The day after our launch, my cofounder was nowhere to be found. In hindsight, I should have ended the relationship right there.

  • Wow, sorry to hear about that…

    Unfortunately, I think everyone has a story like this (or at least knows someone it’s happened to). I was working with a closely held C-Corp. a few years ago assisting them with the design of their executive compensation and retention models. These four execs basically held 80% of the stock and had all been best friends for the past 10 years while they got their startup off the ground. The CFO had talked the other executives into moving forward with a major shareholder buy/sell agreement. Now, there’s absolutely nothing wrong with buy/sell agreements, I’ve used them before, I like to use them to protect the founders and investors but this particular circumstance taught me an incredibly valuable lesson about vesting founders stock.

    Because they were all friends, the CEO basically trusted the CFO to design the agreement and gave him free reign to structure the terms of the deal as he saw fit….Long story short, they received a nice VC Valuation close to $50,000,000 and were all immediately vested in their founder’s shares. The day after the buy sell agreement was signed, executed, and approved in the board meeting the CFO literally disappeared off the face of the planet. Wouldn’t answer his phone, wasn’t at his home, couldn’t be reached through email, etc…

    This disappearing act went on for 12 months (the minimum time stipulated in the buy/sell before being able enact any of the provisions). Suddenly and without warning, CFO shows back up with his attorney and demands his $10,000,000. It was an unbelievable betrayal and violated every professional and friendship ethical standard that exists.

    Lesson Learned: It doesn’t matter if you’re starting a company with your childhood best friend or with people you barely know… You need to bind the employees and founders to the company with a vesting schedule, you need to implement performance standards, and you need to protect yourself as much as you can right from the start. Hopefully someone can learn from this story as well and potentially prevent an equity theft.



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