Q & A

sbeekar asks “Getting VC funding but one partner doesn’t want to dedicate full-time”

I would really appreciate your guidance and advice. Great community.

I am a co-founder of a two year old start-up that is finally getting proper VC funding ($1M injection). Currently, the founders all have full-time jobs and have been running the company part time. We both thought we would quit our full time jobs if we get the funding.

Well, one of the partners doesn’t want to quit his full-time job and as one of the VC requirements (after negotiations) is that at least one us quits. Looks like I will have to quit my full-time job to make this happen. I am not happy at all – as the chances of this company making it with only 1 partner diminishes. My partner still commits to 10 hours week or so, but this is a very optimistic view.

My partner still wants to keep all his shares (~40%) and do this part-time. Moreover, I will be getting paid a salary from the funding we receive. However, I am trying to understand what is the norm in this situation?. Something about my partner sitting on %40 share while I go on a limb to run the company is not too encouraging.

My objective is to save this company and maintain a healthy relationship with the co-founder. What normally happens to co-founders facing this scenario?

Thank you very much

My Answer

Hedging the bet both ways is dangerous, as much as you want them in.

I’m surprised the VC hasn’t put in a clause which says you need to “earn” your side of the shareholding over the next say 2 years.

I think the retaining all the shareholding without providing the same contribution is unbalanced and longer term will not go well for you … but keeping them in and giving the the option to contribute is I think where you should focus.

You could build in a sliding shareholding based on contribution.

  • All in = 100% of the existing shareholding
  • Half time would be less and you could agree to how the curve down to 9 would look between you.

If they want to do less and be more of an advisor role then maybe a 5-10% stake would be more appropriate for the part time effort put in so far and their ongoing adivce.

The salary your drawing now that you have VC funding is only part of the picture. As the company grows you will be gaining a massive amount of understanding and experience, stress and sleepless nights that the other partner won’t be in their safe 9-5 job.

Other issues.

At some point if the company is going really well they may want to come across to the “now safe” environment and expect to slot into a top job … without the background, understanding that comes from having been there and done it.

If I was the VC I would be very nervous about this with someone having 40% of the vote who isn’t involved and really has no downside. Your relationship with your VC is now or should be now a fairly high priority next to your partner.

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