The start-up prenup

The start-up prenup
A guide to what happens if you break up
How to avoid a messy break-up

Can you name the founders of Apple Computer?

I expect almost everyone reading this was able to name Apple’s co-founder and CEO Steve Jobs.  A fair number of you probably were also able to name co-founder Steve Wozniak.  I suspect that only a handful of you know that Apple had a third founder, at least for its first 12 days, Ronald Wayne.

More recently, anyone who has seen “The Social Network” or has followed the growth of Facebook knows the story of Eduardo Saverin.  Issues between founders are more common than most people think.  Paul Graham of Y-Combinator has said that “about 20% of the start-ups we’ve funded have had a founder leave.”

In order to minimize the chances of this happening with your start-up it’s important that founders agree and document the answers to several key questions:

  1. What are our goals for the company?
  2. What role will each of us play in getting there?
  3. How will we make decisions in the company?
  4. How will we split the equity of the company?  Will this equity vest over time?
  5. What happens if one of us leaves voluntarily?  Needs to be fired? Or even dies?
  6. How much money will each founder put in to the company?
  7. How much money/salary will each founder take out in the early stages?

Once these items have been discussed, debated and documented, several of them should form the basis of a legal agreement.  We have created a sample of this type of agreement, called a Founder’s Agreement or Co-Founder’s Agreement to join our existing sample funding agreements.

The agreement addresses vesting of founder shares, what happens in the event a founder quits, is fired, dies or is disabled and obligates the founders to vote their shares together when selecting their representative(s) on the board of directors.  They are designed to work with the other sample funding agreements we’ve created.    As with the other documents, they’re are intended to provide a template or baseline that founders, investors and their respective legal council will use as a starting point in creating custom agreements for their unique circumstances.   Finally, if we’ve missed anything or made any mistakes please contact us or comment below and we’ll incorporate the best suggestions into version 2.0.