Monday, April 30, 2007

Founder Employment Agreements: the Non-Compete

One of my favourite clients is a founder who is a startup winner several times over. He is also one of the most aggressive executives I've encountered when it comes to negotiating the terms of his employment agreement. A big no for him is any clause that would prevent him from participating in any other business (as an advisor or otherwise) while employed by the startup. I once asked him why.

His rationale made sense. "Once I bring in a VC, I'm far more likely to be given a reduced role than to be outright fired," he reasoned. "That's fair. But I also need to plan ahead. If I'm not needed 150% of the time, I'm going to use my free time to jump start the next opportunity."

In his experience, this founder says, VCs are reluctant to let a founder go even after they've scaled the company and recruited professional management. "It's mostly an emotional thing for them. But even if I wait them out," this founder continues, "I'm not going to get enough runway to move the next project forward by taking the 4-6 months of severance I'm limited to." It takes 12 months or longer to incubate an idea into a good startup opportunity, he says. "So I need the flexibility to start exploring while I'm still with my current company."

To my surprise, I've seen him get this concession from VCs more than once. As long as he agrees not to compete or solicit employees. It's a good reminder that serial entrepreneurs and founders sometimes need - and are entitled to - accommodations that reflect their nature.

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