When co-founders clash: How to find a way forward

Ann: Welcome to Building More Than Business. Today, we're diving into what to do when you and your co-founder aren't getting along and how to find a way forward. I'm Ann Lucchesi, a certified financial planner, an equity professional and Senior Director here at First Citizens Wealth, and we've got the perfect guest for this topic.

Joining me today is Aravinda Seshadri, founding partner at Venturous Counsel. Aravinda acts as outside general counsel for a wide range of startup companies and funds in the tech sector. She's got over 20 years of experience advising startups and investors, and she's seen her fair share of co-founder conflicts in her time.

Welcome, Aravinda. Can you give us a little bit about how you got to where you are?

Aravinda: Thank you so much, Ann, and just really appreciate that we're having this discussion. I feel like it's one of those questions that comes up, but it's very weighted, and it's heavy, and it feels insoluble—and it's not.

So I love that we are here talking about this. So we are here to be a really solid structural basis for our client, and how I describe it is every investor and startup, early-stage investor and startup that I know, has a section of their brain that's just low-key freaking out about legal at all times like a broken smoke detector, you know? Super loud, super annoying, going off in the back of your mind, and you try to take the batteries out. You ask ChatGPT. It told you two opposite things. Now the volume's even higher. Okay, so if you instead offload the screaming mess to someone that you trust, then not only are you covered on legal, but you actually unlock so much mental capacity that you may not even have realized was secretly running around worried about whether you're worried about the right thing.

So that's what my firm does. That's what I'm here for. And so I do love democratizing access to some of these topics, especially these kind of somewhat taboo topics, but that are so important to startups. So I'm happy to be here.

Ann: Yeah, well thank you for that, and I know that your experience will lend itself to this well. I've over the years worked with lots of founders, seen lots of issues and disputes and conflicts and things come up over time, and I think they stem from all sorts of places. But when you and I have talked about this, you say, "Well, really, it all comes down to one core thing." I'd love to have you talk about that.

Aravinda: So the magic word is communication, and I do think it is used a lot, but I also think it's super important. And I will say that the average founder is not really thinking about communication as a core skill. They're thinking about coding, like building, executing, maybe hiring. And yet communication with your co-founder, with your team, with your clients is so core to the role.

I have heard over and over from investors that tell me, "What I want is a founder that A, is very passionate about the problem they're trying to solve and they really care about it, but also that they listen, that they listen to their clients." And in the same way, I think of a startup as almost like a family, and the co-founders are the parents of the family.

And so you need to have really good communication with your partner in this role. And the lack of communication is what I can really—I can draw a direct line to like messy, explosive founder disputes that I've seen between the lack of communication and the bad outcome that we end up with.

Ann: If I think about communication, it means different things to different people. We all have our own communication style. I wouldn't know where to start telling a founder—like how do you address this problem? What type of advice do you give them?

Aravinda: Okay, so first of all, I think it starts maybe even before you start the company. It's like when you are identifying this person as a potential co-founder, having real discussions about what each person's role would be. What are their responsibilities? What does success look like? More importantly, what does not-success look like? And what we need is for the founder to be successful in their role.

So if that's not happening, what does that look like? What should happen? What are the scenarios? Also, what about external influences? What if someone's family member gets sick and they need to pull back and take care of that family member? It means the dynamics of the startup needs to change, and if you think about it in advance and figure out what I would want for me, what I think is fair for someone else, and you guys agree on that, you're just in such a better position if something even close to that happens.

And then revisit it, and I do recommend that folks—especially on the West Coast—don't turn this into a legal document. You don't even have to involve your lawyers. How often does a lawyer say that, okay? So, you know, you could do this for free. Have like a Google document that you both are working on, and then it's kind of a living document that you're updating as you're progressing and as the role changes. It doesn't have to be something anyone else really ever sees. It can just be something that helps you guys stay true and increases your clarity of communication.

Ann: If I'm building this living document about ourselves and our relationship, do you have an outline or a way for them to go about thinking about, "Well, what belongs in this document?" And is there anything that shouldn't be in that document?

