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Episode Date: April 1, 2021

https://youtu.be/dbfDDcY8hGE

Jason Calacanis | TWiST | Twitter | LinkedIn

Co-Founder legal disputes, get something in writing to avoid them

• Not having legal agreements is a common mistake between friends who start companies. Everything is great until it's not.
  • One may decide they're going to work nights and weekends until a certain project is completed, while the other may decide to only do a little here and there until they start getting paid. When one co-founder decides not to pull their weight, it causes a conflict with the other co-founder. When you don't have anything in writing, things will get messy.
• As a startup, you don't want to pay legal fees to fight battles with your co-founders. Lawyers will always suggest finding a way to settle, even if you think it's not fair. You probably won't be happy with that situation, so don't put yourself in that position.
• It's important to have the following conversations:
  • How much effort will each co-founder be putting in?
  • How many years do you see yourselves working on this?
  • What is a vesting schedule that works?
• Once there is a dispute between co-founders, it sinks your opportunity for future funding. The only exception is if you settle it with your former co-founder and there's a full release on what the co-founders are entitled to. You must avoid these disputes at all costs.

We do a cap table review before people join our accelerator. Now that seems over the top, but this comes from a lot of scar tissue where we will see somebody gave half the company to a dev shop or a third of the company to their uncle, or whatever. We say, "we're giving you $100k to come to the accelerator, we're fine with you using up to half of that to settle this." If you want to use 10k or 15k or anything in-between, that's ok. But coming to the accelerator is contingent on the cap table being cleaned. - Jason

• Do your best to put something in writing and have everyone sign it. It can be on a piece of paper stating what is given and what is expected in return from the co-founders. Those will be some parameters you can work with in case there is a dispute in the future.

No vesting on shares, worst-case scenarios

• An example of a worst-case scenario: Two co-founders start a company and decide to fully vest all their shares instead of creating a vesting schedule. Let's say something happens between them when they decide to go get funding from investors. One of them says that they aren't that interested anymore and don't want to spend any more time on the company, leaving the other to do all the work. That co-founder already has all of their shares vested, so there's nothing the other co-founder can do about it.

No IP protection, getting targeted as you scale

• Always have IP assignment agreements signed by all founders before beginning any work on the company. By default, the IP is owned by the person who created it.
• Going back to ask people to do this later can be difficult, especially if the company has a high valuation at that point.

Problems with super-voting shares

• If you are Google or FB, you can pick these terms. If you aren't, these terms won't fly. It will cost you more money to put these terms in place because they are not just pull-off-the-shelf standard terms. They require a lot more maneuvering on the formation side. You're definitely not going to be able to do this using an online service, so it will cost you more money. Also, there are tax issues associated with these terms. If your first round of investors say you need to remove all these special terms, like super-voting shares, you'll be spending even more on legal fees to remove the terms.