Establishing a Co-Founder Relationship

By: Maria Stracqualursi 

Finding a co-founder to help you launch and build your business can be a daunting task. However, working with a co-founder is a good idea both in terms of strategic business planning and your own mental health. This post examines the benefits of having a co-founder, how you can find a good match in a business partner, and how to develop and formalize the working relationship moving forward.

Importance of a Co-Founder

Starting a company is really hard. Having someone else by your side can be immensely helpful, not only to add different skills but also to share the stress that come with running a business. One report found that startups with two founders are able to raise 30% more in funding and increase their customer base three times as fast as startups with solo founders.

The reasons are many. First, having more than one set of eyes looking at the issues facing the startup generates not only more solutions, but also more creative solutions. A co-founder can help you see potential pitfalls you may not have noticed and hone your ideas. Combining multiple skills sets, experiences, and perspectives allow for more productive brainstorming sessions.

A co-founder can also be a valuable source of emotional support. She can take on some of the burden of stress and will understand exactly what you are going through because they are in it with you. Co-founders can motivate each other to keep moving forward. When the going gets tough, knowing that there is someone else who is committed to and invested in your business on whom you can rely is key.

Having a co-founder could make it much easier to raise funds for your burgeoning business. Venture capitalists repeatedly emphasize that they look for a quality team when investing in startups, and some may even require it as a condition of funding. This may stem from fears that the business will fail if a solo founder burns out or becomes incapacitated.

Number of Co-Founders

The general consensus seems to be that two cofounders is the sweet spot for a successful startup. Fewer cooks in the kitchen means the faster decisions and less equity split. As an individual’s share of the company becomes diluted, he has less of a personal investment and may become less incentivized to work hard and stick with the company through thick and thin. Although it is often preferable to have a co-founder with essential skills that will help the company grow, hiring independent contractors or employees can often be more cost-effective and efficient!

Where to Find a Co-Founder

It is often preferable to connect with a prospective co-founder through a friend, coworker, or even an industry acquaintance because they can personally vouch for their skills. You should certainly start spreading the word that you are seeking someone with a certain background or skillset, and check out Linkedin and other social networks to see if you can find someone who fits. However, if this is a no go, there many other alternatives to connecting with other innovators.

Finding a co-founder has become such an important step for startups that businesses have grown up around assisting entrepreneurs in meeting their perfect counterpart. Cofounderslab.com and founder2be.com allow its members to create profiles detailing their skills, business stage, and what they are looking for in a co-founder – complete with a picture of themselves, like a dating website for entrepreneurs! Startupweekend.org hosts weekend long workshops where entrepreneurs can network while working together on a project that culminates in a presentation at the end of the weekend. You can also attend coding boot camp or events thrown by Meetup or General Assembly. Don’t be afraid to ask individuals that you meet through these channels for a reference, and certainly feel free to do a little Googling!

Things to Look for in a Co-Founder

When trying to figure out what you are seeking in a cofounder, think SEPP: skills, experience, passion and personality fit. First, identify any gaps in your own skillset that are essential to getting the company up and running. Generally, co-founders should have complementary skills but some overlap is helpful for sharing work and bouncing ideas off each other. It is unlikely that you have design, finance, software development, AND marketing skills, all of which are crucial to launching almost any startup. You want to ask yourself whether the person can grow with your company and continue to contribute after the initial launch. Ideally, your prospective co-founder will have some experience working in startups or in the same industry. At the very least, she should be passionate about your product or services and share your drive to make the business a success. Finally, your co-founder should be someone that you can imagine spending long hours with and who won’t drive you nuts. Use the Pizza Test: can you picture yourself eating pizza with this person while working at 12am?

Co-Founder “Dating”

Choosing a co-founder is a huge decision and should not be rushed into. Before you give away equity, you will want to ask a lot of questions to ensure you and your potential co-founder are on the same page and avoid conflict as much as possible down the line. These include finding out about each other’s motivations, values and passions. For example, if you want your company to focus on advocacy and creating a social benefit, you will want to make sure that your potential co-founder agrees with managing the startup in such a way to achieve those goals.

You also want to feel comfortable speaking openly with each other. You will need to be able to give constructive criticism and disagree honestly but respectfully. Additionally, you should have an understanding of each other’s lifestyle and family commitments. For example, someone parenting young children may have a different financial situation and number of hours that they can work, and they may have different priorities or a different financial situation from a single young person with a full time job who just graduated with student loans.

Consider spending a weekend with your prospective co-founder engaging in some kind of intense activity that necessitates decision-making, such as a hackathon or camping trip. If all goes well, you should follow this with a trial period of whatever length you feel comfortable with.

The Co-Founder Pre-Nup

Committing to a co-founder is frequently described as a marriage without the romance. It is potentially a long-term relationship and the expectations should be clear before formalizing the relationship. If the commitment is similar to a marriage, the co-founder agreement is sort of like a pre-nup.

The co-founder agreement should first clarify the roles and responsibilities (including titles) of the parties. Second, it should lay out equity ownership and any vesting schedule. The decision on how to split equity is a process that may involve negotiation and should be done after determining what each party will contribute in terms of skills, time, and experience. Some research suggests that startups with equal equity splits among the founders may have more difficulty raising capital, as it may signal to investors that the team has trouble negotiating and handling difficult issues. Startups should also consider a vesting schedule, in which each founder has to earn his or her equity share by staying active in the company or hitting certain pre-defined milestones. The co-founder agreement should also outline any restrictions on transferring stock and any initial capital contributions made by the founders. The co-founder agreement should additionally require that co-founders assign their intellectual property rights to the company for any material that they develop on behalf of the company. That way, if a founder decides to leave the startup, he will not legally be able to take an essential piece of intellectual property with them. Of course, you should speak with a lawyer to help you draft a co-founders agreement and ensure all your bases are covered.

Finding a co-founder can be a long and demanding process, but ultimately it could be a major contributor to the success of your startup.