Avoiding Founder Meltdown - Founder Pre Nups

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FOUNDER MELTDOWN AVOIDING 10 topics to discuss first https://www.flickr.com/photos/blacktanso/ Start-up pre-nuptials

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F ighting with your co-founders sucks

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Yet founder meltdowns are incredibly common in the start-up scene

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Heck! Facebook’s founder squabble was so bad it become a feature-length move called The Social Network !

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They typically happen about 2 or 3 years in

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w hen somebody starts thinking that somebody else is not putting in their fair share of sweat

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o r that the strategy is just wrong

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o r life priorities are pulling you apart

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o r when the thrill is just gone

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Whatever the case, it is almost always emotional, irrational, and painful

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That’s why you should always prepare a “ prenup ” for the worst, when things are the best

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All founder teams should have a heart-to-heart and produce a signed founders contract at the outset of any venture

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Here are 10 things that you should discuss and agree upon before signing

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0 1 shareholding How will we divvy up equity, assign vesting rights, and why? Be quantitative here. It needs to make sense. Don’t just split it equally among friends. You are acting on behalf of the firm’s best interest here.

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0 2 Time and priorities How much time will each of us explicitly commit to during years 1, 2, & 3? What are known, acceptable other priorities (and how will we agree to schedule them)?

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0 3 deliverables What are our shared goals for the company? What are each of our SMART milestones and deliverables (as defined in a job description )? What if one of us does not deliver?

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0 4 loans & cash injection How much $ will each of us put in? What if we need a cash injection from founders mid-stream? Who pays what, how will we determine valuation, and what happens if one of us can’t pay?

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0 5 salary How much will everyone be paid? What happens if we need to adjust up or down?

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0 6 retirement What if one of us has an accident, wants to leave or relocate? Needs to take another job to survive? What if that other job is competitive? What if it turns out that we hate each other? What is expected in terms of exit plan? How do we deal with shareholder loans & shares?

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0 7 tie braking What if we disagree on strategy or tactics? How do we make a final decision?

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0 8 reality check What are each of our known strengths and weaknesses ? What are we each not prepared to do?

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0 9 exits What type of exits are we OK with? How will we deal with the sale of shares (see standard shareholder agreement terms like tag-alongs, drag- alongs , first right of refusal, etc )?

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10 worst-cases scenarios What is the process for dealing with a breach of these agreements?

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good luck

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b e honest

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b e respectful

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l isten to each other

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But know that if you cannot candidly discuss these hypotheticals and agree upon resolutions when things are good, then something smells fishy!

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