The reason is that in this moment, you feel the work you've done must be worth a lot, because it is fresh in your mind, and because cognitive dissonance dictates you believe you haven't wasted all those hours of coding.

Meanwhile you are still imagining the big payoff from the company succeeding ... which is a great motivator when you're working on the startup, but when you are parting ways, you should remember being super successful is incredibly rare. You would benefit from bringing rationality in and remembering it was all always a long shot.

So you will tend to overvalue the company, based on the work you've done, while undervaluing the personal relationships and lessons learned.

Take a long view. Do whatever deal will make your cofounder happy. Be nice in every way to every one involved, make good on any promises, and give it time.

When you look back on this a year from now you will be glad you did.

( When I say value, I don't just mean profit; if you can't merge with another company in the space, or sell your code to another company in the space... No value.)

If it's just time and sweat to get to value, then don't leave! Take a vacation. Come back ready to make it work.

If it's time and sweat + some set of technology and business process innovations = value, then allow the cofounder who sticks with it to reap their reward, while you reap a different reward for different work.

From the sound of it, that's probably not even true...the company actually has negative value. The seed money wasn't given as investment, it was a loan. It doesn't sound like they've been able to create $10k of value to offset the liability of the loan. If the poster is able to walk away without having to pay back their share of that loan, they should probably count themselves lucky.

As is the case 95+% of the time, the company closed a year or two later, as far as I know having never made a profit.

If you want your cofounders to have at least a shot, giving them your equity in exchange of some small amount sounds the more reasonable and civilized way to go.

If it's been too long, I think it's still worth a shot, but you're more likely to have a cordial but somewhat distant relationship rather than a return to best-friendship.

I had an amiable co-founder breakup, and he still has a percentage of the company, but every day the proportion of the work that was done with that former co-founder grows smaller. We're kind of the same idea, but definitely not the same product, about 10 iterations further, an entire team of people who have been working nonstop for a year, millions of dollars of money risked, etc. I still am grateful for the work he put in, but it's now a tiny, tiny piece of the overall puzzle...

It just takes so much to be successful that the "idea" can't be worth much.

I still plan on hooking my former cofounder up if/when we have an exit, but recognize that if you take a large percentage it will make every aspect of the company incredibly difficult, especially when it comes to fundraising.

Though ... remembering myself when I was first starting out - this advise will be likely be hard to accept and act on.

Even if you're as nice as you can be, make good, on promises, etc, you may still end up being "the bad guy." Emotion is the enemy of rational thinking and there's going to be a lot of emotion here given the commingling of your personal and business investments.

You have to evaluate your behavior on the clarity of your own conscience, not on the communicated perceptions of the other party.

In my experience, it's hard to go meta together, but if you can successfully communicate: "I'm on your side, lets ascend together and look at it from far above", you both win.

The only add I can include is; what good is fighting hard for a piece of nothing? You aren't going to milk much out of this as it is.

Stay on good terms! Maybe the idea isn't there yet, maybe it will blow up in 5 years. What if its the next Facebook? Do you want to be remembered as the asshole who fought over a couple thousand dollars in the beginning or someone fondly remembered, well connected with the owners of the new Facebook? :D

You gave it a good go and have decided it isn't for you.

If it is still for your co-founder, thats fine - it sounds like she is the one with the debt anyway?

There is not point in haggling for equity if your company isn't profitable - it's worth nothing and you have decided you don't have the resources to make it profitable.

If you're really worried about it becoming something in the future, then perhaps you're not done yet and should regroup or pivot the idea.

You can't have your cake and eat it.

Yes you can.

There might be considerable future value in the work done so far. Neither party wants to give up on that, they both want to work on it, but they can't agree on a direction. So work out between you what all the non-sharable assets (physical things, brand, etc) are worth right now, and draw up an agreement that gives all of that to one party with an agreement to pay the other party the value of it plus something extra if a business is either funded or sold at any time in the future using those things.

Which person gets the assets should default to the person who took on the debt because if that debt is called in they'll need to sell those things to pay it off (the fact it was from a friend is irrelevant).

All the sharable stuff (code, IP, etc) just get cloned and you get a copy each.

Everyone's a winner.

Ah, the Winklevoss Gambit.

You currently have a share in the company which you want to sell. Without real revenue the company's value is almost entirely subjective. The right price then is basically what you can convince your partner to pay you for it.

If your partner calls your bluff and is prepared to scuttle the company that could well be $0. If (s)he believes in a bright future for the company it could just as well be $10+k though.

