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Over the past 2 years I have been developing my own business. Recently we have gotten some traction and are moving forward--code is being written and things are falling into place. I feel very strongly about the problem we are trying to solve and want very much for my business to succeed.

About 2 months ago while at a conference I ran into the VP of Sales and Marketing for a VC backed startup. We had a good conversation about the market and their software. This company is a direct competitor of my business.

Now they are recruiting me. I've told them my situation with my own company (that is just getting started). My partner knows about the situation as well. I haven't given away any IP and have been very guarded with my conversations.

This competing company wants me to use the knowledge and expertise that I would have used to develop my own business and use it to develop theirs as Director of Product Development.

I'm torn. I love my startup and I've been working very hard to see this dream become a reality. At the same time, all of this hard work that I've been putting into developing my own business makes me the perfect candidate for this other job opportunity.

I'm interested in your thoughts and opinions--especially about intellectual property. What happens if I put my business on hold and go work for them for 1-2 years. Can I come out of a competing company and start my business back up? What should I do to protect myself? One day I still want to pursue my dream, but their offer may be too good to pass up.

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6 Answers

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Working for the VC backed startup, and then going back to your own business in the exact same area of business is .. at least a legal minefield, perhaps simply impossible.

If you don't kill your own company upon joining them, then rumors could develop, undermining your position in the new company. When you join at a VP level, you should expect non-competition clauses in your contract, and clauses that transfer exclusive ownership of all intellectual property you create to the company. These kinds of clauses in your contract are normal for VP/Director level positions. And they're potentially very poisonous if you go back to your own business later. You could try to negotiate them away; but that could easily been seen as evil intentions from the other side, i.e. that you're just joining to 'spy' on their company. At least you should see a good lawyer, and consider the scope / delimitation of these clauses carefully.

Could an outright merger be a solution -- you, your partner, and your current IP injected into the VC backed startup, in return for an ownership share?

What do you know about the people, part 1:

  • Does that other VP of Sales have the authority to make such an offer, or could he be overruled by his management/investors?

  • Could this simply be a ploy to remove a competitor, or to boost development in a company that actually isn't doing too well? I'm taken back by the offer to make you Director of Product Development; I have no evidence whatsoever (only a few lines from your post to go on), but my immediate reaction was that it ... seems questionable. I would expect the product development position to be taken already, and taken by one of the core (founding) members of the other startup. Do you see a rational, objective, and very compelling reasons why you are very attractive to them? If so, then my skepticism may be unfounded.

What do you know about the people, part 2: Does the core team at the other company seem really great to you; do they seem to be so nice, smart, and honest that you'd like to be almost-married to them for a few years?

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Lawyers--Check! Healthy skepticism--Check! A merger would be a good solution, but not sure if they would go for it. Why me--There are good reasons why I'm attractive to them. My instincts tell me they are trying to grow/scale before they've found a business model or product-market-fit. They've got a good start with early adopters but they are having to do a lot of ground work to make sales. So far they seem to be good people--I'll find out more in a couple of weeks, they are flying me out to their headquarters. Thanks for the advice. – csumme May 7 '10 at 2:31
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My view is that offers like this don't come along often and you should take it. You will learn a considerable amount about starting and running a start-up, so use the time wisely to learn.

You can always pick up your start-up if it doesn't work out for you. Just make sure that you don't sign anything that prohibits you from starting your own company if you leave.

It's a tough choice and only you can make the final decision, but best of luck and I hope it all works out for you.

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It would definitely be a great learning experience--whether they were a great success or failure. – csumme May 7 '10 at 1:20
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If the two companies and technologies are a good fit and these are people that you want to work with, you could consider taking the position and negotiating shares in the company in return for the IP you will be putting in. This way, you can potentially leverage the work you have already done by using the resources of your competitor and it would still be your company.

Keep your eyes open.

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Where should I start in trying to negotiate shares? This company just received round B VC funding and I was told that they have set a aside 10% employee stock options pool. How much should I expect to get. My company has no product yet, a few assets, but mostly IP. What kind of document would they expect to get? How would I communicate my worth without giving away valuable IP? Thanks! – csumme May 8 '10 at 12:55
I have not gone through this process personally and am not an expert on this, so I would suggest you get a professional opinion on the nuts and bots of this negotiation. Be really prepared, don't go into it blind. A good resource for negotiation preparation is "Getting to Yes" and the workbook that goes with it. However, strategically, you need to demonstrate that you are bringing something of value to the company to exchange for equity. Without knowing more about what it is that you are doing, it is difficult to suggest the most appropriate way to do this. – Susan Jones May 10 '10 at 2:46
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There are already good answers, but here are a couple of other things to consider.

Putting a business on hold for two years usually means that you miss your market window. So I think it really boils down to whether you want to abandon your current effort for this new opportunity.

Key people frequently execute non-compete agreements. That would put a severe damper on what you could do after the VC-backed company. If you do decide to join this new company, that should be something you negotiate up front. Your location also matters. California has some fairly liberal laws regarding work at competing companies.

You mentioned a partner. How do they feel about abandoning your current startup? Regardless of how attractive you find this new opportunity, you have responsibilities to them that must be met.

Assuming you go forward, I would suggest the merger option on the assumption that your current business wouldn't be worth much after two years in hibernation. It's also a way to recognize and reward your partners contributions.

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I agree I think it boils down to one or the other. And the market will surely change in two years. I've been very upfront with my current partner, and he want's me to stay committed to our business. At the same time he want's what is best for me and my family. Understanding the delicate nature of my talks with the other company, I have doubled my efforts for my current business. I don't want my partner to feel like I am abandoning the business--I'm just willing to hear what they have to say. Should be a good learning experience either way. Thanks! – csumme May 9 '10 at 17:16
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Going it alone is more challenging but the rewards can be more fulfilling.

If you decide to take the joining route, you'll need to start disclosing more so they see the value and want to offer you a partnership. Don't go it as a normal employee, and don't request the partnership, make them understand they're business will be much more successfully with you and your IP on board and they will offer.

If not, I would recommend against joining.

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As mentioned in some of the other answers, the best outcome for this situation is for it to be pitched as a talent acquisition with an ownership stake in the competitor for BOTH you and your partner. You didn't really outline the relationship there or if there is economic hardship but I would advise against splitting on your partner. Even if he is understanding, that fact alone could damage your reputation with potential future partners. I know I would be reticent to commit getting a venture off the ground with someone if I knew they had left for greener pastures with a competitor in the past. As well, if one day your partner feels slighted, will you be able to contend with litigation over ownership of your current companies IP?

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