What to do when a founder leaves the startup?

Hey everyone. Welcome back to another Q and A on investstream US India. I'm Pankaj and today we're going to have another follow up with Karthik Sridhar, the founder of Supply AI. On a previous Q and A, he answered questions about how he and his founders split their equity when they were getting started. Today he's going to answer how they actually handled the whole process of one of the co founders leaving. I hope this is helpful for you. Please leave your comments in the section below. And if you haven't already, please subscribe and hit the notification button so you don't miss a single Q and A or episode of investream US India. Thanks again for joining us. We'll see you again soon. Nothing in this podcast is like professional any sort of advice.

The first point about this have a vesting schedule, right? So me and my co founder decided that we'll have a four year vesting schedule with a one year cliff. So what this means is that at the end of the first year you'll earn the first 25% and then every day you earn some stock until the end of the four years where you'll earn the entirety of whatever share that you've decided to split upon yourself. Now my co founder left in year three, right? So he'd gotten his cliff, but then there was a little bit of stock that he had vested and there was another set of stock, a big chunk of the stock that had invested. So when we wrote out the founder equity we had this clause wherein the company gets the right to buy the share. So what is always prudent to do is to at the point of separation figure out if at some point in time you want to buy the company, want to buy the shares from your from the co founder who's leaving. Now the first part is the unvested shares. So you should have an agreement of pricing of getting the unvested shares. The company has the right of first refusal. So you should have on par at whatever price that you formed the company that you can buy those shares. That's number one. But for the shares that have been vested and it is important that you at least have this conversation with your co founder to say hey, do you want to stay in the company at some form or fashion? I would prefer that the cap table is clean. Other investors who come in don't have another questions. There are multiple reasons why you want to make sure that your other co founder has when you part amicably, you have a discussion around what share of percentage that he should still keep or he should completely bought out. And so at that point the company needs to be able to have a corpus of fund at some point in time which they can then go in and buy the shares off of your co founder and make sure that the cap table is clean. That's one recommendation that I would say everyone should follow. I know a lot of companies don't follow that they have either because of bitterness in the relationship that forms out a little later. Make sure that you have this discussed and signed on earlier. Right, that's my recommendation.

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