Breaking Up Should Be Easier To Do: Co-Founder Structures That Accommodate Fast Failure

One of the toughest challenges to building momentum behind a new venture is attracting smart people to explore, mature and execute on the genesis genius that gets it all started. Finding co-founders is one thing. Finding incentives to get them to stick around is another thing altogether, especially if you discover in your early travels that your best-thing-since-sliced-bread requires a little more baking before its ready to eat.

Our experience at LaBarge over the last decade is that over-lawyering at this very early stage can be a real momentum-killer (think of your average house party DJ breaking out the Jethro Tull just as the third round of Mojitos are kicking in). After all, us lawyers deal principally with divorce stuff. If everyone's getting along and the business is rocking and rolling (not in the Jethro Tull sense), then who really needs us, and the myriad of employment, shareholder and other agreements that provide the landscape for binding talent to an enterprise.

If you have a great idea, and have identified the great people to validate it, less legals might actually be more in terms of building the kind of trust and excitement among the management team that creates genuine value. Pick a validation milestone as a group where you'll all know that you've got something real and worth pursuing. This might be customer feedback, an actual intent to buy the technology or, less often these days, third party financing validation. To bridge the gap, enter into a short term letter of intent regarding the contribution of intellectual property rights, which would flip into a full-fledged assignment upon your hitting the milestone and committing to organizing the startup structure in earnest.

This is hardly perfect if you don't hit your milestone. Everyone walks away with whatever they brought to the table, so you need to go into it as a founder with your eyes wide open. However, it does encourage fast failure, and often facilitates maintaining long-term relationships among co-founders, who don't get hung up on either negotiating or settling legal relationships in situations where the group hasn't had the chance to create any genuine value. Living with yourself to live another startup day, and find the next-best-thing-since-sliced-bread is what this industry is all about, and don't your lawyers get in the way of that.