Corporate & Securities Law

Saks Does Not Take Restricted Stock

By Ryan Roberts

It’s no secret that a good founder team is an essential step for a successful startup venture. You hope that your co-founder has the mental toughness to stay strong through the bootstrapping process where short-term milestones typically go unrecognized and bank accounts dwindle. But what about your co-founder’s wife, husband, girlfriend or boyfriend?

Your Partner’s Partner

While it’s difficult for your co-founder to maintain course, it’s even more challenging for your co-founder’s significant other to continue “believing in the dream” and remain on board with the startup because:

(1) No matter how many times your co-founder explains it, the significant other can’t visualize the startup’s concept and/or monetization strategy;

(2) Like you, your co-founder is smart and can probably seek out and land a “real, paying job” (the significant other’s words, not mine); and

(3) During your startup’s bootstrapping period, 4,000,000 shares of your startup’s restricted stock won’t purchase that Prada Soft Calfskin Leather Satchel at Saks , or more importantly, put food on the table.

End of the Beginning

Your co-founder can only say “we’re almost there” so many times before his or her significant other gets restless and pressures your co-founder to find an immediate-cash-flow-positive opportunity. Once this occurs, it’s likely only a matter of time before your co-founder does.

Even if your startup put its founders on a vesting schedule, the loss of momentum from losing a co-founder can still be painful. While you can try to poach a founder from the 37signals Job Board, it won’t be a quick recovery. If you lose a portion of the team you can’t replace in a timely manner, the startup may be over.

Conclusion

I’m not suggesting startups should run background checks on prospective founders’ significant others. Rather, co-founders should simply realize that their partner’s partner matters.

And if your startup has significant others that stay on board, thank them. Repeatedly.

Full post as published by The Startup Lawyer on January 18, 2010 (boomark / email).