The company is XX. The company focuses on XXX. 

- For 20 months (Jan 2018 - September 2019) we split company bills, co-developed the branding, and worked on the idea together. During those 20 months, we bounced ideas back and forth, and I came up with an idea of an ML model that I could develop, which then became our major selling point. I developed the whole ML by myself (I am the tech co-founder). When we had a working prototype we decided to incorporate as a 50-50 split and no vesting agreement.

- We incorporated the company in May 2019 and started fundraising. My cofounder is a business guy, with lots of experience. I am a woman, a tech person with a strong background in data science, and honestly not the most extrovert in the room. We started fundraising right after incorporating, between May2019-October2019. During this period we started having some misunderstandings. He quickly took over all meetings, did not invite me to fundraising meetings, I felt pushed out. I confronted him all the time about his behaviour. Finally, by the end of September 2019, he proposed that we should do a 70-30 split because he told me it is his company.

- After this, I decided to leave the company because I could see too many red flags. We brand ourselves as a tech/AI company but I was given very little space to lead and felt there was very little focus on the tech product itself. Typically non-technical co-founders have this belief that they can come up with an idea and hire everything done, without having equal partners in the creation process - I guess I have experienced that in the first person. So, I suggested we structure my departure, because I wasn't comfortable anymore.

-Between October em November 2019, My co-founder continued fundraising and got one of the investors interested. A term sheet was emailed to him in late November 2019.

- There is no money in the company yet, there is only a term-sheet and a promise of investment. We don't have clients/ bank account. Just the two of us, on a 50-50 basis. The company only has 2 directors and both of us have the same voting rights. The board is only formed by me and the co-founder.

- By end of November, my co-founder asked me to leave the company because he thought I wasn't going to be involved anyway, he told me there as a lead investor and a term-sheet and has offered me 25K in shares. To be honest, I wanted to leave, I thought we don't work well together and I feel pushed out every time. But we got this far, and I suggested we find a way to structure my exit.

- I asked what was the total size of the investment and the company valuation, and he told me he won't disclose that because it was 'his company now' and he is now the sole founder. He told me that I should not structure "an exit" with money in my mind. He told me this is not relevant to me anymore because I chose to walk away and 'I should accept 25K or leave with nothing'.

- He also told me he can just continue without me, by incorporating a new company and use my ML model or just develop it again from scratch by hiring another ML data scientist to replicate my work.

-I believe the company valuation is around 8M-9M (Never got this confirmed by my co-founder but I heard this number via other people). The lead investor is putting in 1.2M. This investment is supposed to happen in Jan 2020. The company valuation is really impressive for this early stage, we have no traction, no clients, no revenue, just a prototype. The investors didn't even meet me, I don't know how this is possible or what they were told, anyway, not my problem.


-At this stage, we started fighting. I said I control the prototype and that it is illegal to steal it. I proposed two things:

    (1) Since there is such a powerful investor on board, they can buy me out for cash+shares for a total of £230K

    (2) We dissolve the company and I keep my IP. 

The number 230K was based on the number of hours spent during 20 months and the current market rate for a data-scientist consultant, with a discount. I thought this was fair, I said I am willing to negotiate a smaller number (around 150K) as long as shares+cash sum up to around 230K. 

-  I was threatened to be sued if I try to keep the ML model from him. I asked him to tell me and confirm what the company valuation is (I told him I thought it was 8M-9M) and he continued to insist that 'it is not my business to know that anymore'. I also talked directly to the lead investor, who also told me that they are not willing to disclose the size of the total valuation to me because they think it is 'not relevant to my negotiation'. This, I think, shows me they are together on this and not willing to negotiate in a fair way with me

- I decided to register my IP under my name only on 05 December 2019, because I thought things were very dodgy.

I cannot have a patent because this is a "software" and is not patentable.

- Finally, by late December 2019, After my 230K suggestion, this was his last suggestion:

(1) Negotiate a smaller number to be paid in cash for past work. Something around 50K.

(2) Agree on a consultant or advisor role for me in the future. This could be in a form of cash, equity or both. The number to negotiate here would be around the 150K that is missing according to my own valuation of my own work. This way I can get the rest of the compensation I believe it is fair providing that I agree to help them build the rest of the tech.



QUESTION 1:

What could be a fair number to ask for the (1) past and (2) future work? Can I also negotiate equity or is that not a good idea? 

QUESTION 2:

How to structure the 'advisor' role. What do normally people negotiate in these cases? Shares or cash? and how many shares and what type (e.g. non-dilutable shares?


-I considered to just dissolve the current company and create another business of my own with my IP, in a way to protect it from him.. this is because it is not clear to me, if I will be able to reach a deal with them as things are always very blurry. In addition, there is already another company that wants to license the IP from me. They are also in the space, they sell a phone app.

- But I don't want to do something that will remove any power from me or that will jeopardize the possibility of a better the outcome for me. For instance, I am afraid that if I dissolve the the company, he can then just continue without me and copy my work (it's easy to reproduce what I have done because I wrote all my methodology in a report of about 50 pages)...


- The IP (ie the ML model) exists in a folder that we both share on Dropbox. I wanted to delete it from the Dropbox account and let him know I was doing it, in a way that is legal.  I tried to remove a folder that contains the IP but he immediately emailed me saying he will sue me if I don't put it back.

QUESTION 3:

What can I do to protect my IP? He says the IP is from the company and has already threatened to hire another data scientist who can replace me and continue my work (I have the emails as proof).  Given our latest negotiations and all the intimidations, I feel he will try to steal it from me.


What can I do to protect it from him at this point?


QUESTION 4:

Finally, for the future and for my own self-esteem and professional reward, I want to be able to say that I co-founded this company. Is this fair to say? Even if I walk away now with a buyout? It may sound ridiculous or naive, but being recognised as a co-founder is something I feel rewarding, and just want to make sure I can use it in my CV, etc, even if we decide on a buyout subject I am a tech co-founder who holds 50% shares and developed all the IP prior to company incorporation but after finishing seed round decided I dont want to join the company full time because of co-founder disagreements. is it fair to ask for a buyout?









Asked by: anonymous
Jan 12, 2020 9:58 PM

Q1 I would not ask for equity, the reason I say this  because your Co-founder and investor seem quite willing and capable of changing the company status so that any equity you are given could end up as valueless.

If you decide to ask for a settlement figure for the value  of your IP I would ask for a figure which is related to the present value of the company and a future 3 year projected figure. How you arrive at such a figure is difficult, but your co-founder must reveal the value under a request from your financial or legal advisor, you are also able to use arbitration services to deal with this as a dispute if  you prefer. 

Q2 An advisor role could be structured in way that allows you to agree the use of your software on a profit share basis. If you accept  shares there should a clause in the shareholder agreement preventing the non dilution of your shares but this is problematical as you are likely to be offered non voting shares and as such would be unable to prevent the non-dilution. 
 
Q3 Your 50 page methodology report is automatically copyrighted if you are the author. You must be able to show that you are the author and therefore if he reproduces it for another person to follow he is in breach of your copyright. Software is capable of being patented but it can be a longer and more problematical process. Again however you could copyright your software. This would prevent unauthorised use. As you are a director of the company and not an employee the rights still belong to you.

Q4 You are quite able to say that you co-founded the company as the statement is truthful and you cannot be prevented from making such a statement verbally or on your CV.

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