If you ever find yourself using those words when considering an action plan, run in the other direction as fast as you can. There lie antagonistic business practices. Ruining a friendship over a petty startup issues is not worth it. Nor losing your dignity. You're still friends, settle this as friends, each trying to make it beneficial to the other party.

The thing about a startup is that only the investors are really in a position to negotiate cleanly and with a clear head. If you're betting your time and effort, then by definition you're coming to the table with assets that are far more important to you than they will be to anyone else.

From my experience almost all cases where one party wants out and the other wants to continue (not just in tech) involve some amount of cash changing hands.

That amount being zero is just a special case for when very little value was accumulated. In that light giving "just walk away" as the general advice, even though it might be right in this case, is quite overly simplistic in my opinion.

And if your partner is also your friend you should also take that into account of course but from what I could tell the OP didn't mention anything about that.

Saying that the other party may 'call your bluff' implies that you're attempting to cheat them and hoping they won't notice. The word "bluff" is an euphemism for lies and deception. It's used positively in poker because the game rules allow it. But in real life "bluffing", i.e. deceiving and cheating, is frowned upon and often illegal.

The OP seems to have a relationship of trust with their partner and I'm urging him to keep it that way. I also meant it as a general business advice - it's important to keep friendly, trust-based relationships with people. Having to constantly look over your shoulder afraid of your co-founder stabbing you in the back, which is when phrase like "them calling your bluff" makes sense, is a lot of unnecessary trouble.

For me it was basically just a metaphor for negotiating over intangibles; without the apparent connotation of cheating your partner out of something.

I'm not even remotely in this situation and probably never will be, but I'm curious how this can work legally.

Sure copying the code is easy but isn't there the problem that the rights to it (to sell, to use in a different product) are difficult to distribute among several partners.

Wouldn't a potential future buyer of the IP want to make sure that he buys exclusive rights? Otherwise the other partner could just sell the same code to the competition. Same goes for patents etc..

I have no experience with such things so I might missing something very obvious here.

Any business will require substantial investment of a resource to read that code and remake the solution. At that point most of the scaffolding and UX code is redesigned and you have another clone with a different IP. This is different from the old brand but solves the technical problems in many similar ways.

In business it turns out that the UX is the requirement most of the time and the business IP will follow who ever has the same UX. No one really gives a shit about the nuts and bolts of the code unless it's open sourced.

You either believe in the idea enough to get it traction or start your new one.

Don't try to do both.

It's amazing how as humans we cling to the slightest thread of hope.

Wish your co-founder the very best of luck, sign everything over to her, and walk away. Hope she does amazingly well and can fund your 4th or 5th startup because you're still friends.

It's all or nothing pre-traction.

Ultimately, if you believe in it, stick at it. If not, walk away and realise that opportunity cost is a very real thing and hanging around for years is very expensive.

Depending on a 'cultural shift' sounds incredibly dubious, and IMO sounds like you all don't really know what you are doing. I would walk away and take these lessons out of it, reflect some more, and take a sharper approach for the next project.

"If I met an undergrad who knew all about convertible notes and employee agreements and (God forbid) class FF stock, I wouldn't think "here is someone who is way ahead of their peers." It would set off alarms. Because another of the characteristic mistakes of young founders is to go through the motions of starting a startup. They make up some plausible-sounding idea, raise money at a good valuation, rent a cool office, hire a bunch of people. From the outside that seems like what startups do. But the next step after rent a cool office and hire a bunch of people is: gradually realize how completely fucked they are, because while imitating all the outward forms of a startup they have neglected the one thing that's actually essential: making something people want.

We saw this happen so often that we made up a name for it: playing house. Eventually I realized why it was happening. The reason young founders go through the motions of starting a startup is because that's what they've been trained to do for their whole lives up to that point. Think about what you have to do to get into college, for example. Extracurricular activities, check. Even in college classes most of the work is as artificial as running laps."

> http://www.paulgraham.com/before.html

If you look at the pasts of some of the most successful people, you'll find at many points that they were "in it for the wrong reasons". Whatever reasons you find yourself doing something for isn't as important as the effectiveness of the actions you're taking.

I've known plenty of really successful people whose morals I wouldn't touch with a ten foot pole. Note I'm not talking about ethics, you can't succeed in business past a certain point without good ethics, startups are way past that point, nobody will deal with you. They were pleasant to deal with professionally, but then start spouting off stupid things about women, what dumb things they were going to do with all their money, things you just have to tune out if you want to make something out of the business relationship.

