When a co-founder gets better opportunities or has their own business plans to pursue

 

They abandon ship. But this transfer comes with a mutual understanding and doesn’t always become messy.

In case this scenario gets out of hand, it will be the messiest problem of them all, with intellectual property theft and a whole lot of formalities leading to many legal conflicts.  

There are scenarios in which one co-founder loses interest in what they are doing and looks for opportunities that excite them.

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5. Monetary concerns

When you are building startups, the initial phases won’t be profitable as you think; most of the time, it will be consuming more money than it's making.

At that time, co-founders will be made promises that once the company scales, they would get the compensation befitting the growth of the company.

Without a written contract, the expectation based on the promises might not meet the reality that happens, and the clash of expectations and reality will prove to be the reason for a co-founder leaving the company ranks.

6. Illicit reasons

Though this reason is rarely seen, we can never rule out the possibility of it. Co-founders have faced the situation of intellectual theft, ask the Winklevoss brothers. ( Oh! You can’t go because of Zuckerberg’s Non-disclosure settlement.)

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There are people who start working hand–in hand with a company during its initial phases and learn all about its trade secrets only to jump ship and make a company on their own.

These kinds of “humane” attributes have made legal contracts an unavoidable part of startup culture.

A startup founder has to be wary of whom he presents his ideas and be secretive about their unique selling points.

7. Laying off

When there is a dip in the financial situation of a company it is common for employees to be laid off and the people terminated are the ones in the top hierarchy.

People working at the bottom level are necessary for the company to work properly and with the salary of managerial people, you can employ a fresher with half their salary as the managerial process would be refined by then and you would just need a person to co-ordinate it.

As a co-founder, the shares and equity would complicate his termination but sometimes that would be a better option than taking a company.

8. Death

Human beings are very fragile creatures and the pandemic has etched that in stone. In case there is an event that leads to the death (touch wood) of a co-founder then it is beyond our hands.

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The Three Stages of Co-founder Exit Strategy

cofounder exit strategy

The first thing you have to understand is that when a co-founder leaves the company it doesn’t mean the end for your precious brainchild. The goal here is to treat it like a high priority transition process.

Though a co-founder is an integral part of the company, “the show must go on”.  Let's take a look at this in three stages.

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1. “Prevention- Better than a cure”

Before you start working on your startup, it’s always good to have a written contract that everyone agrees on. Settling the technicalities beforehand will give you peace of mind and a sense of security.

The initial contract must have the shares they will receive, the pay off percentage, non-disclosure, notice period and details regarding the usage of company knowledge

Serving the notice period is mandatory for a co-founder as he should train their predecessor and educate the new candidate about the processes in the company.

In the majority of companies, if a co-founder expresses their intention to leave, the rest of the founders will try to negotiate terms with them, like increasing their compensation or their stakes, etc. if the co-founder is a valuable asset to the company, the company will want him to stay.