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My co-founder has 35% equity with 4 year vesting period and wants to leave after two years. How do we plan his exit?

Congratulations. Yes, I said congratulations because you actually have done the one thing that too many startup CEOs don’t do.

You have a vesting schedule for your equity. Great.

So, that means your cofounder will own 17.5% of the company after two years. Now you have some options. You could:

A. Buy your cofounder’s shares.

If you’re worried about having 17.5% dead equity on your cap table, then you could buy your cofounder’s equity and retire the stock. Now before you do this you need to understand why your cofounder is leaving the company.

Buying the equity becomes a lot easier if your cofounder doesn’t believe in the company any more. Or you could…

B. Buy some of your cofounder’s shares.

There’s a basic rule that you can’t put the company in a bad position if you’re buying out your cofounder. For example, you’ll put the company in a bad position if you have $1M in cash and you give your cofounder $900K for the equity.

A compromise can be buying a percentage of the equity that doesn’t materially hurt your cash position. This may work well for your cofounder if your cofounder wants to place a small bet on the company’s future.

You also need to work on transferring your cofounder’s responsibilities.

The good news here is your cofounder didn’t quit outright, so you can work with your cofounder to transfer the responsibilities to others in the company.

And you can have your cofounder work with you to find a replacement.

Why wouldn’t you ask your cofounder to help find a replacement. As long as your cofounder in an amiable way, then your cofounder can be a great help finding a replacement.

After all, who knows your cofounder’s job better than your cofounder?

Finally, don’t hide that your cofounder is leaving.

If you have investors, then you need to tell them that your cofounder is leaving. Then, you need to have a plan of how you’re going to replace your cofounder that you can share with your investors.

The same goes with your team. Don’t let your team find out through the grapevine that your cofounder is leaving.

Instead, get ahead of the story. Tell that your cofounder is leaving and explain what the plan is going forward.


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