Ask YC: making contract for new co-founder??

8 points by zkinion 17 years ago | 10 comments

Hello YC,

Recently in the past, I have ended up in some pretty bad relationships, getting ideas and hard work stolen by people who would try to turn me into their lowly paid employee with no equity. I have dug myself out of some horrible pits and made great progress in my startup. I found a guy that shares my goals and seems pretty honest. Our skills compensate each other very well.

However, I'm still paranoid because of getting burned so bad. I've wasted well over two years because of bad relationships. I want to at least get some kind of basic contract down. What have you guys done on your pre-money arrangements with other co-founders? I'm going to call my normal lawyer tomorrow, but he mostly does criminal defense stuff, so I want other options.

I've honestly burned through most of my savings that I had from a successful business years ago, with these previous startups and a terrible lawsuit. I can only spend maybe a few hundred dollars at most.

Both of us have some software built and a decent amount of time spent on seperate stuff. There are no patents. The company is an LLC registered in Nevada a few months ago.

Please help me with any advice you can give. I can't bear to get screwed over again. I'll probably end up going postal if I do. :)

Thank you for your advice,

-Zak

gruseom 17 years ago |

I can't bear to get screwed over again.

I think your only true protection against getting burned again is to deeply face what it is in yourself that created those painful situations in the first place. No contract in the world will protect you from creating an equivalent situation again, if you haven't learned what you need to learn from the previous ones.

Your use of phrases like "getting screwed over", "getting ideas and hard work stolen", and so on, suggest that you believe that it was because other people did bad stuff to you that things ended up the way they did. I'm willing to believe that other people did bad things. Nevertheless it was your own choices that put you there in the first place. As a wise person once explained, it was never really the other person you were trusting; first and foremost you were trusting your own bad judgment, and that's what really betrayed you.

I'm not saying you shouldn't put things in writing or draw up a contract. By all means do. One way to protect against the risk of a relationship going bad is to have shares vest at a certain rate per month. I think our arrangement is 1/48 per month (so, over four years), with a 1-year minimum, and a portion of up-front vesting for work already done.

But that pales in important to the deeper issue: if you don't want to get screwed again, then stop ascribing your painful experiences to other people. This doesn't mean you have to absolve or forgive them, it means you have to be truly honest with yourself about what you did and thought that was wrong. That's been my experience anyway... the only solution that works is fundamental growth.

zkinion 17 years ago | |

I think a good analogy would be like a college girl getting completely drunk and passing out in some guy's bed at a party and the guy takes ripe advantage of the situation. What he did was wrong, but she was still completely foolish to put herself in that spot.

There is no reward without risk. I've had incredible success in business back in the day, from going out on the ledge and taking chances with people I barely knew. However, I've also had that success striped away from me by trusting the wrong people. I'd of been rich several years ago if not for a couple of bad choices. Normally my bad choices revolve around people.

From doing some introspection and reading this thread, I think the key is to mitigate that risk as much as possible. A person will never have complete information until the game is done. Its not like chess; more like poker. One way for me to do this will be through upfront expectations with the person as well as a contract like you described. I do need a lot more self examination, especially with how easily I can trust other people.

lionhearted 17 years ago | |

Hey Gruesom, I'm upvoting you because you've got some good points in your comment and I've seen quite a few comments from you I really like. But...

"I think your only true protection against getting burned again is to deeply face what it is in yourself that created those painful situations in the first place."

That's... not really true. The rest of your advice is sound and good, but there are bad people in the world that do bad things. There's also normal people, and between normal people, there's friction. Almost everyone I know who is successful in business has been burned a couple times, and you just need to learn from it. Certainly the original poster did some things wrong via contracts, relationships, etc, but it's also quite possible that he was just dealing with some rat bastards. There's a lot of them in the world, and unfortunately, you usually start by working with them. Established people typically only work with people with a great track record, so when you don't have one, you're usually working with someone else who doesn't have one. So you've got a 1 in whatever chance that a random person is a donkey chance that you're working with a donkey.

gruseom 17 years ago | | |

it's also quite possible that he was just dealing with some rat bastards

Certainly, and I hope I didn't imply otherwise. But then a person in that situation needs to better discern who's a rat bastard. It still comes down to taking responsibility for what you need to learn. It sounds like we agree on that.

I think maybe what you're objecting to is a sense that I was blaming the victim. I admit there's a fine line between saying "it was the victim's fault" and saying "if the victim wishes to cease being a victim he must take responsibility for what he himself did". Possibly it's too fine a line to come across well in a brief post. It can be hard to tell whether someone is writing from a caring state or a judgmental one (whereas in person, you'd pick that up easily from nonverbal cues).

zkinion 17 years ago | | |

Yeah, I think both of you are right. Its part that there are scammers out there who use gambits and deception, and there's also due dillgence by yourself that must be done.

I need to mention that as far as a track record goes, a lot of the people that have wronged me in the past are extremely wealthy now or quickly getting there. Many have networks of friends that they don't scam, and that will readily vouch for them. The worst is if they do become extremely successful, and decide to be "serial entrepreneurs", the path they knew to previous success was the only path they know, and thus are more than ready to run gambits again. That's all they know. Therefore, a track record or "references" doesn't mean much.

staunch 17 years ago |

You can (and certainly should) do everything to protect yourself and you still might get screwed. Going into business with someone is giving them your trust. If you can't do that then you can't have a partner.

anamax 17 years ago |

> I'm going to call my normal lawyer tomorrow, but he mostly does criminal defense stuff

Get another lawyer.

lionhearted 17 years ago |

I'll highly recommend this book:

http://www.amazon.com/E-Myth-Revisited-Small-Businesses-Abou...

It talks about setting up clear roles and expectations from the beginning. Contracts typically aren't worth the paper they're printed on - where you're at in life right now, you're not going to go to court if you fall out with someone. Contracts protect you a bit if you're further along, but a contract isn't worth a damn thing without a good relationship and clear expectations. The most important thing a contract can do is to lay out clearly, in writing, what you both expect to do and have roles set up. But so many of your assumptions will likely be wrong that you might have to redraw some elements of it over time. It happens - but getting down who does what, when, where, and how they're measured is huge. A basic operating agreement goes a long way. Check out E-Myth, it reads fast. Probably my favorite book on small business ever.

triplefox 17 years ago |

One way to test your partner's trust is to deliberately instigate a money fight. It probably will happen later if not now, and now's when there's little at stake. Figure out a few "hard lines in the sand" that an unscrupulous person would really dislike, hold those positions as far as you think you can go without destroying your relationship, then come clean once you've determined the person you are truly dealing with. People will always reveal themselves when pushed to the edge.

gruseom 17 years ago | |

If anyone tried such a gimmick with me, it would damage my trust and respect for them permanently. I certainly wouldn't want to be partners with someone who would do that.