Buying out a co-founding partner before launch

Before Helply launched, a co-founding partner with significant equity was bought out.

I'm going to write about the mechanics and the lessons rather than the person, because the person isn't the interesting part and it isn't mine to publish. What I can say is that it was handled directly, it was expensive, and it was the right call for both sides.

Founder splits get written about constantly at the formation stage and almost never at the unwind stage. The unwind is where the real money is.

Why these happen

Usually not because someone did something wrong. That's the version people expect and it's the less common one.

The typical cause is that the company changes into something different from the one that was agreed to, and the roles that made sense at the start don't exist anymore. You divide equity based on a plan, and then the plan gets thrown out, and the cap table is still describing a company that doesn't exist.

That was closer to our situation than any dramatic version. The rebuild changed what the company was, and the shape of the partnership was set against something else.

The part nobody tells you

The conversation is not the hard part. The number is.

You are pricing a company that has no revenue, no comparable transactions, and a valuation that depends entirely on whether the thing you're about to build works. Both sides are guessing, and both sides know the guess is worth an enormous amount of money in one direction or the other.

There is no formula that resolves this. What you actually do is find a number both people can live with under a wide range of futures, which means the seller accepts less than the optimistic case and the buyer pays more than the pessimistic one, and both of you feel slightly bad. Feeling slightly bad on both sides is what a fair deal feels like. I've stopped looking for the version where somebody's delighted.

Also: pay in cash if you possibly can, and finish it. A buyout with a long earnout or a retained stake is a buyout you're going to renegotiate in 3 years with more money at stake and less goodwill in the room.

What made it survivable

Speed. Once it was clear this needed to happen, dragging it out would only have made it more expensive and more bitter. We moved.

Directness. No lawyers-first, no positioning, no going through intermediaries for the parts that should be a conversation. Lawyers papered it. They didn't negotiate it.

And doing it before launch rather than after. A buyout priced pre-revenue is a hard negotiation. A buyout priced after you've hit $1M arr growing 7% a month is a much harder and much more expensive one. The timing was partly luck and it saved a lot.

What I'd do differently at the start

Vesting on everything, always, including founders, including me. Obvious, universally advised, and still routinely skipped by people who think it signals distrust. It signals the opposite. It's the mechanism that means a change of plan doesn't become a fight.

A written buy-sell before you need one. Valuation method, timeline, payment structure, agreed at a point when nobody knows who'll be the buyer and who'll be the seller. Deciding the rules when both parties are behind a veil is the only time you'll get a fair set of rules.

And more honesty earlier about what each person is actually going to do in the next 2 years, not the next 6 months. Most of these splits are seeded at the beginning by a conversation nobody wants to have while everything's exciting.

Where it ended

I own 88.02% of the thing now, which changes a lot about how decisions get made and is its own post.

The buyout cost real money at a moment when we didn't have much of it, and it removed an unresolved question from the middle of the company before we tried to do the hardest year of work I've done in 20 years.

Cheaper than the alternative. Not cheap.