What's a fair way to compensate a cofounder that's leaving after <2 months?
Hello, this might not be the right place to ask this question, as it has a bit of a legal angle to it.
I've been working on an idea and a person joined as a cofounder about a month and a half ago. We did a bunch of brainstorming of the idea.
We didn't incorporate, just shook hands, and hadn't discussed percentage.
Now they don't want to work on this any more.
Are they entitled to any percentage or any part of the IP? I'd like to continue working on the idea but don't want to give them percentage. I'm OK with issuing some debt to them on the behalf of the company, or buying them out for a small sum. But they said they'd prefer a small percentage instead and they wouldn't reply to an email if I notify them they have no longer any interest in the IP/equity in the product.
What do you think would be fair to them, while still allowing me to work on the idea without dead equity?
EDIT: for the sake of clarity, the brainstorming was done in some shared GoogleDocs
EDIT2: Thanks for all the advice! I'll try to speak to a lawyer early next week and let you know what they suggested. I hope to be able to contribute back to this community!
Maybe this is a bit naive of me, but why not just send them an email and state that both parties have equal right to use whatever has been produced up until this point to do with going forward as they wish. But anything produced from this point going forward is exclusive to that party.
That way both of you are on equal footing at this point and if one of you decide to put in the time and effort to make more of it, then that is yours to profit from exclusively.
That actually sounds very reasonable.
I concur, great idea. Thank you @jerri
I was able to talk to a lawyer today and they OK'ed that plan. I've just sent them such an email
This is going to be a negotiation.
You are ultimately purchasing the elimination of business risk (risk being that he might sue later or just waste your time / be a nuisance, share your idea / IP with someone else).
And he is seeking some compensation in exchange for that purchase. Specifically, he is seeking the NPV of how much he thinks he can make later if he were to successfully sue or share your IP. This NPV may not be very high, since it is costly for him to sue and there is a decent probability of failure / wasted time. Or your IP so far may not be worth much.
So ego aside, it might be in your best interest to pay him something and close the issue (exact value depends on your specific situation). You will also get peace of mind, and that peace is priceless with the other stresses of running a business, imo.
Thank you @dhruv - the real risk is them suing - I don't mind if they share any of the things we discussed with anyone.
Great point of about peace of mind-that's the most valuable thing for me.
You are not obligated to give them anything. Nor do they deserve anything for leaving a startup so early.
Jackshit sounds fair to me. You don't have a company or a business. You had a handshake and some brainstorming.
On the off chance you continue and you work at it and you go through all the pain, hard work, hustle and pivots to build something that actually brings dollars in the door. For them to have a piece of that.. it would be fairly perverse for them to keep part of a business they didn't build.
If you didn't incorporate and they don't have shares legally speaking is there actually ownership over anything that can be established? If someone has the legal background to weigh in on that question I'd love to know.
If they feel entitled to the spoils of war after only 6 weeks. Fuck em. Call out their sense of entitlement for what it is. Looking at it from the outside nothing real actually happened, so there isn't anything that needs to be resolved.
If you incorporated and agreed on shares that's different because it's clearly defined. If they actually helped you build something to the point it was making money and they were intsumental in that process that's also a different story and that situation should be treated with respect.
This is not legal advice, I'm just sharing my view.
Thank you @from_30_to_greatness I appreciate you thoughts on this.
Whether they have any shares legally speaking I don't know, I'll be trying to talk to a software lawyer. IANAL after all :) My belief is they don't, but they might have a claim on some of the IP.
My only concern is that if I build anything that incorporates the ideas they've discussed, they might sue me in the future, or the liability itself might be a turn off to investors, should I ever raise money.
Yeah, I was thinking about the claim to IP thing and thought about it like if you went to a bar and socialized your idea to someone and they gave you an insight that you went on to use in your product, how much of your company should they own?