Assuming you currently own 50% of the business, then a $5k buyout imputes a $10k valuation on the business. That's less than 1x your annual revenue which seems extremely low.
If you no longer want to work on the business, I agree it's fair to your co-founder to sell your share (or at least the majority of it) but it should be for a more reasonable valuation IMO.
A 3x annual revenue multiple for 100% of the business is a typical valuation, if you have decent profit margins and the site doesn't require on-going work to keep running as-is.
So that would be a valuation of $54k or $27k for your half. Let's call it $25k to simplify.
Rather than your co-founder having to pay it all upfront (which would be quite risky as perhaps the revenue implodes, etc), you can structure it such that you continue to get X percent of the revenue (maybe even 100%) until you've received the $25k.
Whether it's $25k or something isn't just an accounting matter, but also subjectively what seems fair.
If you're basically "walking out" of the business and leaving your co-founder hanging, then maybe it's fair for you to walk away with less than 50%. Many companies have a vesting clause built-in for this.
On the other hand, you derisking the buy-out by having it done through revenue-based payouts might already make up for the fact that you're moving on.
One final thing to consider is that you'll need to make it worth it to your co-founder to continue. If your demands are too high, it's likely they won't want to continue either and you're both left with a dying business and no payout.
Thanks Marc. Appreciate your response! I have to think about it maybe 5k is indeed not that much. I have to take into account that the code base is bad and he has to find someone to continue with. It has a lot of potential but it takes a lot of development time.
Assuming you currently own 50% of the business, then a $5k buyout imputes a $10k valuation on the business. That's less than 1x your annual revenue which seems extremely low.
If you no longer want to work on the business, I agree it's fair to your co-founder to sell your share (or at least the majority of it) but it should be for a more reasonable valuation IMO.
A 3x annual revenue multiple for 100% of the business is a typical valuation, if you have decent profit margins and the site doesn't require on-going work to keep running as-is.
So that would be a valuation of $54k or $27k for your half. Let's call it $25k to simplify.
Rather than your co-founder having to pay it all upfront (which would be quite risky as perhaps the revenue implodes, etc), you can structure it such that you continue to get X percent of the revenue (maybe even 100%) until you've received the $25k.
Whether it's $25k or something isn't just an accounting matter, but also subjectively what seems fair.
If you're basically "walking out" of the business and leaving your co-founder hanging, then maybe it's fair for you to walk away with less than 50%. Many companies have a vesting clause built-in for this.
On the other hand, you derisking the buy-out by having it done through revenue-based payouts might already make up for the fact that you're moving on.
One final thing to consider is that you'll need to make it worth it to your co-founder to continue. If your demands are too high, it's likely they won't want to continue either and you're both left with a dying business and no payout.
Thanks Marc. Appreciate your response! I have to think about it maybe 5k is indeed not that much. I have to take into account that the code base is bad and he has to find someone to continue with. It has a lot of potential but it takes a lot of development time.
That’s a risk the cofounder takes on, not you. You’re in a negotiation, you should negotiate your side, let the cofounder negotiate theirs.