Fund/Build/Scale

Dead Weight on the Cap Table: Inside the Ugly World of Founder Breakups


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More startups die from co-founder breakups than from running out of money.

Attorney David Siegel, a partner at Grellas Shah LLP, has spent years inside these conflicts, helping founders navigate everything from equity disputes to emotional meltdowns.

In this conversation, he explains:

  • Why greed and mismatched expectations trigger so many founder breakups
  • How minority founders can protect themselves before they’re pushed out
  • What departing founders can realistically expect to walk away with
  • Why VCs hate “dead weight” on the cap table
  • The emotional toll of disputes — and why lawyers often play part therapist
  • If you’re thinking about starting a company with someone else, or already rowing in that two-person boat, this episode will show you what’s at stake — and what to do before it’s too late.

    If you thought The Social Network had a happy ending, you might want to skip this one.

    RUNTIME 47:35
    EPISODE BREAKDOWN

    (2:15) Disclaimer: “If you're looking for legal advice, that's something to talk to your own lawyer about.”

    (4:14) When it comes to equity distribution, “the fifty-fifties are a 5%.”

    (7:14) What are the most common triggers that lead to co-founder breakups?

    (11:35) What steps can a minority co-founder take to protect their equity in the earliest stages?

    (15:23) Ultimately, “the only person the lead investor knows is the majority founder.”

    (17:06) As long as you document all oral agreements, “you should be in good shape.”

    (20:04) Draw up agreements for any advisors or consultants you add to the cap table.

    (22:36) “The initial calls around a co-founder dispute, we play 50% lawyer, 50% therapist.”

    (25:17) “Breakups where it's not a surprise to the founder being kicked out are usually the smoothest.”

    (28:05) Once outside money comes in, minority co-founders leave with less than they agreed to.

    (30:09) How negotiable is retaining the co-founder title after a breakup?

    (32:32) Pre-agreed severance and other ideas for reducing financial pain and hard feelings.

    (35:05) “What a minority founder can do: you need face time with the investor.”

    (38:44) When should the founder with less equity contact a lawyer?

    (41:15) The most common mistakes founders make during a breakup.

    (44:43) The one thing David wishes more founders understood before picking a co-founder or investor.

    LINKS
    • David Siegel
    • Grellas Shah LLP
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      Thanks for listening!


      Walter.

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      Fund/Build/ScaleBy Walter Thompson

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