More likely, he does not want to deal with backfilling your positions and training a new person.

The probability is that he is being selfish, not helpful to you. I would look for some sort of work-from-home or part-time arrangement. Let them "fund" your startup by allowing you to keep a portion of your paycheck, not by actual investing.

Don't count on option 2, either. I've seen many cases where a "super critical" employee leaves with much concern, and 3 months later it's like they never even worked there.

I don't mean to sound negative, just realistic...

The startup existed as its own corporation before they hired me; in fact, they hired me because they liked the startup.

Noodle's suggestion of offering to stay on as a consultant for less than 40 hours a week is probably the best suggestion.

It took me 5 months to extract myself from my old company, I planned it out with the CEO and set a date. After that date, all I've done is answer the occasional question. Now I have complete focus on my startup, and it's been wonderful beyond even what I expected. It's unleashed a whole lot of creativity that was squashed at the old company because my ideas didn't really fit in with the company's direction. I'm totally loving it.

I cannot understand what is holding you back. Quit your job. No strings attached. Just go for it.

If you have a startup with a few million users and you don't quit your job, who will? This is a no-brainer. Take your chances. Take the plunge. It will turn out good.

Then get an up-front commit on a couple months worth of work.

You have now set yourself on a course to bootstrap the company off consulting work. Total win.

Try to negotiate somekind of new contract. It's good to get a solid contract, say for like 6months, which is renewable or terminated if both parties agree, so they can't drop you easily(you can have some income projections) but they cant keep you forever either, and you can terminate it if it doesn't work out.

Then again, the startup definitely has enough work to keep me busy full-time, and taking a 1/2 cut in pay to work 20 hrs a week on the startup is almost worse than going to $0 pay to go as fast as humanly possible.

I'd pursue getting the CEO as an angel investor. It provides you with money to build the business but attaches you to only one person instead of an entire company. If you are successful, you can always propose a larger investment or relationship with the existing company as a whole -- and by that point you know the CEO already has a hand in both pots, thus an incentive to facilitate that relationship for you.

Sabbatical? Some companies will offer/support that kind of a time off model.

Guard your IP.

+ I'm not certain this is possible, but I've heard sometimes vague descriptions of such arrangements. It seems to me that staying within a larger pool would be preferable to purchasing independently.

EDIT: I updated my prior comment, above, to better reflect my uncertainty.

going solo, it will be more expensive unless you can get in with a group of some sort. for example, you can join up with the freelancers union and get help with your rates (i think -- haven't actually done the work to see whats cheaper).

Don't fire bridges with your last job-contacts. Keep your friends and be polite with your CEO but tell him you have taken a decision.

Factor Number 1 in a startup is time, if you continue working for your job, you lose a lot of more time in between. You need to be in the position of having only two options: 1-success or 2...success. You need to be hungry for success. Take money from people you know how they are.

http://www.paulgraham.com/startupmistakes.html

Look at #18. It's what killed my startup.

Any chance your current employer could become a paying customer? Starting off with a customer gives you credibility for capital and other customers.

Any chance your current employer could become a paying customer?

Already are, actually.

Don't mean to be harsh but that's the statistical reality.

Cheers

Off-topic: what's your measure of success?