The difference between your's and PG's assessment is that PG is making a statement directly concerning their ability to run a startup. They literally don't know the first thing about what it takes to succeed in that avenue, making something people want. You are assuming it's their motivations that cause that ignorance. It's not, even the most prestige-hungry kid can grasp that you have to make something people want.

Uber HQ called and said they want to have a word with you.

Otherwise I agree (that little part I sadly have to disagree with, even though I so want to believe it's true). What pg is really complaining about there is that "playing house" is basically cargo-culting startups. Which means having a completely wrong framework to think about how to make something work.

I think this is a moral judgment cloaked as an ethical one.

For an example I'll point to the perennial Rockefeller and Standard Oil. If you look on the surface, Rockefeller's business practices look positively abhorrent. In an event called the Cleveland Massacre, he threatened to bury rival refiners unless they sold their business to him.

But look underneath, and the picture changes dramatically. The prices he offered for his rivals were so good that many of them started new refineries just so they could sell to Rockefeller. If they took Standard Oil stock, they became fabulously wealthy. Rockefeller was eminently fair in his business dealings. Those who claimed otherwise were doing so out of malice or ignorance.

I bet if you looked under the surface at Uber, you'd see a different picture than the one you see now. When I look at Uber, I see a company bravely fighting a political battle that absolutely has to be fought.

Rockefeller hired some really nasty guys that didn't have the same ethical practices he did, they caused him no end of trouble, but in the end, he needed all the competent oilmen he could get his hands on to run Standard Oil. His executives got as far in the business as their ethics would allow.

Uber needs all the resources it can muster to change the way the country thinks about transportation and business. The people at the top can't afford to sweat the details of everything their employees are doing.

I don't know exactly which Uber business practices you're referring to as unethical, but I bet if you critically analyzed them, you'd find that they're either small and localized, (shenanigans in local markets against Lyft) or actually fair when you take a closer look. (their driver compensation structure) Those at the top can't afford to get something so important wrong.

For me personally, I try to see past my distaste for people's inner beliefs / convictions / desires. I consider that to be an important part of professionalism. Also too there might be the opportunity to show someone how to be better as a person while you're helping them fix whatever business problems they're having.

On the other are people that fear all of those things about founding a company. Taxes, employing people, insurance, etc. but can "tackle the real work head-on".

I think this happens to most people in most situations. We go into things with all sorts of expectations, and then find out that our expectations were inconsistent with reality. Applies to joining any industry we might have looked at with rose-tinted glasses, or even making life decisions like getting married or having children.

The desire for prestige isn't limited to upper-middle-class folks. Poor young kids join gangs and do drugs for similar reasons.

When I did my very first project when I was 18 I spent money on a lawyer and incorporation before we made any sales, of course the project tanked after we made a couple of hundred in revenue and then split ways.

Yeah, why would you want to be insured ...

They were undercapitalized as most businesses are and went under. 1970's interest rates didn't help nor did the 1970's economy and St. Cloud was still the boondocks and brutally hot and humid in the Summer months. Years later when he told me about it, he said:

  We didn't lose our shirts, 
  but our sleeves were shorter.

Anyway, the most valuable thing a person can walk away from failure with is their values intact.

Good luck.

http://avc.com/2010/11/employee-equity-vesting/

Everytime I've seen a company do something else, somebody leaves early on with too much stock. Then on the next round it has to be negotiated down anyway. The amount always ends up similar to what a 4 year vest would have been!

So if you've done one full year of work, and so has she... And you each "own" half, that means you would keep a quarter of your half that has vested if you walk away. i.e. 12.5%

Hmm, that still sounds like quite a lot to be honest, but it really depends on how much you've actually both built. Maybe you haven't done a year of full time startup work.

My view is, BTW, not from Silicon Valley, but UK companies.

You know the saying "experience is what you get when you don't get what you want"? You didn't throw away 1 year on this project, you learned valuable lessons. Just make sure you do learn them, then time is not wasted. Been there.

Maybe it's too soon for this advice, but still: next time try making something that doesn't require cultural shift, because, let's face it - you won't be the one who will cause it. Cultural shift is something you can anticipate and help with, but it's not up to a single person to do it. You could just as easily say "I have something people don't want".

The real question is whether you feel obliged to return some of her debts (there is a difference between time and cash). Other than that, forget the brand, forget equity (it's not worth anything and it won't be in the future unless she pivots - and that has nothing to do with you anyway). Move on. The faster you do it the better chance you have of starting something better. And try to learn from the experience. What went wrong? How can you avoid it in future projects?

Best of luck.

