I hope that by telling you this story, you can make sure it doesn’t happen to you. It’s the story of the Boomerang Founder.
The Boomerang Founder is the one that you “throw away” but then comes back later on and hits you upside the head, often causing significant trauma.
You start a company, and you and a couple of buddies get together and draft a simple email about who’ll own what. You name the company, and maybe you even incorporate it. You’re in business!
Some time goes by, and one of the founders isn’t work out or takes a day job or loses interest. Maybe she’s just not a startup person, she realizes. Now you’ve got one less founder, and you’re down to two at this point.
It feels like no big deal. A buddy is departing – it’s all good. They’re good people.
You and your co-founder work your tails off for another year. You haven’t thought about that departed founder in quite a while. You don’t see them much anymore. But you hear they’ve moved to Oregon or someplace like that. Time keeps on ticking, and you keep on coding.
Finally, angel investors take interest. You get a little funding. You get some customers. Maybe you get TechCrunched, or even covered by Colorado Startups if you’re lucky. Things are going well.
The Boomerang Founder is back. You never really properly wrapped it up. You didn’t document their departure, and make some agreement. You weren’t “real” yet, so you had no founder vesting in place. It’s a loose end that you didn’t tie up. You didn’t have the money, the time, or the knowledge.
Now you have a founder that feels like the idea is worth something. They were there at the start after all. They’re a “FOUNDER”! Hell, alot of what you’re doing was “their idea.” And you “cut them out.” You “pretended they didn’t exist.” This is the language of the Boomerang Founder.
Now you’ve got one of two situations. Either the Boomerang Founder is a bad actor, or they’re not. If they’re not, they’ll generally want to settle with you immediately. They’ll want to figure something out – either a cash payment, some stock, or maybe they just want to be bought a nice dinner. If you’re going to have a Boomerang founder, this is the kind you want. The solution, in this case, is often to swallow your pride and admit that you screwed up by not documenting things properly early on. You want it to go away, now and forever. You need to come to an agreement. If you don’t, then your situation will degenerate into something that feels alot like the the “bad actor” scenario which I describe next.
If the Boomerang Founder is a bad actor and has bad intentions, they’ll likely not want to settle the situation. They’ll want to stake their claim, wave their arms, and then wait. Wait for you to be more successful. Wait for you to get acquired. Wait for more value. And at the moment when they have the most leverage, they’ll bop you right in the head. This is your worst nightmare. And can kill an acquisition or a financing. Investors really don’t like stories like this.
Many observers who happen to be one of the remaining founders will claim that all Boomerang Founders are bad actors. After all, your lawyer will say “yeah, there was no real company yet” and “they don’t have much of a case.” Well, as with all legal advice there is the real world to think about. Loosely translated, these type of statements mean “if you get dragged into court by them, they’ll probably lose and you’ll probably win.” In the real world, it doesn’t matter if the claims of the Boomerang Founder are legitimate or not. It’s the threat of this that can kill you, and it will probably not get so far as to reach some kind of official judgment.
The moral of the story: Early on, if you can afford it, do things right. Find strong legal council, and properly document the company early on. Have a founders agreement. If you can’t afford this then make very simple, clear, plain English, written, signed agreements with you “co-founders”. Keep them simple, and keep physical copies. Make sure you include a basic form of vesting. If you eject or lose a founder, document that previous agreements are null and void, and that they waive all rights to the company and the intellectual property. If they won’t sign it, write down something that they will sign.
Don’t leave loose ends. They tend bop you upside the head at the worst possible moments.