Session on Co-Founder conflict cases or challenges that startups with multiple co-founders face during different stages of their company ( before and after fund-raising) - How do the founders ideally plan for these, and if not planned, how does one find solutions to resolve them when they encounter such challenges.

1. Co-founder conflicts/challenges
Startup Leadership Program (SLP)
Bangalore, 5th January 2013
Anjana Vivek
anjana@venturebean.com

2. Agenda
Stakeholder and funding matters
Roles and responsibilities
Other aspects: Business & beyond ...
Summary
About us
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3. Some key stake holders
• Multiple founders
– Promoters
– Family/friends
– Others supporting the venture
• Mentors/advisors
– Roles vary, from organisation to organisation
– Roles vary from mentor to mentor
– May be general specialists
– May be technical experts
• Investors
– Family/friends.. organised/formal & informal angel investors
– VCs
– Strategic
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4. Some key stake holders
• Each of the stakeholders; i.e founders, mentors,
investors … will come with different expectations
and aspirations.
• Conflict may arise between different groups, for
eg. founders and investors
– Sometimes there may be a hidden agenda; what is said
and visible may not disclose the complete picture
• Conflict may also arise in the same group, i.e.
multiple investors may have different needs..
– an investor may be in a hurry to exit due to compulsions
to pay back fund in the main fund and may push for early
sale before the company can leverage on its potential for
value creation
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5. Key stake holders: Points - to trigger thinking
• Equations, roles, outcomes etc. should be
thought through and documented
– With a legal document
– or a note/MoU etc..
– Sooner.. rather than later … And..
– The loop should be closed, for eg. if there is an email
with details, the acknowledgement should also be
saved on record
• Documentation helps
– As a reference: a document is more reliable than
memory
– To communicate: what one persons means may be
understood to mean something else by another
– A proof: if required
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6. Key stake holders: Points - to trigger thinking
• Often it is the individual who may be causing stress
and conflict, rather than the role this person is playing
• Attempt to unbundle the issue from the person
• Human egos and other sensitivities are to be factored
in … in addition to the business aspects of the problem
being dealt with
• Try to see the opposing view and perspective, it can
help in negotiations and in arriving at a settlement …
no two humans are alike and no two humans may view
the issue the same way
• Sometimes there may also be a hidden agenda, there
is no need for paranoia, but there is a need to be alert..
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7. Funding and investment
• Capital infusion
– Equity/ debt mix
– Self funded/ internally generated
– External investor/lender
• Ability of founder to invest
– This may be an issue if additional funding is required
mid-way
• Investment in cash or kind
– Would you give more weightage to land contributed by
founder as compared to money brought in
– IP owned by founder in her name, assigned to
company, can also lead to other issues
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8. Funding & investment: Points - to trigger thinking
Think through
• Possible requirement for capital infusion
• Worst case scenarios .. what will be done for funding
… plus…have a boot-strap plan
• How will you deal with a situation where one founder
can get in additional money required and another
cannot
• The impact of holding of IP and other assets by a
founder or related party
• Legal and tax aspects in addition to the business
and valuation perspectives
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9. Return on investment
• Equity stake
• Revenue sharing
• Profit sharing
• Combination of above, depending on performance
and milestones reached
• Related matter: Salaries/compensation
– for full time vs. part-time or flexi-time work
– Market linked or not
– Based on performance (eg. Commission on sales) or not
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10. Return on investment: Points - to trigger thinking
Helps to have clarity regarding sharing of return and taking
cash out of the company, for eg.
• Equity stake..
– On exit or sale of stake.. On capital appreciation..
– Dividends..When? Should returns be ploughed back for growth
• Revenue sharing ..
– On generating revenue or post cash in-flow from sales
• Profit sharing, salaries/ other payouts ..
– Will profit share be pre or post sales commission
– Will salaries be paid out, at what rates
– What are the other payouts to founders
– What expenses will be reimbursed
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11. Agenda
Stakeholder and funding matters
Roles and responsibilities
Other aspects: Business & beyond ...
Summary
About us
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12. Roles & responsibilities
• Different organizational needs
– Heads of business, Finance, Sales, HR etc
• Weightage of different roles
– What has more value .. Getting revenue, delivery or
product development?
