.org/wiki/Shotgun_clause#Economics for a potential solution. (Though they do not tell how it would solve the problem. You'd have to think of it on your own.)

[adamsmith]

In theory given enough time you could go to investors and raise cash (binding in the event that your bid wins) backing a bid. It's the job of investors to allocate capital, after all.

Of course, I realize that theory does not always match reality.

[chops]

Thank you for that link. I'd never heard of that term before, but that's a pretty fascinating mechanism.

[kburn]

Brilliant, but looks open to potential abuse, particularly when cash reserves are low.

[ars]

I think you have two ways of dealing with it:

51/49 split, or have 3 partners.

Both methods ensure you never end up with a stalemate.

[jws]

You can always fall back on a shotgun clause for a cleaner ultimate solution. http://en.wikipedia.org/wiki/Shotgun_clause

[shykes]

With 3 partners, the typical nightmare scenario is that one partner is marginalized or kicked out by the 2 others. I've seen that happen and it's ugly.

[IsaacSchlueter]

I agree. Seeing stuff like this is scary. My heart goes out to both parties, as I'm sure it's not pleasant for either of them. Even if the story is 100% accurate, and Helm is just a bad guy, no one who's that rotten is happy. It's a shame.

Money has a funny way of ruining even the best of friendships.

Be careful. Do the right thing. Cover your bases to protect against either of you going crazy.

[imajes]

Yeah, it's why you find a good third party mediator and ask them to be a non-exec or mediator/advisor. It also helps to have the arguments and tantrums early- at least you'll know if you can get over them or not before it's too late :)