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Crafting a Founder Agreement at HealthCraft Case Solution

Solution Id Length Case Author Case Publisher
1308 1095 Words (5 Pages) Noam Wasserman, Janet Kraus, Yael Braid Harvard Business School : 813101
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As an increasing number of young graduates with little or no industry experience pursue their own business ideas over working for someone else, it is essential that they initiate the process formally – even if they are brothers or best friends – so as to avoid any disagreements or legal proceedings at a later date (Yaghmaie, 2014). By initiating the process in a formal manner it means that there should be a formal founder agreement in which all the primary people.

Following questions are answered in this case study solution

  1. The actual content of the founders’ agreement  

  2. Equity Ownership

  3. Salary / Compensation and Non-performance clauses

  4. The ownership of intellectual property rights

Case Analysis for Crafting a Founder Agreement at HealthCraft

The Roles and Responsibilities

A successful business, irrespective of the phase it is in, requires clear assignment of responsibilities so as to make it transparent that who is responsible and accountable for which task(s). Often, founders end up arguing over trivial decisions, which could have been handed by one person but the collaboration of multiple people on that task made it complicated. Therefore, it should be clearly defined from the day one (Kaufman, 2011). For instance, in this case, it is apparent that Wendy seems to be interested in handling all tasks related to sales and marketing of the product. In addition to it, Kevin and Salvador also expect Wendy to look after fund generation for initial start-up so these tasks will be assigned to her. Interestingly, Wendy chose the designation of ‘Founder and Chief Executive Officer’ for her to which Kevin absolutely agreed as he conceded the position of Chief Operation Officer. Often, business gurus recommend that formal designations should be avoided particularly in between founders during the initial phase of the business so as to avoid complications related to the hierarchy. For instance, Kevin being the COO should ideally report to Wendy (CEO), which will not be the case in this start-up. Ideally, founding partners should adopt designations such as President, Vice President, Head of department over CEO, COO, CFO, CTO, etc. (Kaufman, 2011).

So, in this case, it would be in the best interest of the company if Kevin would adopt the title of President while Wendy and Salvador can adopt Vice President & Head of Marketing and Vice President & Head of Product Development. Regarding the debate of whether Salvador is too young for this designation, it should be kept in mind that he has the strongest sense of urgency for this start-up and he has proved his skills and capabilities to both Kevin and Wendy in not only this start-up but also at Aries. If he is not given the desired designation then he may end up not joining the start-up.   

Equity Ownership

This is perhaps the most crucial part of the agreement and it has to be done openly so as to avoid any disagreements later. It is not essential for all the partners to have equal share in the start-up because it depends a lot on what the person brings on the table. In addition to this, all founding partners need to decide on the vesting terms and schedule that they are supposed to follow. Irrespective of the designations that each founding partner may adopt, it is important that the vesting terms are diligently followed so as to be clear upfront about the stakes of each individual (Garza, 2015). For instance, in this case, Kevin is the idea generator so he is the primary person; Wendy and Salvador have been the support as they provided feedback and resources. So it is essential for them to sit down right now and have a meeting on their stakes. Secondly, for the initial start-up, Kevin brought US$ 20,000 whereas, Wendy and Salvador brought US$ 30,000 and US$ 50,000, respectively.

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