Founders’ Agreement: How Important Is It and Why Do Early Founder Deals Become the Most Expensive Mistakes Later?
The beginning of every startup is romantic. Two or three founders, a lot of enthusiasm, a garage (or a coworking space), and a sentence that will later cost you millions: “We’ll sort out the details easily once we make our first money.”
That sentence is probably the most expensive legal mistake you can make.
As lawyers who have gone through dozens of due diligence processes, we have witnessed great tech ideas fall apart not because of bad code or lack of market demand, but because of broken personal relationships that were never properly put in writing.
Danger Zone: The Moment You Get Traction
As long as you have no users and no revenue, your startup is worth zero. Naturally, arguing over 10% in a company worth zero is meaningless.
However, the moment you get traction, everything changes dramatically. Traction raises the stakes. That 10% suddenly becomes worth €100,000 or even €1 million. This is when all the “casual agreements” come due, and investors become rigorous in their checks.
What Actually Needs to Be Agreed?
Many founders think that “we split everything equally” is the end of the story. In reality, that is only the beginning. A professional relationship requires answers to difficult questions before they turn into problems.
Vesting: What happens if one founder quits after six months? Do they walk away with 30% of the company? Without vesting – yes. With vesting, they leave empty‑handed or with a smaller portion, and the equity remains with those who continue building.
Roles and obligations: Is “part‑time” work alongside a full‑time job enough to keep the same equity stake as someone who spends 12 hours a day working on the startup?
Decision‑making (deadlock): What do you do when decision‑making is blocked? Who has the casting vote so the business does not grind to a halt?
The Nightmare Called Due Diligence
Imagine the following scenario: you have a product, you are growing, and a VC fund is ready to invest. Their legal team starts a deep dive (due diligence) and finds a so‑called “skeleton in the closet”.
The most common issue is the “ghost co-founder”. That is the developer who was there for the first three months, wrote part of the critical code, received an oral promise of 10%, and then disappeared. They are not answering your calls, but legally, they are still a co-owner of your intellectual property or can claim equity. Or, even more complex, imagine they worked on a computer owned by their employer, and were “helping” you supposedly in their free time rather than while on the clock for that company. In legal terms, this is a horror scenario.
An investor will not invest in a company where an unknown person holds a legal position in the form of unresolved ownership that can blow up the entire deal. For an investor, this is a major red flag.
Founders’ Agreement as the Solution
This document is not a sign of mistrust, but of top‑tier professionalism. A well‑drafted Founders’ Agreement is a tool that protects you from unforeseen life events.
It must include:
- Mechanisms for an orderly separation (good leaver / bad leaver clauses);
- Clear rules on transferring intellectual property (IP) rights to the company – critical for any IT business;
- Restrictions on transferring equity to third parties (right of first refusal).
If you define these relationships now, a future investment agreement (SHA) will simply build on solid foundations instead of being a painful and expensive reconstruction of the company.
When Is It Too Late?
In the early (pre‑seed) phase, almost everything can be fixed. Documents can be amended, relationships redefined, all at relatively low cost. However, once you reach the first serious round (seed or Series A), every legal ambiguity is “punished” with a lower valuation or with a requirement from investors that issues be resolved at the founders’ expense before any funds are wired.
Conclusion
Your relationship with your co‑founders is the company’s most important asset before the first euro of revenue. Do not leave it to assumptions – structure it thoroughly from the very beginning.
Review your internal arrangements before the first investor knocks on your door. It is cheaper to hire an expert now to set up the legal framework than to negotiate later about saving an investment.
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