Urgent help needed - how to get rid of inexperienced business partner in Edtech startup

[fashionistagirl]

Hi everyone. I don’t know where to go so I’m posting here.

I have an edtech company that is highly valued. It’s worth a lot. I could get a lot in an M&A deal.

The problem is that I hired a friend who is a horrible manager. I’m not a good manager either but I hired him as CEO to run the company. I had serious health problems going on the first year and we made no sales entirely due to me. In spite of this, we’ve had serious problems because he does no work. It is not a good working relationship. There is no communication, which is like 90% my fault and 10% his fault. I gave him 35% equity and I don’t know what to do. He put in maybe 14 days total of sweat equity over a 1.5 year period. He doesn’t read the books I recommend or complete training courses I recommend.

The VC I spoke to said he’s not a businessman and there is a team issue. I agree with him.

I don’t want him to make 35% of every sale. We have not made sales YET but when we do I don’t want to give him a lot.

How do I get rid of him while sales are 0 and marketing/PR is 0. Is there a way to give him enough for his tuition and living expenses in law school, plus enough to buy a house while also severing the business relationship? Because I need someone good at e-commerce who has an MBA.

 

[Sols]

If he owns 35% of the shares of the company already, there is nothing you can do to prevent that from being the case or undo it.

Best you can do it to offer to buy him out at whatever the company is currently worth, or offer him another deal, but make sure it's not undervalued as he could in a worst case scenario sue you in the future if you defraud/deceive him now. Take it as an expensive learning experience.

Unless a local lawyer provides advise to the contrary, don't try methods like starting a new company and abandon the current one, undervaluing the company, diluting him through creating new share series and things like that. That'll likely be considered fraud if your ex-partner decides to go after you.

There are nuances under local law that may affect your choices, so speak with a lawyer. Get all the paperwork drawn up correctly.

In the future, unless you are 100% certain someone is going to offer value to the company from day 1 (money, knowledge, time), only give out equity after someone has proven themselves worthy.

 

[CaptK]

1, Is there an actual agreement, in writing or is their an email confirming this 35%.

2, As majority shareholder you still have majority voting rights. I would take on an "investor" who wants to pump 4M into the business for B Shares but you must put in an amount similar to the percentage share.

3, You have a debt you took when setting up your company which is now due. He is liable for 35%, put up or get out.
If not you can liquidate that company.

There are many legal ways you can get rid of him as you are the majority shareholder.

 

[Martin Everson]

How do I get rid of him while sales are 0 and marketing/PR is 0. Is there a way to give him enough for his tuition and living expenses in law school, plus enough to buy a house while also severing the business relationship? Because I need someone good at e-commerce who has an MBA.

You want to really give him a house and tuition money and the company has zero sales so far?

Vote to set a performance objective and duties for the CEO. If he does not reform then hold a vote and immediately fire him as director as you hold majority voting rights I hope? Then leave him where he is. Then vote again to create new preference stocks that sit higher up than common stock and give those to yourself and any future investors. There is nothing he can do if you hold a vote on all of this. He can keep the common stock as souvenirs.

 

[CaptK]

You want to really give him a house and tuition money and the company has zero sales so far?

Vote to set a performance objective and duties for the CEO. If he does not reform then hold a vote and immediately fire him as director as you hold majority voting rights I hope? Then leave him where he is. Then vote again to create new preference stocks that sit higher up than common stock and give those to yourself and any future investors. There is nothing he can do if you hold a vote on all of this. He can keep the common stock as souvenirs.

That's what I meant but @Martin Everson has translated it into English lol.

 

[polonieth]

He currently owns 35% of nothing, and based on your post, it will continue for the foreseeable future to be 35% of nothing

 

[fashionistagirl]

He currently owns 35% of nothing, and based on your post, it will continue for the foreseeable future to be 35% of nothing

The IP is valued at $80 Million. Maybe don't be a tool? Kthanksbye

 

[fashionistagirl]

You want to really give him a house and tuition money and the company has zero sales so far?

Vote to set a performance objective and duties for the CEO. If he does not reform then hold a vote and immediately fire him as director as you hold majority voting rights I hope? Then leave him where he is. Then vote again to create new preference stocks that sit higher up than common stock and give those to yourself and any future investors. There is nothing he can do if you hold a vote on all of this. He can keep the common stock as souvenirs.

My holding company has $189 Million in assets--this is a subsidiary company. I think giving him something is the right thing to do since he sacrificed time he can't get back. Leaving him stranded is against my religious beliefs. We're both in our 20s and it's the right thing to do.

 

[fashionistagirl]

1, Is there an actual agreement, in writing or is their an email confirming this 35%.

2, As majority shareholder you still have majority voting rights. I would take on an "investor" who wants to pump 4M into the business for B Shares but you must put in an amount similar to the percentage share.