Don't worry too much about that, there is no brand.

It also doesn't matter who came up with what idea, that's completely irrelevant for this context.

Is the loan owed by the corporation or by her personally? I'm guessing it's on her head to pay that back.

You're very likely going to have to walk away with nothing material, if you plan to walk away now. Rather than literally nothing, hopefully you learned something.

I'd suggest that your best possible options are to either walk away completely (probably your best bet), or to negotiate your equity down substantially and let your co-founder know that you would like to retain a modest stake in exchange for all the work you put in. She is going to be putting in the work going forward, it's unlikely she'll be ok with you retaining your full co-founder stake if you're going to be gone this early into the venture (meaning it's an extra incentive for her to close the corporation and move on, given the present stage of the company, if she can't reduce your equity).

If you're really confident you have something valuable in the corporation (it doesn't sound like it based on what you've described, it sounds like it's extremely early), then talk to a lawyer.

Just walk away.

Or it's a bad idea and nobody wants the product. Not every startup deserves to survive.

Sorry for the harsh words, but is sounds like what everyone involved in this project needs most is a brutal dose of honesty. There is no potential upside to miss out on. Just walk away.

Whatever you do, LEAVE NOW. It is a waste of both your time and her time.

A product with few customers and a largely allocated cap table, would likely assure no one would work on this in the future. Try and leave on amiable terms, and ask for a percentage or a flat rate warrant.

If the company pays back the original investor and makes a profit, your time will be valued at /some rate/ and you will be paid that back.

The most important thing is try and leave on decent terms.

This way there will be two companies trying to evangelize the prospects (sometimes the same) with the need for a huge cultural change.

Your smallest problem will be competition from your former company, compared with customers not even considering your solution because they feel it is an overkill.

But if no such route exists (idea-likers -> 10x advantage see-ers -> subgroup -> subgroup -> subgroup etc), then it can't be adopted by the mainstream. Because when they check with their friends, no one has heard of it; not even anyone demonstrating how much advantage it gave them. And none of them will try getting a 10x advantage unless the idea in itself has been previously validated by idea-lovers.

On your question: I really emphasise with you, losing your hard work and sacrifices; I'd also want to get something from it, to not feel "cheated". Two points: (1) be aware of the cost of spending additional work and sacrifices on a long drawn-out divorce; (2) do you really want a memento of this unpleasant breakup? Wouldn't it be freeing to walk away, clean, without any of it hanging on to you?

I agree with the other comments about not burning your bridges. The real startup is your whole life, over decades. Do what will work out best in the long term, as if this was just a frustrating little bug in some minor component - that turned out to not be the best way to do that bit anyway.

20 years after my first business break-up, I don't even remember what we were fighting about or how we resolved it, but I remember that it ended poorly and that I wish it weren't so. For better or worse, co-founders are big parts of our lives. That will be true long after you've spent and forgotten whatever money you get in a bitter settlement.

This month, on the other hand, I'm leaving something after our venture didn't work out. We just did a big project retrospective a few days ago. It wasn't easy, but talking everything over meant that the team walked away stronger than ever even as we go our separate ways. We're all very proud of that.

Either stay on-board, keep on fighting (and investing time/money) and make your mission a success together.. or leave it to your co-founder to do so! If you walk away now - considering the broken state of your company, the debt and all that - you basically give up all your rights. Especially when somebody else turns that ship around after you're gone.

Your co-founder will most likely end up with sleepless nights, 16+ hour days , pitching the idea to potential customers/partners/investors/buyers, worrying about financials and whatnot to get shit fixed.. while you, well, walked away starting something new or going a vacation as some already suggested. There's nothing wrong with that, but don't expect people to invite you for cake after you did. You can sell your shares to your co-founder for the initial value, or just give it to her for all the money she invested/lost. Your idea/work so far is worth nothing when you or the company can't monetize it right now.. See it as a very loooong marathon that you quit after a few miles of sprinting. Executing an idea means executing it to the very end where it became successful.

And in case you two decide to leave that ship together, share your earnings (debt) together.. Same as if you decide to turn things around together :)

Good luck with whatever you decide to do, as long as you play fair!

No money no gain, is really a horrible philosophy to live by.

2) If you kept track of what you loaned the company or any assets you bought, then sure, ask for it back. If not, next time keep a tab.

3) You're deciding on an equity split now? You're not really co-founders until you've figured out who owns what %. So it sounds like you didn't even have a company yet. But now you want to claim ownership because you are quitting? That's backwards.

4) No one owes you anything for your time and effort. Just imagine if she tried to bill you for hers.

