siegel

This is a tough question to answer based on these facts.

But my first question is this: you "incorporated the company in late January." Ok, but what did you and she actually sign? That could make this a very easy situation or a very hard situation.

Over the past few years, mass arbitrations have become an imperfect way for consumers to get relief where there is an arbitration provision with a class action waiver.

Unfortunately, you'll see in the Hulu agreement (as well as in other standard user agreements, e.g. DoorDash), that companies (and their lawyers) have gotten creative in figuring out ways to avoid even mass arbitrations.

In the case of Hulu, you cannot even file an arbitration until you: (1) send a written notice of dispute; and (2) have an individual one-on-one call or teleconference. You can hire a lawyer, but you have to personally participate in the teleconference.

What is the point of this? The CEO of Hulu doesn't have to participate. They'll just send some rando in-house counsel or paralegal. The only purpose here is to make it as painful as possible to file a claim.

You need someone to look at your consulting agreement. This is largely about IP ownership. Happy to take a quick look if that's helpful.

What type of co-founder agreement is this? I'm at a bit of loss as to what he, as CEO, is really contributing here. But that aside, it's completely unclear what the terms are.

If you have an draft, I'm happy to take a quick look. Lots of experience with these things.

Have you practiced with anyone you trust and respect? Self-assessment in interviewing skills is really difficult. You need feedback about how you are actually coming off.

Oh, and think about recording yourself practice interviewing.

I wouldn't say the complications themselves are intentional. But take a look at a typical Series A. There are 5 core documents. Dozens and dozens of pages of legalese. I'm a lawyer and understand them. But most founders don't.

What's interesting is that virtually every word in those docs is there to protect the investors, most at the expense of the founders and other existing shareholders.

Ok, so maybe that sounds obvious. Why would it be otherwise?

Well, take a look at the initial docs when a company is founded. The "market" is for those docs to be as simple as humanly possible. A certificate of incorporation is a page or so. No protections at all for the founders in there, most often.

But when you bring in investors, the market is to lard up that same document with investor protections and no protections for founders.

That's how founders get screwed. It's not that the complications are there to screw founders. It's that the standard forms are built with one party's interests in mind.

What type of startup are you running? Is this a SaaS product?

As someone who does a lot of startup contracting (focusing on SaaS, but not exclusively at all), this is a bit surprising. Most of my clients use their own paper most of the time. Large customers typically push their own paper. Smaller customers don't.

Candidly, getting an explanation of the terms in a customer's version of a contract is insufficient. It's not just about what's there - it's equally important what's NOT there.

Well, that's of limited value if there are two founders, no other shareholders, and equal ownership. It's just deadlock, unfortunately.

I work with quite a few company with dual class voting common shares. I will never understand the notion of not implementing that at incorporation if you want it. Will you have the leverage to get a VC to agree to let you keep it? Maybe, maybe not. But the worst that happens is you get rid of it, which is virtually costless.

Honestly, implementing a 10M share one class common company just to make a VC happy sends horrible signals for negotiating with investors. It shows that you are happy to pre-negotiate against yourself from the get go just to look VC friendly. If you cared about retaining control, why would you do that?

1x IS a liquidation preference. I very, very rarely see in excess of a 1x liquidation preference, regardless of the round.

On the last point, that is why it is CRITICAL that you do not give your investors the right to demand registration based on the mere lapse of time. In most rounds I do, I get investors to agree that demand registration only arises after an IPO. It looks like a small point. But it is essential if you want to keep your options open (which is really what the Saastr article is about).

Or they would get their money back, in the alternative. Depends on what's better for the SAFE holder.

Part of this depends on what your plan is with the company. If you intend to seek VC funding, vesting is going to be renegotiated. Will your co-founder even agree to that?

I am concerned because vesting immediately is way outside of the norm. What stops him from walking off the next day?

A one-year vesting schedule is not advisable either. Are you really going to have a liquidity event in a year? If that's the concern, have acceleration terms to deal with that. I agree with rogerkirkness that 4 year vesting is the right way to go. I don't think 5 is necessary, though you can do that.

You can avoid the "boss-employee" vibe by having the same vesting schedule for yourself.

Trust me - I see a lot of bad co-founder situations. You don't want to have a co-founder with tons of equity who isn't working out.

Yes, it is easy to take advantage of...And easy to blow. So, something to be careful about. But hugely valuable.

Is your company a C corp?

Yes, you can apply to VC alone. Some investors want to see a founding team. Some don't care.

But other than the desire to a have a co-founder in theory or to secure investment, why on earth would you continue with this co-founder? If they aren't contributing anything, why do you want to work with this person?

And 50-50 is absurd. 50-50 is, of course, always a recipe for deadlock. I've dealt with countless 50-50 co-founder situations where there was a breakdown due to deadlock. And those are almost always situations where the co-founders were enthusiastic working together at the start. (I'm a lawyer by the way - so I see worse case scenarios all the time.)

Here your prospective co-founder isn't contributing. You need to move on.

Happy to discuss my experiences with this and how you can extricate yourself as best as possible.