Prenup for a Startup 1 - I don't love you anymore
I used to do divorce mediations. Hundreds of sessions with easy, difficult or downright impossible couples or partners. Some wanted to split amicably and argue little, others were ready to shout about every cent and asset. On the surface the argument might be about money but deeper issues like worth, contribution, punishment, lack, fear, fairness, guilt, capacity to earn, actually drove the conflict.
Startups are a bit like marriages, not a new analogy but still a very useful one. In the beginning emotion leads. Ideas are nurtured, castles build, unicorns promised. Everything is beautiful! Somewhere down the line of hard work, compromise, lack of funding, shortened runways and endless pivots; you realise that this partnership is not what you hoped and wanted it to be and you never signed a prenup agreement....
If you are lucky both of you realise early on that the partnership is not working and are happy to part ways and start new without each other. If you are less fortunate, you have been losing sleep because you don't have an exit agreement in place and have a gnawing feeling in your gut that this separation is not going to be a "smooth-and-simple" based on your last screaming match in the office.
Generally in an exit discussion where the relationship has already broken down, it boils down to money or rewards, because the underlying personal needs want a value, validation and sometimes vindication or revenge.
Here are some guidelines to help you prepare for the exit conversation with your partner. None of these are meant to change your mind. They are simply questions to help you prepare and go into the process with conviction and certainty. It also helps to clear your head and have all your facts and figures correct and at hand.
The list is by no means exhaustive, you might think of things that I haven't mentioned, but it gives you a good basis for preparation.
For dissolution of partnership and exit discussion be absolutely clear on: Relationship:
1. Do you firmly believe that parting ways is the best decision personally and professionally? 2. Are you ok with the fact that the relationship or friendship might also be lost?
3. Do you require any ongoing interaction or involvement with the other party on a personal or professional level? 4. Do you need to discuss blaming, shaming and reputational risk or damage? 5. What is the message you as co-founders want to send to your customers/board/investors?
Roles and Responsibilities: 1. Do you require a notice period after an agreement has been reached or will the agreement to. exit be in effect immediately? 2. What do you need in a handover to ensure a smooth transit? 3. Have you made plans for who will take over that role and responsibilities and when? 4. What do you anticipate will the impact of the exit be on the business and on the team? 5. What will you do if the other party insists on keeping their position as a Board member?
Rewards: 1. What is the current share agreement and what is specified for an exit? 2. What are the terms of the vesting schedule? 3. What other benefits would the party be entitled to? 4. Did they invest any funding that needs to be repaid back to them?
5. What will you do if the other party insists on keeping their shares? 6. What is the current value of the business and how will you calculate the monetary value per share if you have to pay the other party out?
You must be clear on what your exit offer is and be willing to negotiate. Prepare multiple offers based on your latest facts and figures but include non-monetary benefits and incentives as well. You want to have a discussion and a termination offer that is acceptable to both parties and in the interest of the business.
The last thing you need or want is an expensive protracted legal battle that will most certainly take its toll on you and your business. Mediation can help you negotiate a termination agreement that both parties are happy with.