A Founder­Prenup is an writ­ten le­gal agree­ment be­tween two or more part­ners that out­lines things like un­der what con­di­tions the com­pa­ny will run, what will hap­pen mon­ey and stock-wise should the com­pa­ny merge, be sold, or go un­der com­plete­ly, and what is ex­pect­ed of both part­ners. It pre­vents both part­ners from try­ing to screw each oth­er over should the com­pa­ny get suc­cess­ful or go un­der.

It’s sim­i­lar to a mar­riage prenup­tial agree­ment in that both par­ties un­der­stand what will hap­pen to their as­sets should they split up, but it al­so out­lines who gets what if the com­pa­ny is suc­cess­ful.

Ex­am­ple #1 (with­out a Founder­Prenup):

George is ded­i­cat­ing his life to the project. Sam­my is not ded­i­cat­ing his life to the project, and wish­es to act more as an ad­vi­sor while still main­tain­ing stock in the com­pa­ny. They both agree *ini­tial­ly* that George should get more stock in the com­pa­ny since he is go­ing to be the one do­ing the ma­jor­i­ty of the work and tak­ing the fi­nan­cial risk. They out­line this in their prenup­tial agree­ment. The com­pa­ny be­comes huge, and they de­cide to sell. George takes 75% of the prof­its and Sam­my takes the re­main­ing 25%, as out­lined in their Founder­Prenup. Every­one knows what was ex­pect­ed of them and knows what they are owed. Every­one wins!

Ex­am­ple #2 (with­out a Founder­Prenup:

Ah­mad and Lar­ry start a com­pa­ny. They agree to a few ba­sic terms, but are so ex­cit­ed that they don’t think that they need a Founder­Prenup — they just want to get start­ed! They agree to be 50–50 part­ners and “gen­tle­man’s shake” on it.

Both Ah­mad and Lar­ry put equal amount of work in­to the com­pa­ny, but Lar­ry ends up in­vest­ing more mon­ey. The com­pa­ny, again, grows ex­po­nen­tial­ly and the cash comes rolling in. Lar­ry has been in­vest­ing al­most all of his mon­ey in­to the com­pa­ny, while Ah­mad has bare­ly in­vest­ed a cent. Lar­ry feels that he should get more of the prof­its, con­sid­er­ing that it was his cap­i­tal that helped the com­pa­ny grow. Ah­mad feels hurt. He and Lar­ry agreed at the be­gin­ning to be 50–50 part­ners PLUS Ah­mad worked just as hard as Lar­ry to help grow the com­pa­ny AND it’s not his fault that Lar­ry has a rich un­cle that gave him all that mon­ey — Ah­mad just did­n’t have the cap­i­tal to in­vest.

Ah­mad and Lar­ry fight. Lar­ry punch­es Ah­mad call­ing him a “stingy bas­tard”. Ah­mad slaps Lar­ry call­ing him a “greedy cap­i­tal­ist pig”. They end up hat­ing each oth­er and not be­ing able to agree on the terms that the com­pa­ny slow­ly fades away, they lose all the mon­ey and fo­cus that they had, and they end up not on­ly los­ing the company…but al­so their friend­ship.

Don’t let Lar­ry and Ah­mad’s sit­u­a­tion come true for you. Know what is ex­pect­ed out of both of you, and save your­self from any fu­ture headaches.