During our first year, we paid our CTO $84,000 and we spent the rest of the money trying to develop hardware and software. There was a period of time when our CTO was unreliable, wouldn't answer and I still paid him $6,000 because I trusted him.
During that year he didn't produce a working software app, in our second year he still didn't produce an app we could show to our investor.
Another year later, we produced few hardware prototype units, that are bugged, but can be worked with a little. He still hasn't been reliable, so we removed him from being a board member. Several months later, when we all decided together he will keep working as a CTO, he received hardware devices, said he will get to work, and 6 months later we still don't have any work from him.
Instead he is toxic, blames everyone, says he put a lot of work into this (though nothing we can use), and will not walk away and is saying we can buy him out.
We have $0 in our bank currently and having him in the company is just toxic at this point creating terrible mood with me and our investor.
What are our options of removing him and making our product? We still need to spend again over at least $100,000 to build the product.
Me and our investor are on great terms, but he won't to put in more money when our CTO is involved. Can we dissolve the company since it has no money anymore and start a new one without him using our current assets?
1. With regards to the CTO, treat them like an employee. Prove that their performance as an employee is not good enough, and fire them. They now have no reason to interact with the company on a day to day basis.
2. As a 5% owner, treat them like a shareholder. Put together a reasonable offer to buy them out, and do so. If they don't want to sell then that's fine, you'll only have to interact with them during shareholders meetings.
The first action will solve a lot of your problems. The second action can happen later on when you've got the money to do so.
> During our first year, we paid our CTO $84,000 and we spent the rest of the money trying to develop hardware and software.
Why did your investor who gave 250,000 get 70% of the 1,000,000 valued invention?
What is stopping you or your investor from buying out the 5% when it is worth much less than the cash that you paid in the first year?
Where is this located in?
So, the company under your management burnt 250K in 2 years, produced nothing in 2 years, and kept the CTO for 2 years.
Fire yourself and thank your investor for being so naive.
Does he have an employment contract and on what terms? In some jurisdictions even no written contract can mean an implicit default contract, so you should consult a lawyer. And you may need to prove that you warned him about performance.
The other part are his 5%, but that usually is no hindrance for ending the employment. He will just stay on the cap sheet and can cash in later when you are successful. If that bothers you or your investor, you can try to make an offer (low, because he did not deliver). This is best to align with the investor and they make take those negotiations so you can focus on delivering.
1) He said it, so you don't like the messenger despite that being the accurate path
2) and no money
you’re conflating both of those with the idea of “rewarding” him more
tough luck
the other side of this is who cares that he’s a shareholder. Its 5%. just ignore him, remove his title, and have someone else do the work. he remains a 5% shareholder and everyone else continues on.
he has literally no power and doesnt prevent you or anyone else investing money into this company except your own pride
Would you email me?
My email address is:
peter.d.sherman@gmail.com
Just shoot me a simple message introducing yourself, no links or anything, and it should make it through my spam filter...
Maybe I could give you a few ideas on what to do...
100% of $0 is $0.
Unless you have quite a bit of IP in your company.
If you still think you can save this company somehow, figure out a way to fire the CTO and start fresh. Talk to Lawyers but the investor owning 70% is bothering me the most.
Get with the good 95% of your company and start a new entity. Don't tell your cofounder about it.
New entity makes a deal with your current one to exclusively license the technology and branding, and take possession of the assets. Make the deal as one-sided as you can without your toxic CTO catching wind (and without breaking the law or giving grounds for a lawsuit in the event they do catch wind).
All new R&D goes on at the new entity. All existing staff gradually curtail the hours they spend at the old entity and "resign" here and there, all while working for the acquihiring new entity. Old entity never hires replacements. CTO continues frittering away, you can't afford to pay him, but ensure that his equity in the old firm is acknowledged and protected. At the end of some period (e.g. 3 years), the license agreement ends, everyone but CTO makes a clean break and officially works for the new firm. The old shell of a company gets folded up due to having no money.
Truman Show acquisition.
> I patented the technology 4 years ago
But it's for me only. You can't use it.