3, You have a debt you took when setting up your company which is now due. He is liable for 35%, put up or get out.
If not you can liquidate that company.

There are many legal ways you can get rid of him as you are the majority shareholder.

1) Yes. It's in the contract. I fired him last night. I told him I'm willing to negotiate.
2-3) I can't do this in good faith. My conscience would eat me alive. I know this is what people do, but I can't. So many founders get sued. My friend got sued. I'm NEVER making an emotional hiring decision again. I felt so bad for him but you can't hire people out of pity.

 

[fashionistagirl]

If he owns 35% of the shares of the company already, there is nothing you can do to prevent that from being the case or undo it.

Best you can do it to offer to buy him out at whatever the company is currently worth, or offer him another deal, but make sure it's not undervalued as he could in a worst case scenario sue you in the future if you defraud/deceive him now. Take it as an expensive learning experience.

Unless a local lawyer provides advise to the contrary, don't try methods like starting a new company and abandon the current one, undervaluing the company, diluting him through creating new share series and things like that. That'll likely be considered fraud if your ex-partner decides to go after you.

There are nuances under local law that may affect your choices, so speak with a lawyer. Get all the paperwork drawn up correctly.

In the future, unless you are 100% certain someone is going to offer value to the company from day 1 (money, knowledge, time), only give out equity after someone has proven themselves worthy.

Thank you. I agree and I appreciate your guidance and advice. I'm going to try my best to buy him out.

 

[polonieth]

The IP is valued at $80 Million. Maybe don't be a tool? Kthanksbye

Great.

"I have a company, it is worth a lot"

"We have not made sales YET but when we do"

"My holding company has $189 Million in assets"

Comes on a forum not related to the topic to ask for free advice I'm sure VC's are queuing up to invest or buy out this stunner of a company that's definitely, absolutely, worth a lot.

 

[fashionistagirl]

Great.

"I have a company, it is worth a lot"

"We have not made sales YET but when we do"

"My holding company has $189 Million in assets"

Comes on a forum not related to the topic to ask for free advice I'm sure VC's are queuing up to invest or buy out this stunner of a company that's definitely, absolutely, worth a lot.

Actually, the valuation is from a private equity company and this subsidiary was meant to be a pump and dump post-MVP. Do you know what IP is? Probably not, seeing as you’re nowhere near as smart and experienced as the other guys on this forum. Please take your misogynistic negativity elsewhere. I wanted confidential advice from likeminded people and I received very good advice from two posters.

Cofounder is happy with my settlement offer and this situation is resolved.

 

[CaptK]

Cofounder is happy with my settlement offer and this situation is resolved.

Get him to sign TODAY!!!!! and then pay him off as quickly as possible.
I have a small interest in an EdTech company myself and I would like to find out more about yours.
Please PM me to discuss where we could possibly have synergies.

 

[polonieth]

Actually, the valuation is from a private equity company and this subsidiary was meant to be a pump and dump post-MVP. Do you know what IP is? Probably not, seeing as you’re nowhere near as smart and experienced as the other guys on this forum. Please take your misogynistic negativity elsewhere. I wanted confidential advice from likeminded people and I received very good advice from two posters.

Cofounder is happy with my settlement offer and this situation is resolved.

Resolved in under 24 hours, fantastic news. You almost couldn't make it up. Oh wait.

 

[Martin Everson]

Great.

"I have a company, it is worth a lot"

"We have not made sales YET but when we do"

"My holding company has $189 Million in assets"

Comes on a forum not related to the topic to ask for free advice I'm sure VC's are queuing up to invest or buy out this stunner of a company that's definitely, absolutely, worth a lot.

Your not the only one to smell the BS on this one...lol

Resolved in under 24 hours, fantastic news. You almost couldn't make it up. Oh wait.

Well we all know the OP made up the IP and holding company values .

 

[fashionistagirl]

Your not the only one to smell the BS on this one...lol



Well we all know the OP made up the IP and holding company values .

Excuse me?

 

[fashionistagirl]

Resolved in under 24 hours, fantastic news. You almost couldn't make it up. Oh wait.

The next time I want advice from a Eurotrash piece of garbage struggling to hit 7 figures in revenue, I’ll be sure to call you.

there’s a reason I’m on Forbes lists and you’re struggling.

 

[Martin Everson]

You cant make this all up I swear...lol.

 

[GiGoGo]

there’s a reason I’m on Forbes lists and you’re struggling.

Looks cheap for a top Forbes to seek free advice in a public forum. Interesting if your "best" friend Googles and finds this post of you trying to defraud him

 

[silentreader]

Gotta love those monkeys!
Had a good laugh... now the admin should delete the thread