How serious is your fresh, new startup? And the art of the Trigger Clause.

Cliff notes: The things I learned from the following story involves working with friends, evaluating the commitment of partners early, outside the box founder share distribution, keeping very strong emotions at bay, and most of all… saving time!

 

I was dealing with very difficult and strong emotions in January 2012. I was laid off from my own company, Tap.Me. It felt like what I imagine getting divorced from someone you love and, surprise, they no longer love you. I’ll talk about this juicy stuff, professionally in a self-help way in another article now that Mr. Ron May can’t use his AOL email. This is the first time I have mentioned it publically so don’t ask me about it.

------ Let’s begin -----

 

In July 2012 I lost my two partners that invited me to build what became with them in January of that year on their idea, Matador. I had a couple of other early and mid stage startup opportunities but this one was the most appealing in terms of market potential and the people I was going to be working with. I tried to explain what this venture would entail early on. The workload was going to be heavy, the hours long, and the lifestyle they were used to would change when we pursued this full time (way lower salary than they were used to).

 

Near the end of June we were far enough for me to go out and start raising a seed round. We legally reformed the company, thanks to the greatness of Bart & Synergy Law, and negotiated shares. (Bart is a giant legal wizard with a heart of gold. I recommend you use Synergy.) 

Next was salary. I was the only full time employee at the time and my partners were very well paid at their current positions. They also wanted to make sure I had the money committed before they jumped full on board. This is a typical situation once people get to the next stages of life, luxury, and family.

 

After thinking about the situation I knew three things needed to happen.

 

Quickly I proposed a “trigger clause” to the other partners and lawyer. We negotiated the terms and settled on something similar to this:

                i. Continue their full time positions

                ii. Work on Matador a minimum of 12 hours a week

                iii. Pay into Matador a % of their pay checks each week 

 

The goal was to allow everyone a level of comfort. The rules could also be amended with a 2/3 vote, which enforced me to work my butt off. I proposed a top $50000 salary for founders, but was quickly out voted. The conditions were set to allow each of us a $70000 salary. It was much higher than I was used to starting companies at but also much lower they there were receiving with the comfort of their full time jobs. 

 

In the following two weeks of putting the trigger clause into play there was mixed emotions I could sense from the partners. The company had just graduated from a hobby to a very risky investment that took passion and all the things I warned them from the first paragraph of the article. I met with them one on one a couple of times to hear their fears and explain they are normal, and I look at all risks I am aware of and plan routes to navigate them. 

 

In the second week while at a startup event at 1871 I was asked if we could change the salary stipulation to a much higher amount. The thought process was to cover health care and other benefits they were receiving. This is when I knew we had a dire problem. I explained it was not possible because the money we were raising was meant to hire the people to make the company’s value increase and allow us to sell it for a profit in a couple of years that could possibly be worth more than the money you were losing from quitting the fulltime job. It was not meant to allow us luxury it was to comfortably live. 

 

Within the next week I was the only one left, holding the saddles and wondering what to do next. 

 

I learned we should have formed the company the moment I came on board. It would have forced us to talk about these issues. The founders were also my friends, and one of them was my best man whom I have started big things with while in college and shortly after. I felt comfortable and excited to work with him again because we had an established positive dynamic. We were able to navigate the working with friends quite well by being transparent about our feeling and the experience I had creating startups prevented a lot of the giant black hole of unknowns. 

 

Would we have continued if things were legally serious from the start? I don’t know.

 

Would I have learned the intricacies of two whole new industries that were foreign to me? Maybe not. 

 

Would I have been able to come up with that cool trigger clause scenario and teach you guys about it? Doubt it!