Founding a company is a lot easier than retaining control of it. Part of your journey will necessarily involve other people. First, it may be a co-founder. Then family and friend investors, and ultimately professional investors. During this evolution, the chances of you being left behind, and things getting out of control, increase exponentially.
So, you’ve founded a company, blown past product-market-fit, established sustainable revenues, and got your second round of investment from a couple of angel investors. You’re 100% physically and emotionally invested in your enterprise, and continue to make sacrifices when necessary.
What could be wrong?
When preparing for your first major round of funding from the US, you discover that while you have been busy taking care of everyone else – including your clients, your team and your investors, no one has been taking care of you.
The employment contract you put in place when you raised the ‘angel round’ expired eight months ago. Your salary has not been reviewed ‘to market’ since the ‘family and friends round’. You are a director of four companies with no insurance and no indemnity. Your initial founder equity stake has been diluted to less than 20%, and the ‘generous’ ESOP grant you carved out to give you a chance to claw-back some equity when everything was successful, has never been documented.
On the surface, you just need to get the paperwork up-to-date.
But more fundamentally, you’re back working for the ‘man’. You’re being seriously taken advantage of – or maybe it’s just that you’ve elected (by default) to play the victim. This business was your idea. It’s your baby. You’re putting in the extra miles. You deserve a little more respect.
The good news is, the business still largely revolves around you, and continues to rely on your passion and drive. Raising the next round of funding is only going to be possible with your full commitment.
The problem is, you’re dealing with professionals. They know you love ‘your’ company, and don’t want to see it fail – it’s still your reputation on the line. They will push you to the edge without even knowing it. It’s not in their interests (or even your own company’s interests at this stage) to fully consider your point of view. No one, other than you, has any incentive to do anything other than keeping things nicely where they are.
What you may not have realised is that the company’s lawyers also have a serious conflict of interest. They’re working for the company as a whole, including all of its shareholders. Legally, they can’t also be representing you.
You need to take back control of the situation, and now. Your power to take back control is decreasing by the day. Not just from a negotiation perspective, but also due to tax and corporate constraints that will only get harder to manage as the value of the company increases.
You need to make a list of the issues that can’t be ignored: your employment contract, a market salary review, and your grant under the ESOP. You need to lock-in agreement from the directors, and possibly also a necessary majority of investors. You then need to get it all documented and signed off.
Call us on 1300 654 590 or email us to get this moving. We’ll help you get back in control, with a binding entitlement to what you’re worth. We’ll help you avoid being left behind while your investors share in the company’s success.
The information contained in this post is current at the date of editing – 11 April 2023.
