So I am a technical founder that was building a web based platform. I had quit my 9-5 to live off savings to run my startup full time. I was working on building a team when I was connected via another entrepreneur to a PhD student that had an idea that could be a white label for my platform.
After talking through that for a while, he approached me that my product could be used overseas, and after giving me a glimpse of his network and connections, I paid him $1500 to do a more in depth plan of how to take advantage of the overseas market, a breakdown of institutions and investors to target, and more. He seemed like a well connected guy in business, venture capital, and international circles. The problem was that I was cultivating relationships that also have connections in the same market, and when I mentioned I wanted to leverage them, he insisted that he be the “exclusive guy” to handle that market. (And later got very frustrated anytime I talked about leveraging them, saying “He’s got this”).
We worked together for a bit. He ended up actually going overseas and taking a full time job as a Venture Capital advisor (working 60-80 hour weeks at his new job). I connected with another Startup entrepreneur with a similar idea, and since he was a business and lean startup guy (my overseas expert was definitively not a lean startup guy) I thought he would be a good guy to build a team with. And also someone we could do in depth product iteration with. I had already spent a few multi-hour product concept conversations with him However my overseas guy and him butted heads on a couple phone calls, and then my overseas guy started trying to block us from working together. He was not comfortable with entering into any kind of business arrangement with someone he’s never met in person. Demanding that all talks of working together cease until he can meet the guy in person which would be several months away. Essentially saying “it’s him or me”. I ended up cutting things off with the lean startup guy, and now was working only with the overseas guy.
Then we wanted to build a mobile app. Originally we were looking at a firm to develop it, but once I got the price tag quote, I decided I wanted to get a student to help me build the app myself or spruce up the mobile web app. My partner got angry saying “That he doesn’t appreciate me making decisions as if I was still a single founder.” And was blocking me from working with the student, demanding that he vet his resume. And talk down the firm’s price. He wasn’t comfortable with someone he doesn’t know working on an app that could go in front of his relationships. Worried about his reputation. We spent several weeks fighting about this. Eventually the student moved on to other projects.
We eventually decided to do a mobile web. But he wanted new design mockups made. He wanted to engage the same firm. Instead of paying the expensive prices of the firm, I wanted to bring in my friend to both set up our Agile project management as well as do the designs. He was a guy that worked full time, but did his company as a side venture. My partner got very upset: “I don’t know these people!” The firm quoted a very expensive rate for a landing page and designs. My friend would do both of those things included in the price for setting up our PM environment. My partner said “no go, I’m not putting my reputation on the line with someone that doesn’t have an established track record.” When I said what we are looking for can be implemented much cheaper than this firm was quoting, he said “It’s not about the technology, it’s about the people. I don’t know these people, they don’t have an established track record. You seem to ungrateful for the fact I’m connecting you into networks that you would never have gotten access to on your own.”
So I ended up paying out of my reserves both my friend and the high priced firm.
The high priced firm didn’t produce much of anything of value.
Then we got into the equity fight. I had been trying to set up a grunt fund using the Slicing Pie (www.slicingpie.com) equity method for the company for a while. I had become well versed on how the model works for a startup. My partner flat out refused to use it, saying it didn’t capture “the value he brings to the table.”
I tried to explain how that model works, including asking him to read the book about it. He said he didn’t have time to read any books, and someone with his pedigree should be able to get a fair equity split without having to use the Slicing Pie method. Talking up his credentials, and telling me he’s a part of “Elite Circles.”
He demanded 50% of the company. Saying that it’s his relationships that are powering this. he has overseas experience and I don’t, and that “I can be replaced.”
I told him no to 50%. At the same time I realized I couldn’t rely on his as the sole partner and told him I was building a team. He demanded that his equity be settled before any other team members are considered and repeated his demand for 50%.
When I was told by my advisors to offer him 35% while I hold 51% and leave the rest of the company in reserve. (35% being too large in my opinion). I sent that to my partner and he said no deal. And that’s when things got very ugly. With him threatening to start a competing company if he didn’t get “fair terms.”
Note: The Slicing Pie method (estimated into the future based on expected contributions, taking into account other team members, would give him between 8-15% of the company). Prior to the 51-35 split model I proposed that he get 20% fixed equity split, and the rest of the company equity would be managed by the Slicing Pie method. He said “No deal.”
We nearly broke things off then and told him the deals off. But then we talked and I said I didn’t want all our work to go to waste, and we pressed forward, but we never signed or finalized any agreements regarding equity split. Essentially the equity discussion was tabled. But he came away with the impression that equity would be split 50-50 even though I never told him I agreed to a 50-50 split.
Afterwards we did submit a budget for a potential $150k project from one of his connections.
