I would propose structuring the buyout in the form of convertible debt instead of a cash buyout. You give up your equity today, but the LLC gives your a convertible note to cover your valuation conditional on some future funding event.
Set a specific valuation target, at which point the note will pay in cash equivalent to a certain percent of the company's equity. That defers the issue of liquidity until if/when the company gets sufficient funding. But it gets you out of the equity today, particularly with regards to voting shares. Which is probably what your co-founder cares about the most.
This makes a lot of sense. An issue I have with this is that one reason my co-founder wants to split is that they don't really want the pressure of running a startup, and so are unlikely to go on to raise additional money.
Could a situation where I get a cash payout, say $20k from the company to sell a certain %, and then the convertible debt to sell more in the future work?
If the co-founder doesn't think there will be a need for any new funding, then that would imply that he expects the company to be cash-flow positive in the near-term.
I'd sit down and work out what are the cash flow forecasts and milestones. Contextualize what's a reasonable rate of return for implicitly funding the company by foregoing an immediate cash buyout. If/when the company achieves certain profitability milestones, then the note will pay back in installments.
Each successful milestone draws down the principal, each missed milestone increases the principal. If profitability isn't sustainably achieved, the note converts back into common equity. If/when there's a major funding event, the note converts to common equity or cash equivalent of the common equity valuation.
Essentially you're planning for three scenarios. 1) The business becomes profitable without further funding. You're paid off over time from the profits. 2) The business goes the fundraising route. You're paid off at the liquidity event. 3) The business succeeds at neither route. Your share of the equity reverts back to you, so you receive your fair share of the scraps.
"An issue I have with this is that one reason my co-founder wants to split is that they don't really want the pressure of running a startup"
Whereas it sounds like you have a solid plan to grow the business and generate revenue. As @jedberg says, this makes your interests aligned with the (neutral) investor, and the other founder at odds with the investor.
a) You and your cofounder can't work together
b) One must leave
The investor and one founder can push out the other founder. Who do you think the investor thinks should leave if you reread your quote above?
> An issue I have with this is that one reason my co-founder wants to split is that they don't really want the pressure of running a startup.
I’m confused. If they don’t want the pressure of running a startup, why isn’t the co-founder leaving, instead of trying to force you out and remain in charge?
Set a specific valuation target, at which point the note will pay in cash equivalent to a certain percent of the company's equity. That defers the issue of liquidity until if/when the company gets sufficient funding. But it gets you out of the equity today, particularly with regards to voting shares. Which is probably what your co-founder cares about the most.