Startup Question about Involuntary Termination of a Cofounder

[greengrace]

Startup Founder Question

1. What are the scenarios which you consider where a co-founder can be terminated without any cause or reason provided to him.

Some scenarioes in question:

a. An investor or board members say that we need a person for marketing (There is no CMO until now), does any existing C-suit member is removed just to get in a new CMO for any reason like restructuring, cost-cutting etc.

b. In a tech company does CTO is removed because board members think that we don't need CTO for the product which is already market fit and its under support and maintaince (meaning we dont want to include new module but want to scale already implemented product). Does this ever or can happen?

c. Any other scenario in your mind?

2. In the case of Involuntary Termination of a Cofounder Without a Cause what is the vesting method of his non-vested shares that you incorporate in your start-up?

Option:

a. Forfeit all the non-vested shares of departing/terminating co-founder.

b. Buyback all the non-vested shares of departing/terminating co-founder at the time of termination.

c. Fully vest all the non-vested shares of departing/terminating co-founder.

d. any other option?

 

[bearded_one]

@greengrace I’m a new entrepreneur, so take this advice however you will… but if I had board members telling me to remove my CTO or CMO without cause and forfeit their non-vested shares, I’d be looking for new board members. This seems like greed on their part, trying to shrink the equity pool for their own benefit and to the detriment of the firm. From my POV, aside from a good CEO, the CTO and CMO are the two most important roles for a startup, especially if it’s a tech startup. You need the CTO to actually build out your product and the CMO to find people to buy it. You may have finished version 1 of your product now, but unless your entire company has reached stabilization, your CTO is pivotal; even then that role is pivotal. And if your company has reached stabilization, it’s no longer a startup.

Also, scaling an existing product is quite convoluted, requires skill and experience, and can be unnecessarily expensive if done incorrectly. It’s not just a plug and play and then assume the product can simply handle additional traffic. CTO’s build job may be done, but that’s literally just the beginning of a very long and difficult process that is product development. Relieving a CTO at this stage just because the product technically exists is incredibly shortsighted. What if there’s an unknown bug in the product that pops up after you fire him/her? The person who understands the code best will always be the one who coded it, but now you’ve fired them without cause, taken their equity, and chosen not to tell them why. You’ve made an enemy who will sit back and nosh on popcorn while your product burns to the ground.

Now, if there is cause to fire them then do it. But, remember that they’re human beings. Even if they’ve failed miserably and you hate them, then still deserve to know why they’re being let go.

Just my two cents... Hope it helps and best of luck to you!