Questions

Me and and my partners are the inventors of a new handtool. We presented it at a competition at our University and placed well (top 4 out of 30 teams) and got alot of great feedback on the tool and even had some industry people tell us they'd buy it if it were on the market. It was to my belief due to conversations we've had that the goal was to try and to try and license/sell the idea/prototype/etc off. We got a provisional patent and procured the help of some great engineers to develop the product even further and make an even better prototype. Now, one of the partners has brought to the table of use procuring investors and trying to take the idea to market (that means manufacturing, molds, sample orders, patent, etc). This ride was not one I was interested in or planning on taking. I'm an internet/online/ecommerce entrepreneur, it's where my experience and success has been. The handtool market is not one I have experience or knowledge and neither do I want to. They know I'm not really interested in going further as they plan and it's been brought to the table to me for me to cashout my % when they get investors.

Founders conflicts account for a majority of startup failures, so your storyline is not uncommon. The way other founders have dealt with the same thing can vary depending on their comfort level with the team, the plan, and the risk. From your vantage point, whether you as a group sell/license your design or you "cash out" when your team gets investors to develop the product themselves, the net effect is about the same because the second option is basically you selling your % to them. (Assuming you get a fair price for your shares.) There are a few questions you want to ask yourself:
1. A provisional patent is not a patent, and should the group ever get an actual patent, do you want to own a % of it? Do you really want to be on the patent for the next 14 years? There are pros and cons here. If you leave the team, my guess is that they won't want you on the patent. With only a provisional patent filed, timing is an issue b/c they could just wait for the provisional patent to expire before filing a full patent. If you were on the patent, it might give you lingering rights to the design that would devalue their product. However, if you were on the patent, you could generate a royalty stream from an exclusive license to their ongoing company (regardless of whether you own shares in the company). This is a very basic summary - there are intricacies here that would be best explored with a patent attorney.
2. Before you go and sell your %, make sure that you and your co-founders have the organization, shares, terms, etc. of your company documented properly. Otherwise, "selling your %" could mean relatively little (especially to investors who would rather not have to pay you out when the time comes). What do your organizational documents, if any, say? This is my area of expertise, and I would be happy to chat further about your particular circumstances.
3. It comes down to what is more valuable to you - the cash you get in leaving the company, or the possibility that sticking with it and contributing in your own way (which you could discuss with your co-founders) might result in something great? You certainly don't want to be a deadweight, but everyone plays their own role - and there may be decent options for you within the company.
This is typically a longer conversation with no easy answer. Let me know if you want to chat.


Answered 5 years ago

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