Aravinda: Yeah, I just think the more information and scenarios you can put in there, the better. It's going to be different depending, like if I have—well, I have kids. I have two kids. So what if something happens to one of the kids and I have to take a step back? I really have to think about what that would look like, and also what would be fair, right?

If I'm vesting with a 4-year and 1-year cliff, and I'm at 9 months, and I've put in 9 months to this business—according to the documents, I get nothing. I don't get any equity. I've also worked without pay for 9 months, and yet that doesn't feel fair. And also especially in a scenario where I didn't just fail at my job or not succeed at my job, and I didn't do something off the rails.

So maybe I should get some of my shares accelerated, maybe the 9 months that I worked, maybe a little more. And then what's really important for venture-backed startups is—or startups that plan to have an acquisition—is that you get to that agreement, and you get that founder to sign a separation agreement agreeing not to sell or not to sue the company in exchange for whatever you agreed to be fair.

And putting it in that document doesn't ensure, it doesn't bind the person to sign the separation agreement when it comes about, but, you know, it increases the likelihood of reaching a zone of mutual benefit, where it's better for the company and it's better for the founder to have this agreement signed. And that's a win-win.

Ann: Now we've talked a bit about maybe West Coast versus East Coast looks a little different, whether you should use a legal document versus not. What I do think about is, there are also people that start at a company and then go, "Okay, well I don't really want to be venture-backed." So that looks very different in trajectory. And a buy-sell agreement in that kind of situation might actually be applicable, right?

Aravinda: I think that's right. And also to say there's no need to have this be an agreement, but it is more standard to see them in the East Coast, and East Coast investors are less likely to look askance. And yet, if you just keep it as a Google Doc and you guys kind of understand and—it reflects your understanding of the scenario—then you're also in a good position. But I think that's a really good point.

Buy-sell agreements are a specific scenario where you don't have the parameters around exits that a venture-backed company has, where they're really shooting for the maximum money they could ever make. And yet, you know, for a company that could persist, reach profitability and then persist forever, if one person has a timeline, or if one person has, "Once we reach this valuation, I want to cash out," you know, it's good to talk about that in advance, and it's even better to put that down in writing, and that can be amended later if it changes. But yeah, being really clear about these parameters, it can only benefit you.

Ann: Once some founders have put together this foundational document, they've done their thinking through all the situations that they can think of, which we know will not even begin to touch on the reality of what happens—the next step seems to me like, "How do we keep it updated and communicate about it?"

Now, every founder I've worked with is heads-down, all-in to building their business. When are they supposed to be spending time communicating about this document?

Aravinda: Well, I think a well-run company, the founders are communicating at least once a day, and they may not be talking about these larger things more than like once a week, but I think that's a fine cadence.

If you're literally, kind of organically doing it all the time, maybe just have like once a month check-in to actually pull up the document, make sure it aligns, and make sure there aren't huge changes. But yeah, that constant communication is super important, and it allows everybody to work better. It allows the startup to operate more efficiently. It's time well spent.

Ann: Now, I can see this working great. You put some time and effort into the written document, but the reality is, is most of the founders I know, no one gave them that great advice, Aravinda. Now they're in this situation where they have a disagreement. Is it too late? What kind of advice are you going to give them at that point?

Aravinda: I will make a distinction between a disagreement and a dispute. Founders are going to have disagreements like every minute, okay? Like, every day there are going to be disagreements about, you know, how things are going, and discussing that and deciding on a solution is the right path forward, and that happens naturally all the time. And the more you have those disagreements, flesh them out and resolve them, the stronger the relationship gets, to be honest, and the more you feel like you're getting the collective knowledge of your founding team and leveraging that.

A dispute is when you get to a disagreement that you cannot resolve. It's like some real difference in opinion on where the company should be going, where the money is, where the investibility is, where the exit strategy is. So founders can and may have really strong disagreements, and then when it rises to the level of like, "I cannot continue to work in this direction that I believe is the opposite direction of where we should be going," then it becomes a dispute.

