<i>'... take more of a back seat in return for less equity but also less initial investment ...'</i><p>Bummer, but all is not lost. This is actually a good thing to happen now, rather than later. How much investment? A lot? Can you do without it? Can you repay them back? Is it worth keeping someone on who doesn't really want to contribute but still wants some control?<p><i>'... we have been working on the project for a few months ...'</i><p>This is good. The longer you work on the project the more investment is required (time, money and effort). It's also good to weed out early someone who is not willing to go the full journey. So in this respect you are lucky. You haven't created a lot of value that has to be split up or given a dollar value.<p><i>'... What to do when your co-founder takes a backseat? ...'</i><p>Use the ejector button?<p><i>'... What do you reckon I should do? get another co-founder? ...'</i><p>Find another co-founder. Work out if you need your ex-founders investment, skills at a later date. If not re-pay the investment. Try to determine why the co-founder has left? Is it because of lack of interest, skill, commitment? Is it they found a better offer?
You need to separate the analysis:<p>1. What he/she gets as part of investing capital in the company (and whether that's going to be equity or debt)<p>2. What he/she gets as part of having an operating role in the company.<p>The good news is that this happened now (vs. later). The bad news is it sucks to lose a co-founder.
<i>'... If the company did well I believe this person would join. But i would not expect him to leave his job in uncertainty. ...'</i><p>If this is the case I'd repay money and take the person on as an early employee but <i>not</i> a co-founder. This is okay. You know the person. But the fact is they did not think the idea, concept or work compelling enough to quit. Also don't be fooled into thinking early investment is some sort of ownership.<p>
<i>'... I think the ejector button would be too strong ...'</i><p>That was meant to be a joke
my co-founder has decided to take more of a back seat in return for less equity but also less initial investment. we have been working on the project for a few months. i think he realised he is not THAT into internet businesses/ideas/projects. What do you reckon I should do? get another co-founder?