Divorcing founders will often do anything to avoid handing over half of their shares in their startup.
‘Keeping More’
“Founders will try to negotiate keeping more of their shares,” said Michael Gorback, a partner at Hanson Bridgett. “You might balance it out some other way,” by paying exes in cash, a home or other investments.
MacKenzie Bezos and Amazon.com Inc. founder Jeff Bezos divorced earlier this year, leaving her with a 4% stake and a net worth of $34.6 billion, according to the Bloomberg index. He kept 75% of the couple’s Amazon shares, and retains voting control of those she does hold.
Amazon’s stock, of course, is publicly traded, which can make divorce negotiations easier.
“One issue we come across very often is, ‘How do you value a startup?’” Mazzei said. Years before an initial public offering, a startup might have no profits or even revenue to speak of. A promising company could later go under -- or eventually be worth billions.
Trust, Credibility
With enough billable hours, lawyers can usually sort out the legal ramifications of divorce. They’re less helpful in containing the chaos that a founder’s marital problems might create in the workplace or business relationships.
“We have companies where the founder is the brand, and trust and credibility are core to the business,” said Ed Zimmerman, partner and chair of the tech group at Lowenstein Sandler in New York. “If you are investing in a company because you think the founder is amazing,” it can be alarming to learn that he or she is facing the distraction of an acrimonious divorce or custody battle, he said.
If a divorce isn’t disclosed to key investors, they can lose trust in a founder who they thought they knew well. Then there’s sometimes other nasty fallout, of the sort that companies are increasingly sensitive to in the #metoo era.