Entrepreneurs do not get paid by the hour.

If I were you, I'd have a heart to heart and just honestly tell her why you'd like to move on. Entitlement will lead to an argument, but vulnerability hardly ever does. But if you're both butting heads because you both feel entitled then that was probably part of the problem. And seeing you don't have any legal ownership documents, her leverage is as good as yours. Unless you're willing to fight in court, it's a toss up. No one wins. And until you have ownership documents, she can't claim ownership against you, nor can you against her. So you both can walk away with non-exclusive rights to 100%. Why bar each other? If she wants rights, then ask her to buy you out. Come up with a round number, and that's that.

It's almost impossible for any of us to give concrete advice on the specific terms of the breakup just based on only a one paragraph description. However, as an angel investor, I will caution against an equity split in which only one of you continues with the startup. A cap table with a departed founder holding a significant stake is a yellow flag. Even holding constant the terms that I, as an investor, will invest at, I want all of the remaining equity to be "working" (i.e., providing incentive to the current team, or in an option pool to attract talent). Of course, sometimes an equity split is the best choice, but, if it's a close call, I'd lean towards another approach. In your case, if the brand can be easily separated from the assets (likely, since you are early), a split based on your third options sounds appealing (though, again, I am in no position to recommend anything, just to throw some points out there).

However, if the company hasn't made much money and doesn't have any customers, then there is virtually no brand/identity and the IP is nearly worthless. Your goal now should be to avoid being liable for the company's debt and documenting a clean break while leaving on good terms. This will allow your cofounder(s) to continue on if they wish to do so while leaving you in the clear to pursue other interests.

If I were you I'd sign a document giving all IP and rights/equity you may have had back to the company and walk away. Hire a lawyer first before doing so to verify that you are in the clear.

I'd write off the time you put into the startup and consider the effort you put in as an educational investment in yourself. And congrats!, you just walked away from your first failed startup, I hope you learn from it and get back on the horse asap.

However remember that the equity is worth nothing if the cofounder doesn't believe you deserve the equity. He can just start a new company. Maybe you can sue him, but that would be idiotic at that stage.

The smartest thing is to just walk away, to the next venture and forget about this. There isn't probably much to gain.

The advice was clear. The value of the company is based not the future expected cash from my work, not my effort. In small start-ups, a leaving co-founder often takes about as much value away (e.g. relationships) as he/she thinks he/she deserves.

Difficult to accept. In the end I told my co-founder that it was important for me to see some compensation for the things we had build up. I got a few percent of the next project he did, and walked away with 10-20k EUR.

Looking back, that was totally fair. It has been 2 years since, and the company is still going well and generating good cashflows. Most (all?) of the income now is due to his work, not mine. I've come to appreciate over time how we solved this.

> we have very misaligned interests

=> walk away is your option, offer a split, if this doesn't work, stop to contribute and wait and see

Cofounders are the #1 reason you start a startup and they are the #1 reason when a startup fails

If this works, ask your co-founder to let you keep a small minority stake and the let her convert all her debt to equity.

This way, if that company does succeed, you will get some value out of it, and you will be recognized as a co-founder. If you just walk away with the "assets" (whatever they are worth), you may get some money, but a load of heartburn.

p.s. one of potential disadvantages is if one of the sides has access to larger capital; they can still lowball the offer (knowing that the other side would not be able to do a reverse offer).

If your company isn't worth a lot of money, "walking away" is the best option in my opinion. Oh and a brand that doesn't make any money, is worthless.

     will not like to walk work away with anything gained from it.

Just move on and chalk it up to experience.

I thought about it for around a week (how I would do the break up) - I only really ever broke up with one girlfriend in the past and that was hard, even at 15.

We went for a coffee and I'm pretty sure he knew it was coming. Much respect to him. He knew I was confident in my decision and didn't try to persuade me to stay (and muster and broil resentment in the future as humans typically do).

He was still adamant about pursing the startup regardless of having no technical skills (I was the developer, and it was only two of us). I helped him get the funding and promised to do a code swap with any new developer that comes in; in return for being washed free of the startup - regardless of funding (which I didn't want to touch).

No new developer came on board needless to say, and I never asked him what he did with the money. We are still friends and meet from time to time to catch up.

We had previously discussed 50/50 equity split, but when I walked away I said I wanted to be totally free of it. It wasn't about the money, life is long and it's not a race to get the most money.

I was going to say 'to get rich', but richness can be found even in chocolate so I don't agree with calling people with a lot of money 'rich'.