And then I think if you have had that communication, you have built that trust, you've put in the reps, then you are much likelier to be in a position where you can find a win-win solution even for that. Maybe it's that one founder actually wants to go off and do something different, but they still have a stake in this company, they want to make sure this company also does well, and we can structure a fair founder exit.

Ann: Knowing so many engineers and things who often have a very different communication style than, say, you would, as they go down this path and the tension's rising, do you recommend that they get an outside advisor? Or how do you recommend that they deal with these issues before it gets to that point of, "We now have a dispute. Let's go legal"?

Aravinda: That is a great question. So I think that your advisors can be really helpful here. Like just having a third party who has an understanding of the company at a high level, but is maybe not biased—less biased on one side or the other—can be a neutral arbiter, somebody you guys can kind of mediate in a way.

There are also obviously formal mediation channels and resources everywhere, but in this scenario where we're talking about something small, founders may not have a lot of money to put towards that, there are other resources that you can pull on. So I would say reach out to your community, figure out a way for somebody you both respect for you to discuss it, and have them help you figure out a solution that works for both of you.

Ann: Yeah, that makes perfect sense. I think the goal here is, keep everyone on the win-win and let's all go down the same path as opposed to make it difficult. What about in a situation where they're maybe related—maybe it's siblings, maybe it's a married couple?

Aravinda: Hopefully that couple has already worked on their relationship quite a bit. Hopefully they have great communication already. And hopefully there's quite a bit of shared history and trust that they can pull on. At the same time, I'm letting everyone know, having a co-founder spouse relationship puts a lot of stress on the relationship as well. So that is something you just should know in a practical perspective.

And you can be proactive about that. You can plan time together. You can have a retreat. There are ways to mitigate some of that stress, but it is a stressor. And I would say, you kind of have to think about the two relationships somewhat separately. I know a founder that I just spoke with last week who is, she is taking a step back from the business because she cares a lot about the relationship, and she's worried that the relationship would not survive if they were to continue butting heads in the business. I also know somebody else who is continuing to work with her co-founder as she is pursuing divorce.

So it's possible to uncouple these things, but it definitely is difficult, and the more you can be mindful and prepare for this potential eventuality and think about what your priorities are, the better off you are.

Ann: What do you tell someone when one of the co-founders particularly is not meeting expectations? Like, what's the best way to address that situation and still keep on the win-win track?

Aravinda: I mean, this is more like leadership coaching, and also by the way, there are a lot of good resources out there. I'll call out in particular Y Combinator has like a co-founder coaching—free stuff and paid stuff—that's available.

When it's not working for someone, there are a lot of different reasons why that could be the case, and number one is to identify the problem. I can't tell you how many times I've talked to a founder, and it's either their co-founder or even just an employee, and they'll say, "Well, this person isn't doing well."

And I'm like, "Well, have you told them that? Have you had a discussion about it?" And the founder says, "It's obvious." I guarantee you guys, it is not obvious to them. They are doing their best. They think they're killing it, unless they get feedback otherwise. So really identifying the problem, clarifying, showing like clear instances. "We're just not meeting our deadlines. Have we been insanely ambitious, or is something missing? Do you need more resources?"

But sometimes it's just like, "You just seem checked out lately, or maybe you're burned out." There are so many reasons why it could not be going well. Have a discussion in a problem-solving kind of way, right?

The goal is not to show this person that they're garbage. That's actually the worst outcome, right? You're a co-founder with someone who's garbage. You don't want that, actually. And also it's probably not true, right? You don't just enter into a co-founder relationship on a whim. You've really evaluated. There are a lot of reasons why this person may be great. Maybe there's something going on in their personal life. Maybe what they're doing is not what they thought they were going to do, and they don't have the skills yet for it, and they need to upskill. Really have an open and honest discussion and go into it with a problem-solving mentality rather than a blaming mentality.

