Business relationships, perhaps even more so than personal relationships, can be tricky to navigate. Startups are often formed by two or three co-founders, and it’s not uncommon for one or more to eventually part ways.
If and when a co-founder chooses to leave, what happens to the startup’s equity? It’s a delicate matter, and that’s why a prenup might be the best solution.
Ed Zimmerman, adjunct professor of venture capital at Columbia School of Business, explains in a blog post for the Wall Street Journal:
When a team of two or three co-founders enlists my help to form a new startup, I invariably suggest that they earn their equity over time (“vesting”). Vesting often creates a shared incentive to stay in order to earn all of your equity over time–the “golden handcuff” effect. If–as the odds suggest–a co-founder departs, it can really help because the company will likely need that equity to give to whomever will fill his or her shoes.
A reasonable solution, then, is to establish vesting arrangements at the start. Together, create a list of expectations with regard to founder rights and responsibilities. Doing so will prevent resentment should a co-founder decide to move on somewhere down the road.
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