TL;DR: Worked a year+ on code we still own, founder refuses to raise capital (wants to bootstrap) and is now low-balling us, we're willing to walk away--what would you do?
Long version (detailed and specific to our situation--but potentially useful to others stuck in abusive founder vs. technical staff/co-founder relationships):
Founder has a big rolodex, has big-name advisors, and very interesting idea and bus dev vision for product in a very hot space. We agreed to join and help him develop product given 'revenue' will be rolling in by end of year (yes, last year: by Dec 31st) and he would rev-share that revenue with us.
We have developed code for over a year, 8 months full-time, 5 months half-time (we were full-time from last year Sept-this year April, then took paying work half-time starting May 1st because we couldn't afford to keep working for free, so from May-Sept we've been half-time and less focused due to that).
The 'founder' (who refuses to treat us as 'co-founders') after much wrangling and negotiating, finally proposed a contract--still unsigned--to provide us with 3% equity for work to-date--in "March/April," so for our work through April 1--with ability to earn another 3% equity for our product once it's earned $500k in revenue and an additional 3% equity vesting over 4 years (all equity shared between the two of us). In addition, founder would sign a 'note' for $125,000, of which $50k is straight note and additional $75k could be paid us to 'buy back' the initial 3% equity for the initial "work to-date 3% piece" of equity, within 12 months (presumably exercised if our product doesn't work out, no customers materialize, and his business prospects look good to him otherwise--but we'd still get $125k in that case, instead of only $50k and 3% of 'nothing'). Obviously, if his business never makes a dime, we don't either, so we have plenty of skin/risk in the game.
He has contacts (potential customers), others involved, including some very big names for PR and advice, some very minimal consulting work, and virtually no revenues--though he finally in August got one paying customer contract and offered to give us 30% of it: $3,000. We refused until we'd agreed to and signed a contract (which we haven't done yet). Overall, this product is in a VERY hot space and we have an interesting idea for solving a lot of pain, of which perhaps 20% of said pain is currently solved by our software--it's a complicated space and will require serious engineering to make a dent in the other 80%.
We never signed the "March/April" contract. It was always "at the lawyers" (founder's lawyers--though we insisted our counsel would review it when he got it back to us, which he never did, aside from one draft not approved by his counsel, but filled with legalese). We think the above ($50k+3%+3%+3% or $125k) was a reasonable offer, not great, but reasonable. In the meantime, we have retained rights to all of our code, we have paid out-of-pocket a designer $1,200 to do artwork for the site and we've paid some minimal hosting fees, perhaps another $200-300, so we're out of pocket $1,500 or so and a year of our time (well, perhaps 10 months full-time). The only monies that have changed hands between us was founder reimbursed us for training expenses ($800) to travel out of state and attend a partner training for some related technology, not a part of our product to-date.
Now that it's been a year, we want out, we're done working for 'free'... The 'founder' says since it hasn't "worked out" he wants to 'rent' our software back from us. He's essentially playing hard ball with us with an offer to 'rent' the software we've developed for $500/month plus 30% rev-share, up to a total of $100,000 at which point he owns the software. We'd have to do bug-fixing, etc., but no new features.
This is a totally insulting offer after 10+ months of full-time work (and 1 calendar year+). Especially since we have serious doubts that he can make the business fly, given no revenue to date. OTOH, this is a hot space and the product is somewhat usable now and solves a part of the market need.
We plan on telling him in response that we'll take actual cash now (which he'd have to go raise money for) of about $60k, or else take the original deal we'd negotiated, but not finalized (that is, $125k, or $50k note plus 3%/3%/3%, plus he'd need to cough up our out-of-pocket expenses ($1,500) and/or the $3k he's already offered, in cash, now, say $3-5k) for us walking away, with minimal involvement (no bug fixing, maybe one 2-hr in-person meeting a month, or two 1-hr calls, to advise).
Any thoughts? Is our approach reasonable? We're totally willing to walk away and turn off the software and lose it all, except our wonderful hard-won experience (;-). Just to not have to deal with him would be a relief.
He could probably re-build the software for $30-50k offshore (we are greybeards in software in general, but fairly new devs on this toolset (web/SaaS dev), having recently re-entered full-on software engineering, but are experienced professionals in other areas: software product management, marketing, bus dev, hardware, etc., just not super hot-shit coders--which is why he could probably re-build for less--though his business prospects would crumble while he took the time to re-build--plus he doesn't have the cash to do it and probably couldn't raise cash for it--though he might be able raise cash for "already written" software that's working--that is, ours)...
What would you do?
Thanks in advance for any advice/thoughts: $ amounts to request--different than our thoughts right now--or: other negotiating advice, ways to make it palatable to him, and/or tell us why we're stupid (besides getting into business with him in the first place) or how we're missing something in our attitude or our approach. Btw, according to March/April contract he also 'owes us' (added to $50k note) about another $11k/month for both of us for April, then $5.5k/month for May-Sept, so $38,500 + $50,000 or $88,000 total... which began accruing once the March/April contract was to take effect on April 1st. These add-on amounts are about 35% of our fully-loaded consulting rates. Yes, our other half-time job is paying us about $30k/month FTE ($15k half-time/month for both of us) now.