Ann: I think we see this all the time in general communication, which is it may seem obvious to you, but it isn't necessarily to the other person, and you need to articulate it in a nonconfrontational manner so that you can address it.

Aravinda: I recommend a conversation in person or Zoom, depending on whatever you can do, and then following it up with an email because the in-person component is really important because your empathy is going to come through, your strong desire to find a win-win solution's going to come through.

But the writing is also important because when somebody's in one of those situations, they're often in like fight-or-flight mode. They're not like getting all of the inputs that you're putting out there. And so following it up with an email when they've calmed down a little bit, they can review it, they can see what you're saying. Maybe they'll have some responses. Maybe they'll have some suggestions or solutions. But that's what I recommend all the time for co-founders, for employees.

Ann: Great idea, and I think that's true with a lot of communication in an emotionally charged situation. That's the right way to address it.

Now let's move into this idea that we're in the win-win. Company's doing well. You and I both know that a lot of founders, their roles evolve over time if the company's doing well, and they might not necessarily be prepared for what's next, or they may not have totally thought about what happens. What's some advice that you do give these founders as they're moving down that successful path?

Aravinda: I really think that the founder role is so interesting because the skills to get to a company from 1 to 10 or 1 to 50 head count is like almost opposite to the skills to get them from 50 to 1,000—which you want. You want the company to do well, to grow, to be successful. But at the same time, the skills—if you're good at one, it's really hard to be really, equally good at the other subset of skills. Now I'm not saying it's impossible, and it is definitely doable, and I've seen so much personal growth with founders who've learned what they needed to be that person as the company grows.

However, it's also really interesting and powerful if a founder is like, "You know what? I don't really like that. That's not my favorite part." This is what's called a serial entrepreneur, right? Like they'll start something, they'll get it to a point. Maybe they sell it, maybe they bring in another—sell it so that, you know, to a larger company that may be able to take it from there with more established infrastructure.

Maybe they bring in a CEO or some other C-level executives to take on more of the day-to-day tasks and then they start their next thing. Because they know their zone of expertise and their zone of happiness, and they're able to make those align, and that's lovely.

I also know founders, usually they're not in the founder game just to make money. They care about something deeply. There's a story, there's a reason, they are the one to solve the problem. So there's a lot of emotional investment in the startup and in its doing well. And there can be kind of almost an identity crisis when someone leaves a startup as to like, "What am I now?" And there's also this feeling of like, "I am the best person for this startup, so if it's not me, I'm not giving them the best."

So the best founders sort of think about this proactively. They're thinking about who might eventually be the CEO, or they're thinking about, "What do I need to do to upskill to be that CEO?" And that's a recipe for success.

Ann: Yeah, and I was going to say, I'm assuming for those that think that they want to stick with the business, they want to grow with the business, would you suggest go get some coaching then because that person you've been is not the person you need to be for this company downstream?

Aravinda: One hundred percent. I'm a big fan of coaching. I think everybody deserves support. I'd also say being a founder is really lonely—even if you have a co-founder. Make connections with other founders, founders that have been through this transition. Founders are actually really generous. They love to support other founders. They love to share. You know, take advantage of that and build your community, and that is also another way to support yourself in addition to coaching and all of these other things.

Ann: So it seems to me the things that—if I were going to talk to a young founder and say, "Here's the most important things to kind of keep those conflicts at bay," or as you might put them, the disputes, away from the business, is start with that foundational document. Try to think about all the things that could happen, and try to address those in a conversation. Then build really strong communication habits between yourselves as founders. Have trusted advisors around you giving you good advice, and really put forward trust, clarity and a willingness to address these issues head on. Don't hide from them. Seems to me like that kind of sums up what would create a great environment for a couple founders.

Aravinda: That's right, and if you have something that's a concern, you're always going to be better off addressing it sooner than later.

Ann: Absolutely. Well, thank you for tuning into this episode of Building More Than Business. If this episode was helpful, share it with someone who might be dealing with the same challenges, and like and subscribe if you've enjoyed what you heard. See you next time.

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