• Leadership and decision making
– Are all equal.. All the time?
• Weightage of funding partners to others
– Is the financial partner given more leverage in decision
making …, in addition to greater ownership?
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13. Roles & responsibilities: Points - to trigger thinking
To define
• Responsibilities and activities of each role
• Performance expectations and benchmarks
• Weightage given to different activities/roles if any, for
eg. sales, delivery, product development, etc..
• Leader and decision maker.. For different aspects of
the business, i.e. for finance, CFO decides, for hiring
HR head decides, for strategy.. etc..
• Define Sooner... rather than Later
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14. Team/Employee roles
• Family members, friends working together
• Different sets of people working together, i.e
founding team of family and non-family
member
• Financial investors vs. owner managers
• Senior management role vs. financial partner
with junior partner role
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15. Team/Employee roles: Points - to trigger thinking
Helps to separately set out Do’s and Don'ts for :
• Ownership and for management
• Process and systems to be followed for
certain key activities, for eg.
– Strategic, such as fund raising
– Operational, such as purchasing from preferred
vendor or family member
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16. Agenda
Stakeholder and funding matters
Roles and responsibilities
Other aspects: Business & beyond...
Summary
About us
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17. Business growth
Some areas of conflict can arise at these stages:
• When there is a transition of business and growth
to next level
• When value is being created in the organisation,
and there is lack of clarity of distribution of value
• Value is being depleted and cash outflow is more
than inflow…
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18. Beyond business
Typically conflict arises if/when there is:
• A perception of unfairness
• A lack of trust and faith
• A lack of transparency
• Ego/ Jealousy and ill-will harbored
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19. Business & beyond: Points - to trigger thinking
• Some of these issues and conflicts can be
minimized, some cannot
• Put in place systems for transparency where
possible
• Have dialogues where possible, to understand
alternate view points
• Realize that sometimes when people are not
aligned, it may be better to part.. Sooner rather
than Later..
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20. Agenda
Stakeholder and funding matters
Roles and responsibilities
Other aspects: Business & beyond ...
Summary
About us
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21. In summary
• Scenario planning helps, for :
– Long term, medium term, immediate/short term
– Cash flow generation, cash flow depletion, value creation
– Special situations of conflict of different stake holders
• Plan keeping legal and tax aspects in mind in addition to
business aspects as also valuation expectations
• Plan keeping the human sensitivities in mind, particularly ego
and insecurities; separate person from problem
• Document expectations, roles, activities, do’s and don’ts ;
understand that documentation can only take you thus far…
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22. Agenda
Stakeholder and funding matters
Roles and responsibilities
Other aspects: Business & beyond ...
Summary
About us
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23. Our professional approach is unique
VentureBean adds value to clients through…
Expertise
• Strategic and transformation capability - combined with expertise in
operational implementation
• Knowledge of local business conditions - combined with global best
practices
• Structured approach - ex 6 Sigma and Lean methodologies
Working style
• Entrepreneurship and Independence in working style – across levels in the
organization
• Change management is an important part of the work – we work together
with the client
Business Setup
• Team scalability – expertise across business functions
• Innovative business models / frameworks
…across multiple industry verticals
Consumer / Retail IT/IT enabled Travel &
Banking / Finance Manufacturing Education Healthcare
/ Food services Transportation
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24. Our expertise within various areas…..
Cross Planning, Change •Strategies for business growth
•Governance
functional Management, •Change Management
•Project and Program Management
expertise Integration •Business and operational Due Diligence
•Channel strategies
Sales and marketing •Product portfolio Management, and Product Extension
effectiveness •Value Chain Mapping
•Customer analysis, segmentation and loyalty programs
•Lean process engineering methods
Operation •Gap-analysis
•Customer focused processes
Organizational •Performance Management
Functional Development / •Key talent & change management
•Leadership development based on the Leadership Diamond ™
expertise Leadership / HR •Organization Structure for Excellence & Growth
•Strategy, Governance & organization
•Sourcing
IT •Architecture
•Project Management
•Cost / Overheads Reduction
•Cash-flow Management & Capital Structure Advisory
Finance •Project Evaluation & Risk Management
•Syndication-Debt & Equity
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25. Thank You!
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