Risk Mitigation for Assembly of Agents into Teams for Long-term Collaboration (or Prenups and shit)
When agents assemble for long-term collaboration, there is a lot of uncertainty involved. Agreements can be made upon founding the team or joining the team to mitigate specific risky potential outcomes to all agents in the future. Additionally, you can create and structure agreements to resolve issues around stock repurchase as I have discussed in a previous post.
VCs have a lot of experience with this and that is a large reason that vesting clauses and Convertible Notes have become so popular as methods to reduce risks and manage uncertainty. Note, that VCs would be wise to collect more data, even though the feedback loops are so long, but I will stop there.
I was talking with a friend, who by my standards is a successful entrepreneur, his company not only has revenue but is profitable. He recently had to essentially kick his co-founder out of the company and buy back his stock. I mentioned my recent post about a mechanism to help resolve some the issues involved in that kind of situation. However, legal agreements do not resolve a lot of the emotional pain experienced when you have worked with someone for years and the relationship is ending, much like a divorce. At the same time my friend was going through that, he broke up with his girlfriend, and we talked about the obvious analogy in passing.
I had a think about it again today and have come to some more clear ideas.
While prenups are somewhat analogous to founder stock purchase agreements, I have the impression that they are less advanced. Prenups should include a vesting clause related to payouts in the case of divorce. The longer the marriage, the larger the payout. Similarly, divorce courts should adopt some kind of standard protocol to determine payouts based on the number of years married. This would not only prevent unnecessary financial hardships, but I would bet that it would create a happier society by reducing the number of partners that are hesitant to end the marriage due to financial risks.
So marriages and startups are similar because both are teams of agents collaborating for some purpose. Perhaps a ‘partnership’ is like an LLC and a ‘family’ is more like a startup. Now if kids are added to the marriage, a family is created. Fine, your dog counts too. One of the differences between an LLC and a C-corp (typical corporate structure of a startup) is related to the expectation of size and the potential number of members.
So if a family is like a startup, the child is actually like the company, and the parents are the founders. The founders can leave and the child still exists if it gets past the baby years. I was almost tempted to say that when one parent stops being involved in raising the child (doesn’t matter if the parents are divorced or not), that is like the when a founder leaves a company and stock needs to be purchased back. However, that’s not really true. The stock a parent has in a child is mostly obtained through sweat equity over a looooong time, and paid back in dividends, when the child shares their life with the parents and takes care of them later in life. If you had 20-year vesting clauses in founder agreements you wouldn’t worry about stock buyback in startups either. You get what you put in. Makes me think 4-year vesting agreements are too short, maybe 5 or 6 years would be more appropriate. Also reminds me that I can’t remember the last time I talked with my parents.
Anyway, speaking of marriage, on at least one occasion, I have heard “I don’t believe in marriage.” First, that kind of language indicates an uncultivated mind at the least. Marriages certainly exist.
Secondly, I find that when I read things written about marriage by Americans, or I ask different people about marriage, they often seem to be very confused. They seem totally unaware what the purpose of marriage has been in the past in different cultures, what the purpose is in different cultures now, and what the purpose is to them personally. One of the fundamental purposes of marriage is just to create a public ledger of people’s committed relationships. This works to achieve many objectives, such as the ability to check fidelity and track record, and in that sense, I think it is very useful.
Personally, I see marriage as somewhat similar to startups, in essence, it’s not for everyone. High failure rate, yet there are cases of success. Great rewards, yet great risks. Therefore anyone who says they don’t believe in it really should clarify that it’s not for them, just like startups or starting a small business is not for everyone.
Oh, but wait, there are potential demerits to prenups and to vesting clauses. It allows agents to hedge their bets. They don’t burn their ships. They have an easy way out. And the thing with having easy way outs when things are getting tough, is that sometimes it stifles personal growth and is actually an obstacle to unknown rewards.