Later I began to gather the people I wanted to bring on my team. Another developer, and a lady that was very good at networking, selling, and evangelizing, and had a decent sized network as well that could be leveraged. Who also had an idea that could utilize my technology. We were talking about how we can work together, and I bought her into the co-working space I was working out of so we can work together. My overseas partner came back to the States for a week, and I wanted to make an in person introduction so I worked to set up a meeting at a coffee shop. But my overseas partner pushed back “Who is this person? Send me a resume.”
I shared her bio. And he came back to me , “No, I don’t have the bandwidth to be having meetings like this”, “she’s not going to be able to add any value”, and “we have to step our game up regarding the types of people we associate with.” So the intro meeting never took place. Incidentally in the whole week he was in the States, I only spent about 1 hour talking to him in person.
Me and her along with the developer had a series of conversations about what is lacking about our firm and whether my overseas partner was adding any value. And neither of them were really keen on working with my partner. I told them about the potential $150k project but neither of them were very convinced.
At this time I was burning through my personal financial runway. And the development of the product was slipping. My overseas partner was very upset that we didn’t have a product to the market and that his reputation was being damaged as a result. At that point we had not brought in a single dollar.
I was telling him that I wanted to bring the lady and the developer in to build out our team. He was pushing back hard.
The arrangement the lady and I were going to is that her original product idea overlapped enough with what my product did already that we could effectively merge them together with what we are doing overseas. I would be the tech lead, she would be business lead on the flagship site we would produce with the platform, and my overseas partner would be lead on overseas markets.
I communicated with overseas partner the plan, as well as plans for getting the product launched. He was insisting he has to be the CEO.
The next time he game back to the States he was in full asshole mode. I wanted to make an in person connection between the 2 or them this time. But he was more interested in connecting with the founder of a new accelerator the lady was supporting. But he didn’t want to go through the lady. He instead wanted to go through his own connections. When I told him we have to go through the lady, he responded “I don’t handle my relationships like that!”
Me and him met in person again (once again only 1 hour for the entire time he was stateside) and he told me that his business credentials were a lot stronger than those of the lady’s (and those of the founder of the accelerator she was supporting). Complaining about “this is very distracting” And that if she won’t accept that he’s the CEO then we don’t have to work with her.
He left to go back overseas once again with him and the lady never even meeting.
My personal financial runway continued to burn.
After that I was trying to get the deal going, and trying to get us together to form our team. My overseas partner was really complaining that his reputation was being damaged as a result of the product not getting to market. And was complaining about the lady’s resume, and was saying “I don’t know this person. I have never even met her!”
We ended up having a long drawn out fight via phone with him telling me “I was disrespecting our agreement about how we would work together.” That he wants to keep the company me and him, 50/50 equity split. And that he would find another developer to start a competing product if I didn’t do things according to his terms.
I tried to put my foot down and flat out layout this is how the company will work going forward. “This is what is going to happen” I said. His simple response was “That is not the tone or language to take with someone you want to have a positive working relationship with.”
The other developer had since moved on to other projects in the time we were fighting about everything. My overseas partner said he is open to working with her, but she had to accept him as the CEO. And that equity is 50/50 so any equity she gets comes out of my share.
By this point the lady put her foot down and said, she is not interested in working with my overseas partner. “If we are working together he will not be a part of the company.”
The last communication I ever had with my overseas partner was me relaying that she has said he is a no go for the team. He didn’t respond to that, nor did I make any attempt to talk to him again.
So that’s my story of a Co-Founder horror story. I’m still working with the lady, but I was seriously hoping to leverage my overseas partners resources in synergy with hers.
He was insisting that he wasn’t the problem. I seem to think he was (as do others) but that’s just one perspective. Wondering if there are other countering points of view on the matter. I do think about how the whole affair could’ve worked out differently.
This overseas guy is the definition of narcissism.
I never mentioned the word narcissism or ego to him, but he “assured” me that this positions are driven by business considerations and nothing to do with ego.
I imagine his whole take away from this whole affair was that HE was the one that was used and abused. And that he should’ve “protected himself” by getting his terms agreed to via contract up front. Apparently ignorant of the fact that NO startup founder would sign a contract with such terms up front when dealing with a very nascent relationship with someone.
So much nonsense about connections, networking, introductions, partnerships, white labeling, and overseas expansion. Outsiders think that startups must be super difficult because the failure percentage is so high. Not so! Way too many startups fail because founders waste their time on pointless drama and instead of working together on the stuff that actually matters.
And so this startup, too, will fail eventually. It won’t fail right away. It will be a slow decline that involves a lot more drama, which of course the OP will not be responsible for in the slightest.
