A plan that started with such optimism ended in disaster. But could it have been avoided?
In this story, there are two friends — Friend Anthony and Friend Betty.
Anthony is a technical guy with years of coding experience and server setup. Betty is a sharp businesswoman with an expertise in solving problems, workflow management and growing the business.
After an initial market study, both Anthony and Betty decided there is an opportunity for a ‘grand plan’ business idea. They register a new company, start off as equal partners (each holding 50/50 equity), are listed as joint signatories, and each contribute working capital.
Later, Anthony and Betty came to the conclusion that their business would require a good software platform, so Betty started writing a number of requirements after doing more research and gathering ideas from resources available online. Anthony, on the other hand, looked at available tech solutions but did not find any that matched the needs of the company.
The two then jointly decided Anthony should hire a programmer to help code the platform, and that the company would pay for the development costs. Betty continues to provide design input, while Anthony works with the programmer to roll out the platform.
After a month of blood, sweat and tears, the company managed to roll out its pilot version to its first customers. Revenue started to flow in quickly. Anthony and Betty worked together to fix bugs and adjusted workflow as well as the software to meet the needs of the customers.
However, after three months, Anthony suddenly decided to stop working with Betty for various reasons, including what Alpha called ‘unfairness’.
This came as a surprise to Betty, especially since they were made equal partners and Betty could not have done anything without Anthony first agreeing to it. There may have even been other personal issues which brought about the split.
Nonetheless, seeing that the business has the potential to grow and expand, Betty decided to purchase Anthony’s shares in the company by paying twice what Anthony contributed for his share of the investment and cover his contributions to the development of the business.
They also negotiated an arrangement which saw Anthony facilitate the transfer of the platform and source code of the software to a new team, which Betty had to hire in order to manage the new platform. Anthony fulfilled his duties, and Betty saw the monies were paid and shares transferred.
Betty then continued with the new team and brought on new shareholders to build the business.
After eight months, Betty learned Anthony had started a business similar to the one they worked on together. Shocked by this discovery, Beta conducted his own investigations and found Anthony was using the exact same platform that the company had used previously.
In Betty’s eyes, Anthony was being unethical by starting a similar business — one that Anthony chose to give up — and using the same platform Betty built with his time, effort and money.
Furious, and also pressured by the new shareholders, Betty had no choice but to take legal action against Anthony. Betty sued Anthony for breach of copyright because Anthony was using software and a source code that belonged to Betty’s company.
However, Anthony turned up the defense and said because wrote the software, the copyright belonged to him, and not the earlier company, as he never assigned the company as the owner.
This left Betty aghast and even more shocked. How could his technical Co-founder work on software for a startup, leave the startup (and get his money back too) and claim the startup does not own the software? The very same software that was handed to the company by Anthony is one that Betty has been offering to customers to use for over a year now.
“What if the both of us had continued on this startup partnership for three years and gained millions of customers? Could Anthony then still claim ownership of the platform and demand more payment for the startup? Was this Anthony’s plan all along? How did I not see this coming?” wondered Betty.
Betty thought, “Are all tech co-founders like Anthony? Or is Anthony the odd one out? Maybe he just lacked integrity. Or should all startups make their technical co-founders sign agreements that state the startup owns the software created? Maybe that would have prevented this problem from happening in the first place.”
In this example, there was no agreement between Anthony and Betty on the ownership of the platform but Betty felt that since he had contributed to it, and the company (owned by him) paid for the development work, the software should belong to the firm.
Did Anthony sign away his rights when he transferred the platform and source code to Betty in return for payment? Or do non-tech founders end up being the loser in a startup since they cannot write code?
The above could happen to any startup, and it’s important to be careful when dealing starting a company with any co-founder.
It’s easy to say, ‘choose the right co-founders’. But it is also important to protect yourself legally. Integrity in business is everything, and integrity means being honest.
In this case, Anthony does not seem to be honest.
Disclaimer: This post was written solely to inform and educate entrepreneurs about the implications of having a tech Co-founder leave the company.
Any resemblance to real persons (living or dead) is purely coincidental. It would be silly for anyone to start thinking this is about them.
Photo courtesy of Gratisography.
The post The story of Anthony and Betty: two Co-founders turned enemies appeared first on e27.
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