Do I need a co-founder?


0

I am a professional developer, and I work on the side on my own projects. I incorporated a company about a year ago, and my last side-project generates about $400 a month.

I have now started working on a more ambitious project, which has I think a lot of potential. I have built the minimum viable product, and even organized a small press launch, got some press coverage and got interest from a number of users, potential partners and even people showing interest for becoming investors.

I am now considering leaving my full time job and work on this full time. I met a guy recently at a hackathon event, he is non technical but he has some domain expertise that could be useful for that project, but doesn't have much experience in areas like marketing, sales, support etc...

I am risk averse, and I feel it'd be easier for me to leave my job if I knew I had a co-founder with me, but at the same time, I am not sure if it is worth giving away a significant amount of equity given that the product is already built, and that I already have some (small) income from my previous projects.

I offered him a 20% stake but he refused. He is still interested in working with me and in the project, but wants more equity.

I am not sure what to do so I'm looking for external opinions, should I give him more equity? Should I keep working part-time on the project alone until it makes more money, then leave my job and hire a first employee (rather than a co-founder) to do the time-consuming tasks (like customer support, content management) so I can focus on growing the business... ? Please let me know what you think.

Co-Founder Equity Part Time

asked Jul 16 '13 at 22:38
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Antipasti
3 points
  • Let him counter your 20% offer and see if you can come to mutually agreeable terms. In the meantime, keep doing what you're doing and try to maximise engagement with your potential customers. – Steve Jones 4 years ago
  • What is your reasoning behind offering him a 20% stake? Is this the amount of involvement you expect from him (because stake should match effort more closely), because that's the amount of reward he would probably view this offer as. – Michael Lai 4 years ago
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2 Answers


1

Ideally, grow the business on the side until it makes enough money to support you. Then quit and grow it some more and hire when your revenues afford it.

That's the safest approach. If you can tolerate some risk, you can quit a bit earlier and hire a bit earlier.

In the early days, the value of non-builders is very low. The way I read your question, this guy is a non-builder i.e. he can only offer ideas. He won't write code, create a website, create marketing material, do SEO or make sales calls.

If you're confident that his ideas are worth 20% (or more) percent of your company, forever, then give it to him. They better be really good ideas.

The problem with ideas is that it's hard to put a value on them. For example, in the early days of Facebook Zuckerberg and Savarin disagreed about how much advertising to put on Facebook. Zuckerberg won. Facebook is successful.

Does it mean that Zuckerberg ideas were right? Not necessarily. Maybe Savarin was right and Facebook would have been even more successful today. But it's also possible that Facebook would have been destroyed if Savarin's ideas were implemented.

My point is that even in hindsight it's hard to tell which ideas were good or bad.

Your assumption is that his ideas will be good (and therefore valuable) and you only consider how much value to assign to them. You should also consider a risk that his ideas will be bad and you'll either have to fight with him or you'll use his bad ideas and they'll destroy your business. He might have a negative value to your business.

Putting so much trust (and value) into someone you just met seems very risky to me.

answered Jul 18 '13 at 11:37
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Krzysztof Kowalczyk
1,950 points

1

Read http://thestartuptoolkit.com/blog/2013/02/equity-basics-vesting-cliffs-acceleration-and-exits/ -- it's really important to understand both vesting and the option of including cliffs. By including these in a contract (one that also gives you the ability to terminate the agreement before the cliff if certain conditions, like customer acquisition goals, aren't met), you can greatly reduce the risk of bringing on a partner, and ensure that he's gradually earning equity vs just getting it all upfront. Because let's be clear: there is no way that you should give 20% or more of your company to someone you've known for less than a month.

Bringing on a cofounder is a big commitment - you're committing to sharing responsibility, to being open to their ideas and impact on the company vision, and to helping them succeed. You are in it together, and once a significant amount of equity is given, on a much more permanent basis than you would be with an employee.

That shared ownership and commitment works both ways, and can be a big incentive that drives a cofounder to do more than just an employee might. But don't make that leap with someone you don't know you want to be in business with for potentially 5 years or more. You should both know how each other feels about:

  • what's the goal? Long-term revenue building? Going for an exit? If an early acquisition offer came, would you take it? What's your number?
  • when will you focus on it full-time?
  • what are your priorities for the company? Is profit #1, or do you have other goals above that?
  • what's the point at which you'd quit?

Regarding your specific situation, I'd first figure out what it will take for you to work full time on this new venture, regardless of who you have working with you. If you're not willing to commit to it, or there's not a milestone (e.g. # of customers) you can work toward and reach on your own, I think you're putting the cart before the horse trying to involve others.

answered Jul 17 '13 at 07:48
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Jay Neely
6,050 points

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