legal, co-founder, canada, vestingI’m in the process of starting up a business with one of my better friends: 50/50. I’m the tech - he’s the business.
I truly believe in the idea, and think it has great potential. I’m prepared to bet big and go all-in; however, despite many conversations, I doubt my partner’s work ethic, and devotion (simply - he is already set financially). To give him credit, the seed idea was his to begin with. We haven’t signed anything yet. Is there anyway I can protect myself (aside from requesting uneven share) so I get fair compensation for my efforts? I’ve heard enough stories that I just want to legally prepare for the worst case. Regardless what happens, I want to be able to bring the idea to fruition.
The startup is a Canadian video game company. Are there, perhaps, standard milestones for vesting we can use?
Yes, something very simple: don’t split the company 50/50. It’s so rare that doing so ever works that we never hear about it. That’s the simplest way. It can only lead to trouble, especially if you have doubts in the other person.
I started a company with my best friend and we split it 70/30. Not for any reason except we knew that if there were disagreements that’s fine…but it shouldn’t interfere with the operation of the business. That’s just how it works.
If it’s already too late to set it, then sadly there’s very little you can do. Creating milestones adds some incentive, but if like you say he’s financially set then the only real incentive you can provide is motivational. He has to love it and want to pursue it, and continue to do so for an extended period. As great as it would be to have that, you can’t create such an environment for him, nor is it your responsibility.
If it’s too late, then I’d recommend dissolving the corporation immediately and starting over with new terms.
Typical vesting periods for startups are 4 years, often with a 1 year cliff. The best way to protect yourself is to assign measurable tasks/goals especially within that first year. Once you have set clear goals, if your partner did not achieve them then you can simply cut bait. However, if you are convinced upfront that your partner won’t pull his weight, you are better off choosing another partner.
I’m all for a 50/50 split in these situations (and have always split companies equally without any issues), you just have to clearly define each other’s roles and responsibilities and how you will each be held accountable.
I can guarantee that you will not work as hard as each other. One person will work harder than the other, but working hard is not a measure of impact or worth. It may just be that one person is more efficient at their job, or the person’s job or role requires less obvious hard work.
Set tasks, set deadlines and let each other know when these things are done. In the future when the company is more established you can bring in a non-exec chair person to hold you both accountable and keep everything running smoothly
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