Co-founder question

This is my first startup.

I was working with a friend on his startup. He was going to offer me 20% of the company and we worked on it for 4 months. The idea was good but we ran out of money before we could shop it around for seed. He never issued the shares and he did dissolve the company - so they would not have been worth anything anyway.

I told him I had to go work on something else to pay for my wages so we parted as friends.

A couple of months went by and I came up with my own idea. A new idea in a different sector. I found a team in another part of the country and worked on the idea. They were also working on their startup and we thought we could merge the companies. After a few months of work. Spreadsheet, multiple slide decks ad an alpha we presented to seed investors with no luck.

Since time was running out on my own funds I decided to take my idea fully flushed out back to my friend. We quickly reformed our relationship (we get along great) and he brought in a retired CEO and COO to give a seed investment and be on our board.

We are days away from coming to terms and my friend ask me if he could be Co-founder. Here are my questions:

1. Since I came up with the idea solely on my own and he did not. Should my title be Founder and his CO-Founder.
2. Should he be a co-founder at all? I've put 50k of my time in and my dad put in another 50k. My friend has put in no money but he is bringing in his his friends as seed round (50k) and they are great advisers so far. They also have the connections to larger rounds 1-20 million.
3. If I do say yes and give him a higher stake in the company - say 5-10 percent. As opposed to a 1-3 percent as an employee and EVP / Chief business development title.

I just wondering if I should - he says he wants the title more than the equity. It would also be good to return the favor.

Cheers!

1. Why are you worried about what your titles are? What an irrelevant thing.
2. Why are you worried about what your titles are? What an irrelevant thing.
3. Why are you worried about what your titles are? What an irrelevant thing.

More info... updated my answer 30th Nov 2012 The reason I am saying it's irrelevant is because starting a startup is really tough. Most don't succeed. There are some really difficult and tough issues you need to be able to solve, and you need to know how to focus on the things that matter.

Job titles mean nothing. When you don't even have a business yet, I can't think of anything as irrelevant as your job title. To then spend more than 1 minute thinking about them and even have this be something you are negotiating with a potential co-founder is ridiculous.

Not only are you worrying about things that don't matter, you also haven't been able to resolve them easily. What are you going to do with real problems when you can't deal with titles? I would really take a step back, take a look at the bigger picture and start to worry about the things that matter.

he says he wants the title more than the equity.

Then he's crazy. I would take the title "Head Janitor" (or no title at all) in exchange for a higher equity stake. This is not something you should be spending any amount of energy on. Titles are meaningless. At the end of the day the only things that matter are what you can do for the startup and how much compensation you are getting for that.

To me, the fact that he is so concerned about titles shows his inexperience. And that's something you'll want to consider when deciding to go into business with him. Is he going to continue to focus on the little things that mean nothing, or is he going to focus on the big picture?

That said, if titles are important to him, and you want to continue to work with him, then it's something you need to consider. In Joel Spolsky's answer about equity distribution, he talked about fairness:

The most important principle: Fairness, and the perception of fairness, is much more valuable than owning a large stake. Almost everything that can go wrong in a startup will go wrong, and one of the biggest things that can go wrong is huge, angry, shouting matches between the founders as to who worked harder, who owns more, whose idea was it anyway, etc. That is why I would always rather split a new company 50-50 with a friend than insist on owning 60% because "it was my idea," or because "I was more experienced" or anything else.

In his answer, Joel was referring to equity splits, but I think the same principle of fairness applies in your case as well. If your friend perceives that not having the title of co-founder is unfair, then it will likely create many problems for the two of you down the road. Is the turmoil worth keeping the title of sole founder to yourself? I think not, but that's for you to decide.

If he is willing to take a smaller share of the company in exchange for the title, then that is a no-brainer for me. Give him the meaningless title and keep a larger share of the pie for yourself.

As to whether you should use Founder vs. Co-Founder, see here. If you decide to be the sole founder, then you should go with Founder for yourself. If you decide to also give him the title of founder, then you will both be Co-Founders.

Keep the equity, give him the title. But make sure you really understand what you're getting into - if his motivation is based on title, I would seriously question his ability to contribute to more challenging issues when they come (and with startups, they always come).

I would also make sure a vesting model is used here.