My co-founder wants to leave to take a paid gig — what do I do?

Has he decided or has he only expressed this?

I'll have to admit that if you're two years in, $70K in debt, plus having burned through $300K in angel funding, that I'd very, very much consider if I stood a serious chance. Investors are going to take notice, and you're not likely to get a good deal. And since your co-founder has insights in the financials and how close or far you may be from actually closing a Series A, I gather it's not happening next week.

Tough one. Try convincing him to stay on, if you're sure that you want to go on. But you have to face it – his concerns are very real.

PS. Funding is not a business model. Never has been. And it's not what's going to save your company. Funding is the necessary evil you need to accept for possible higher returns down the road.

Let it be a lesson to you. Dont borrow what you cannot afford. Its harsh news, but if you and your husband did not work during this period I am guessing you took some sort of salary. I think if after two years and a reasonable investment up front, if you have not made it then there is no reason for everyone to go down with a sinking ship.

You could try to raise more capital, but take a hard look at your business. Its unacceptable that at this point you are not profitable enough to cover employee salaries.

What happens to his shares if we do get funded and he chooses to remain in his new job?

In the absence of any specific agreement to the contrary, he will still own them and be able to do whatever he wants with them.

That can become a problem. For instance, an early Craigslist investor sold his shares to Craigslist's competitor eBay, and the two companies wound up duking it out in court in 2008. A pre-IPO stockholder can also mess you around by selling shares to enough people to push your shareholder count over 35, which triggers all kinds of legal complications.

That's why it's common to have all pre-IPO stockholders sign an agreement that if any of them want to bail, the others get first right of refusal to buy them out at a fixed price according to a formula. The absence of such an agreement is likely to make knowledgeable potential investors nervous, so you should put one in place asap.

Will an investor ever invest in a company whose founders do not work there full-time, as the business has evolved into something else for which the founders have little experience but is still a lucrative investment?

If the company is making a profit, maybe.

If it's not profitable but at least turning a lot of cash and could become profitable with some effort, less likely but possible.

If it's neither profitable nor turning cash, very unlikely.

I'm also wondering, if it's become a technology company and he's not experienced in that, who did the technology? If it was you, why don't you switch roles and let him have the day job and you go full time with it?

I cannot form an opinion based on the data you provided. To begin, if one was to take a hatchet approach then surely by the numbers your dead. However you have not shared the business model and potentially you and your partner may have underestimated the market place. More importantly underestimating financially what it would take to properly capture that market. Without describing what business and at what stage you are in then it maybe presumptive to just shoot down the opportunity. Researching your marketplace will help to outline what the risk is overall. Do you have a formal business plan?

I would recommend you step back and analyze the business thoroughly and objectively to begin. Do you have a compelling business? Can you prove it? If you had ALL the resources in the world, what would it earn revenue wise? If so, I would then start to look at how to raise capital and perhaps align with a partner that can get you in some money meetings.

Perhaps you can buy back shares from your partner on a debt note since he's cutting his losses. I would settle that issue before continuing. If your firm was in step 1 product development then 2 yrs isn't that long of a period of time, especially if you are developing a product and testing market. You are not describing this.

At some point though if this is your problem you have to do a 180 and get properly positioned financially or you're only putting off inevitable death of it anyway. As nutty as it may sound, send everyone home and rethink the endeavor clearly. Now maybe a good time to address this.

??Will an investor ever invest in a company whose founders do not work there full-time, as the business has evolved into something else for which the founders have little experience but is still a lucrative investment? ?? Ray Croc isn't flipping burgers any time soon but people buy McDonalds shares everyday. The product will hold its own if it has merit.

Stay positive, hope this helps XSDirect