My Co-Founder Resigned. Am I Screwed?
My co-founder has resigned. If I’m not screwed — I feel screwed. I’m not sure what the statistics are, but many founders will face this. Sometimes, there is no sign of this before it happens. Actually, that’s hardly ever true.
Regardless of whether it is the CEO, COO, CTO or CMO or you, it is always a tricky thing to navigate. I have seen this many times with founders who have managed this well and watched other become disasters.
There will be lessons to reflect on, introspective thoughts and possible new resolve to do things better going forward. The best founders handle this with grace and aplomb
Are you having doubts about your team, product, co-founder, financial runway? Whatever your circumstances, there is no ‘silver bullet’ but remember, to think it through, carefully before you react.
My thoughts are that you could consider:
1. If you are the founder who will continue with the company, inform investors and or advisors immediately, or better still flag things when cracks start to appear in the relationships or co-founder’s demeanour.
2. Protect, document and secure any and all IP. This should have already happened anyway.
3. Consider the legal implications, vesting of shares, good leaver/bad leaver provisions in the shareholder agreement, you have one, right?
4. It’s definitely not all about the shareholders agreement anyway. You need to communicate here. Basically, try and be the best version of yourself as you do not want to finish the role in anything other than amicable terms, if at all possible.
5. Then, it’s time to do an audit of the team. The team that got you here, may not get you there, so it’s a chance to ‘hire against the curve’ to anticipate what you will need
6. Reflect on the reasons why the founder states they have resigned, as this may help you either negotiate their exit, improve something internally (there is always some lesson if you want to observe and listen).
7. Consider the official story as to why the founder has left. Above all, be truthful. People aren’t stupid, you need to be courageous and genuine. Whilst one party may be offended with the actual truth, a slightly softer version may be settled on, but the truth is the only option.
8. Tax advice will also be necessary, so speak to experts!
Any business should possess the goal to move forward and learn every day. It may be stressful, complex and everyone has a strong point of view, but it’s a good test for the remaining founder. This will not be the last challenge they face.
The simple truth is that handling this poorly can destroy a company. The equity a departing founder retains is often referred to as ‘dead weight’ on the company’s share register (Cap table). This is often seen a problem for the following reasons:
1. A replacement of the founder (if still early days) will require some share/option allocation to attract and retain the best person.
2. If the departing founder has a large allocation, this will grate on employees earning say, 0.75% each of the company’s employee share ownership plan (esop) while they build a great company for a person who has left the building and
3. Future (and current) investors may see this as a failing of the founder, or the company’s advisors to protect the cap table and perceive the founder is inexperienced.
A founder must build the right culture in their company, and it must be preserved. Sometimes, it is better to make an early call on team members who are not aligned or are no longer a ‘good fit’ for the team.
I always say, your first investor is your co-founder. If you have only recently met your co-founder, you need to do a lot of diligence on each other. The journey is arduous, will you make it to base camp and beyond. Look for signs, be honest with yourself about your weaknesses and what you are each looking for in going on this journey.
If you have:
a) Mortgage or other debt which needs to be serviced
b) Children in private schools or
c) Some other aspiration to perceived as something other than a dedicated founder obsessed with building a great company
that’s ok, but perhaps being a founder is not for you.
Ultimately, valuable lessons and progress can be gained.
If you lose a founder or leave a team, it doesn’t need to be a disaster if the process is well managed. Go ahead, create the future. If you want expert advice, I’m here to help.
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