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Co-founders in a Start-up

Posted on Posted in Startups

 

If you are the first person to think of an idea and truly feel passionate about executing it, you may chose to bring in other co-founders along with you. A few points I want to mention from observations in other start-ups and my own experience.

 

1.Firstly it’s a debatable point whether you should have the co-founders or not.

Why you may not have co-founders 

You might have sufficient funds, and all the required skills to be able to execute the business plan by yourself and only by hiring the team members – You may want to control the organization by yourself, as well as retain most / all shareholding

Why you may chose to have co-founders

 You may lack some important skills which are not easy for you acquire, or own, or hire senior guys into without having them as co-founders.

 You may not have enough resources (financial) to hire senior resources at market compensation,  sharing equity and co-founder title can help adjust the compensation level significantly lower.

Some co-founders may only be there to help only in the branding (they may be great names to have in your team with proven experience and well respected in the industry, but may not be necessarily slogging like you).Some co-founders may be bringing important skills required to execute the business plan (domain or technology) or they may bring the most required investment required to run the start-upRealistically, you need someone to share the burden with. You might fall sick, have family problems, or other issues in which case you need at least one more person to help run the start-up in your absence.

 

2. How many co-founders should you have?

Assuming you decided explicitly or by default to have the co-founders, next important point is how many should you have. I think over 4 co-founders is way too many. More co-founders lead to more issues over time. Realistically, it’s likely that over time you will have fall-outs within the co-founders and some may have to leave.

You must have a mechanism in place to minimize the impact on the functioning of the company.

You must have a legal employment / management contract between the company and the co-founders – the equity split done between the co-founders should be vested over a period of 4-5 years. so if a co-founder leaves early, he / she only gets the shares on a pro-rata basis. – the role, performance and contribution of the co-founders are very likely to vary over a period over time.

You must try to keep a flexible equity sharing structure for the co-founders and keep the process around equity distribution transparent with them

 

3. How should you chose the co-founders, or join a start-up as a co-founders

I cannot insist more on this point, it’s all about people. Start-ups work or they don’t, mostly because of the team quality and their ability to work together. You should think about some characteristics you require in co-founders – you must get on well with them as well as be able to trust them. It’s the first and foremost criteria. You will have more bad days than good days during your start-up journey and you want to be with someone with whom you feel very comfortable

You must get those co-founders who bring some complimentary skills with entrepreneurship spirit if possible. They would be more useful in executing the business plan, rather than having co-founders who have similar skill set and background as you. Example, if you are a software developer, you may chose to get a business background co-founder rather than another software developer itself – the co-founders must be willing to slog and share the pain of running the start-up without too many hang-ups. It helps to have more determined and motivated co-founders – the role of the co-founders, shareholding split, compensation and other related details should be discussed as early as possible – you would most likely have co-founders whom you had worked / studied / interacted in the past.

I think it’s rather better to have known people as co-founders as long as you are sure they have strong skill-set that you require, and other criteria as mentioned above – it would be ideal if you could find co-founders who share some of your vision, and bring slightly different ideas on the table which you can constructively build and agree upon – you may get the CEO title if you are the main person behind the idea and business plan execution, but always keep your eyes open for better CEO if you can find one. your founder title would always stay with you, and you can take more additional / different responsibilities by bringing in a specialist and experienced CEO who can help create more value into the company. you should consider the same for other co-founders’ titles, and be open to bringing in experts at a later stage during the company expansion mode. I do not think co-CEO title works if there are 2 or more founders who are eligible for the position. The leadership should be unambiguous.

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