Founders Agreement Cooley
Often, the company has the first bite in the apple, then the founders or investors. The priority is a question of negotiations. It is important to determine whether or not each founder will work full-time. For example, in an early-stage company, one co-founder may work full-time, while the other may work part-time in the company while continuing to work part-time elsewhere. Keeping a role in another company minimizes the risk for that co-founder. Since many founders want to have the opportunity to take advantage of opportunities – as investors, advisors, etc. – outside of the startup, you also need to agree on the basic time issues. How many hours are full-time? When one person follows a 50-hour job while the other constantly works 80 hours a week, resentment begins to form. I see this as an iterative approach. Start something informal – agree on a simple agreement. But visit it every three months.
Every time you visit it again, it can get a little more complex because things get a little more formalized. Like Hodgson, Sunil Nagaraj appreciated a formal founding agreement because he believed the document would better enable him to cope with uncertainty. Today, Nagaraj is a seasoned entrepreneur and investor, founding Ubiquity Ventures – a seed-stage venture capital firm – having acquired several of its previous investments, including Twitch, Defense.net and Grow Mobile. During his MBA studies at HBS, Nagaraj founded Triangulate with a close friend – a start-up that developed profile matching platforms for social media. The two worked to create a comprehensive, multi-page start-up agreement that followed best practices. Whether “founder`s shares” have rights that differ from other interests in a company depends on the agreements between the founder and the company, either at the time the share is issued or later. These rights may include the following: If co-founders have different individual skills, roles may arise organically and you might be tempted to forego writing a founder`s agreement. For example, when three co-founders launched BlackBuck in 2015, they divided roles by skill. Everyone agreed to accept a functional lead tailored to their skills: fundraising, operations and sales. But many co-founders have significant overlap in skills and expectations.
Addressing key terms – roles and responsibilities – in your founders` agreement becomes crucial. Nagaraj recalls that “when drafting a start-up agreement, what stood out to us was that we could describe ourselves and talk about each of our capabilities” in broad outline. They focused on creating a viable plan that answered complex questions about future commitments that could have been an excellent theoretical exercise. Although the document they have drafted follows detailed guidelines, unfortunately it does not address any major issues. When you and your co-founders iterate an idea and develop a business plan or start building a product or platform, you create intellectual property (IP). Ghosh notes that the agreement of your founders provides an opportunity to think about how you will handle future conflicts. How will you handle Deadlock, for example? What method will you use to reach consensus on important decisions? In Hodgson`s experience, the sooner you can agree on future processes and record them in writing, the better. Your start-up agreement must state whether any of the founders have contributed personal funds to the company and describe the conditions for using the capital. To demonstrate your commitment and protect valuable business information, your FA should also include a standard privacy clause. At a minimum, your agreement should address roles, responsibilities, expected time spent, and fairness. The best agreements do not set conditions that last forever. Instead, write down your founders` agreement as an iterative document and allow you to adjust the agreement as circumstances change.
Both Hodgson and Nagaraj stress the importance of taking enough time to draft the agreement. Listen to your partner. Then, together, create a fluid document that you should review and edit regularly. Would you like advice on the specific conditions to include in your agreement? Read our key terms that you can include in a founder agreement or check out the useful tools below. Your founder`s agreement may introduce appropriate provisions for the transfer of intellectual property. By the way, your startup should guarantee the intellectual property rights not only of your co-founders, but also of your employees, consultants and contractors. Some founders have a strong network that they are willing to share, which would increase a company`s chances of success. .