I so agree to this.. Initially i used to place a high value on things like networking and industry experience etc. After wasting more than 6 months over this, I’ve realized this is the biggest waste of resources.
Embrace the lean startup philosophy my friend. Either make a quick-fix solution yourself or don’t solve it. That’s another thing i learned.. don’t solve problems before they are a problem. Let them be.. you will be surprised to see that your customers aren’t bothered about those imperfections / limitations.
and get rid of self -loving assholes like the overseas guy.
OP here. I’m not a lean startup guy, in fact I kindof get annoyed by lean startup guys. But I did recognize the value of having a lean startup guy involved in the company. Unfortunately my overseas partner very explicitly did not want someone on the team that would “butt heads with him.”
Funny thing about all that belly aching about the product not being ready for market, it was made very clear to me that I had more that enough to start taking things to market and raising money off of and that “the building needs to stop. Go to market with what you have even if it’s not perfect now.”
The last conversation my overseas partner and I had before we broke up is “We need to hire a development firm to build a completely new code base because things would go faster.” He needed to have a product with bells and whistles because he was afraid the influential connections he introduced would be unimpressed and it would damage his reputation.
I feel you were trying to sweep glaring issues for far too long hoping that if he brought in a customer all this would be moot. In the back of your head you probably knew this was a very toxic relationship.
That’s why 1) never establish a co-founder relationship with someone you don’t respect or who doesn’t respect you – you can hire them with equity if you like by they will have no authoritative say, which leads to number 2) always negotiate equity upfront – ALWAYS, you don’t have to negotiate the exact number, but you must agree to the formula.
Yeah, I kept the relationship going even though there were problems. I was hoping that I could rest easy (as much as you can in a startup) once the lady and the other developer were situated into the team. But that ended up as a huge bust as the OP explained.
Would’ve been nice to negotiate equity up front but no model would’ve worked with his equity expectations without essentially locking my company into him. Equity models that would leave room for other team members would given him too little equity to meet his view on what his “value” was. Other startup founders I know have equity as 51% for the founder, 3-8% for each person on the cofounder side depending on what their roles are. He would never in a million years agree to an 8% share. That’s why I wanted to use the Slicing Pie method. But he was almost insulted by the idea that someone of his “caliber” has to earn equity by entering hours into a time tracker.
If you had known he wouldn’t accept a lower percentage going in then why did you even start working with him?
Blame is on you as well for not taking action. What kind of leader are you with not cutting ties with your “friend” way earlier?
You basically let the damage happen and did nothing?
I tried to take action multiple times. But this was a man that absolutely would NOT accept terms that are not favorable to him.
I tried to put my foot down regarding paying the vendor, regarding equity split, and team arrangements. And every time I put my foot down, I found myself weeks later still fighting over the same things.
Part of it deals with the fact that he felt that he was doing me a favor working with me to push my product overseas rather than starting his own competing firm. And he felt that if push comes to shove that I was replaceable, so he didn’t need to concede anything and that I should be focused on making sure that he’s happy.
Your mistake was continuing to try to reason with someone who had zero value for anything that didn’t come out of his own mouth. You wasted time and resources with repeated tabling of discussions and giving in to demands, while his sense of being the most important piece of the company solidified. He sounds like a very self-important and entitled individual who lacks the insight to even consider his own perspective bias.
The part that stands out to me is that he repeatedly scolded you for making demands, while demands from him were all he had to contribute. It does not sound like a situation which was ever reconcilable. He may someday grow and become a better business partner for someone, but you can’t afford to invest in that hope over hollow promises and self-asserted value.
Warning signs had been there the entire time. I was initially surprised that you paid a future co-founder $1500 to essentially do CEO work as a potential-future-CEO. Further, he approached you, he had the interest, if he thought the idea was good he could have taken it on himself to do the research. You practically paid him to do the honor of taking over what you started. I have to wonder if he asked for payment — this would be a big first sign that he is is a liability, not an asset.
I’m surprised that you read Slicing Pie and didn’t have a bigger problem with his failure to understand that as an unavailable partner working 60-80 hours for someone else while providing dubious “value” (mostly roadblocks) and burning through your money. I don’t know how much more different your views of ownership could be, and from the little I’ve read of the book it seems to put a lot of emphasis on how very important these issues are.
I’d just like to end by emphasizing that I don’t intend to assign blame to you, rather, I think that you have an unrealistic understanding of the problem, and would like to offer my view. It isn’t that you failed to put your foot down, it is that he was not the type of person to allow you do be in control: that was his job, in his opinion. Maybe it’s why he demanded CEO, maybe it’s why he wanted some sort of non-diluting 50% equity, because in his mind, his job is to be in complete control.
You don’t have a product, you don’t have a company. You and him don’t need to talk. Just go your own way.
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