We are as excited as you are about the upcoming Taylor Swift Concert series in Toronto and Vancouver. As a tribute to the concert series of the decade, MT❯Ventures will be publishing a series of Taylor Swift-inspired blog posts. We hope this advice will be useful as you grow your startup in this exciting era.
Founder dynamics can significantly impact the success or failure of startups. Estimates suggest that around 20% to 30% of startup failures can be attributed to co-founder conflicts and related issues in founder dynamics. This is a critical area often overlooked in the excitement of launching a new venture but can lead to significant problems if not managed properly.
To ensure that your startup is protected from co-founder issues, we suggest you use the blank space to craft a comprehensive founders' agreement. A founders' agreement is crucial for setting clear expectations and responsibilities among the founders. It acts as a safeguard and provides a framework for managing the relationship between the founders.
Essential Elements of a Founders' Agreement
Here are the essential elements to include in your founders' agreement:
(a) Transfer of Ownership to Company
Founders should always assign all the intellectual property ("IP") to their company to avoid any disputes regarding ownership. This should include any algorithms, work products, and trade secrets. The founders' agreement must explicitly state that any new IP created by a founder with respect to the business is owned by the company. This ensures that founders will not leave the company with valuable assets and promotes third-party funding, as investors typically require a company to possess all proprietary IP.
(b) Ownership Structure
The agreement should clearly set out each founder's ownership interest in the company, specifying the number of shares and percent ownership of the company. This ensures each founder is aware of their standing at the outset.
(c) Roles and Responsibilities
The founders should specify the roles and responsibilities of each founder. This should outline who is responsible for which aspects of the business, such as operations, marketing, finance, and product development.
(d) Capital Contributions and Management
Document any capital contributions by founders, whether cash, assets, or intellectual property, and whether any reimbursements will occur. Include provisions on how future funding needs will be handled. To prevent any single founder from using all the company's funds or having to use personal funds for company operations, the agreement should mandate consent for large expenditures or altering the budget. It should also authorize founders to spend allocated funds and receive reimbursement from the company.
(e) Salary and Compensation
The founders' agreement should address compensation for the founders, if applicable. This might include salaries, benefits, and reimbursements for business-related expenses.
(f) Vesting Schedule
To encourage founders to remain with the company and contribute to its growth, the agreement can include a vesting schedule for shares. For instance, 25% of shares may vest after one year, with the remaining shares vesting over an additional three years. This approach aims to have founders stay for at least four years to receive their full share allocation while contributing to the company's development during this period.
(g) Resignation and Removal of Founders
As a startup grows, founders might leave or be let go. To prevent conflict, the agreement should provide clear guidelines if a founder wants to exit the business. It should include terms for buying out a departing founder's equity and any first refusal rights for the remaining founders.
(h) Non-Compete / Non-Solicit
To safeguard the startup, the founders' agreement should stop exiting founders from directly competing with the company. It should prevent them from starting a competing business, soliciting employees, or using the company name after they leave.
To view the original article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
