How to Find the Right Co-founder | Frameworks By Szymon Niemczura | Peter Sorgenfrei | EP. 8

Welcome to another episode of the Whole Human Podcast. I'm your host, Peter Sorgenfrei, and today I have Simon Nemchura with me. Simon, welcome on the show.

Thank you for having me. It's great to be here. Thanks.

And what's remarkable about you is not only that you've had an illustrious career as a startup founder, co-founder, and CEO, but you've also done a few things before that as a strategy advisor. You're based in Krakow in Poland, where I was recently, beautiful city, by the way. And when you and I got to know each other, I took notes that you're not running one, you're not running two, you're You're essentially running 3 companies at present, which, which you'll have to explain to us. So for the people who do not know you and who are listening to this, who is Simon and what are you up to at present?

That's the hard question. I'm trying to seek for that answer all my life, I think, or most of the time for the last, let's say, 2 decades. I think I've been a curious inventor trying to look at problems in life and building solutions for them. That's why I'm involved in that handful of projects that I really find important for the world, for myself, and I'm trying to contribute to them. Of course, it's not like I'm sacrificing most of my time for these businesses or share that equally. It's a different mix of my competencies where I'm adding value here and there, investing also in those businesses, my private money. It's a journey where I'm trying to find value add for myself and for a little bit for the future, um, future inhabitants of this little world.

I love that you're working on projects that will make a difference. One of the ones that I think is particularly, uh, interesting is Ecomuco. I'm not sure I'm saying that correctly, but the, it's plastic waste removal with fungal enzymes. You'll have to explain what that is. What that business is about.

Yeah, there are different ways to say Ecomico.

Okay.

But yeah, it's about getting rid of the end-of-life plastic because most cases end-of-life plastic today is being either incinerated or goes to landfill. That creates, of course, a lot of bad stuff, CO2, but then also partially gets to our water, to, to the ocean. And you know the story. Unfortunately, only 10% of plastic is being recycled. So our idea was that we get on the R&D, we get to the lab, and we figure out what we can do to turn plastic waste into valuable resource. And with fungi, actually, this is possible because we use mycelium to eat up plastic polymers to create valuable materials like insulation. Of course, it's a project that's very long-term, so probably a decade or two.

Right.

It's gonna, it's where it's gonna get very interesting and hopefully it's gonna get popular and visible to the world. But it's something that's really important for me to get the future generation to live in a slightly less polluted world. That was our acting, right?

Right.

Our last decade were something that—

And, and this week, of course, we don't know when this is going to air, but this week, of course, there was the recent report out reported. I read it in The Guardian newspaper that a vast majority of 800 of the world's leading climate scientists are now seeing 2.7 degrees Celsius increase in global temperatures over the next 100 years. And even though the government's goals were 1.5, there's no way that we're going to meet that. So it becomes even more important, extremely important with innovative solutions like that. Just to summarize for the people trying to understand, essentially you're taking an enzyme, you feed it some plastic, and instead of that going to waste and ending up in our oceans and other places, that process will hopefully turn it into a material that can be used as insulation for houses and other things. Yeah.

Right. All right. So like exactly like you said, but just to picture it in a more colorful way, we could think about plastic polymer as a string of hair sort of twisted together. So we have this kind of rope. Yeah. And now in order to make it not plastic, but just a random amount of carbohydrate, we just have to cut it. And this is where the fungi come in. their enzymes break those polymers into atoms that fungi can absorb because fungi eat carbon. So that's how it works in a nutshell. So this carbon from the plastic polymers is being eaten by mycelium and they use this energy to grow. And as they grow, they are the molding agent that produces, for example, a form factor, like a shape or a Something that can be like an insulation board or part of, part of furniture or whatever else.

So this is what I love about these kinds of encounters, right? You have a master's degree in financial management, I think economics. And now you're talking like a scientist trying to solve a climate problem. What a wonderful time we live in, right? That, that you can get to. You didn't do your PhD in, in, in biology or in anything like that.

No, um, I'm, I'm actually trying to figure out the business around it so it becomes something that everybody does. It becomes something that's financially viable for the planet to, to, for humanity to use. But at the same time, whenever I'm touching a certain, certain area of, of the world, I'm trying to learn as much as I should know about it.

Mm-hmm.

That's, for example, for myself, it comes to biology. And these scientific elements I've been teaching myself. I've been reading a lot for the past decade. The latest few months I've been studying intensively with ChatGPT teaching me the basics. So this way, together with my co-founder François, I can, who is a bio—

bioscientist, I can actually talk with him his language and we could build together There's really, there's no excuse anymore for not educating ourselves and the speed with which we can understand what is really highly complex chemical or biological processes that we would've gone to school for 5, 10 years previously. We can now, of course, not become experts, but very quickly get to a level where we then can help the scientists to understand what they're doing. And I really like that about your idea that it's, it has a commercial focus, right? You're trying to find ways that this can be more broadly applied for commercial gain as well as sustainability angle. You mentioned François, so I want to switch our conversation a little bit. So you founded or co-founded a fair amount of companies over the last decade or so. What would you say is just getting into those co-founding relationships?

Yeah.

There's a lot of people listening to this who either have co-founders or they might be thinking about starting something. How have you met your co-founders and how have you guys decided to do companies together? You can just use an example of the past.

If it comes to co-founders, sometimes it's, it's basically luck. Sometimes it is some randomness. Sometimes it's the general area of interest. But when you mention co-founders, I would say I had a very Tough lesson in my very first startup where actually I co-founded the company with 2 of my friends. It was back in 2010. Then we added another friend as a co-founder to this company who actually had, he had the capital of his family. He wanted to invest more. So we gave him a fair share. Everybody had an equal share.

Mm-hmm.

In a company, which is also not a great idea, by the way. But the lesson from that, uh, from that episode of my life was that I, I basically, um, excuse me, I agreed, uh, from a person, from a point of view of another founder. So he becoming, he being rich person, he basically kicked us out from the company because we didn't have any paperwork in place that could protect us. from such action. So a few years later, the company was sold for $36 million. And guess what? We didn't see a penny from that. So it was a hard lesson, painful lesson, but definitely with the next time divorce with the next companies, I knew that there are certain things that I have to protect and make sure that there are proper agreements, even though that I'm building those businesses with friends. Does not guarantee that everything's going to go great.

So would you advocate for or against starting a company with your friends?

I would say, I would say I, I don't think it's a good idea to look at it from this perspective. If your friends are right people with the right skillset, I think this is pretty good idea. The thing is that you should never look Through the lenses of friendship at your paperwork, the, for example, founder's agreement that should be in place.

So essentially you're vetting your friends as if they weren't your friends as you're thinking about doing this business with them. And then number 2, make sure you have clear agreements. I think I see that a lot too. I literally weekly have a conversation with somebody who either promised something to somebody And now don't feel like they can go back on it because I, I told him he was going to get 50% of my business, but I realized he's not the right partner. What do I do? Right? Or people are spending a lot of time making these agreements and discussing and arguing about percentages and stuff. Do you have any advice for somebody who's putting together an agreement to make it easier?

Oh, absolutely. I think that the, what you mentioned is really important that First of all, if you are a first-time founder, I would say that you should really consult. Talk to people who've been there, done that. They know how the agreements should look like. They also know what are the most probable scenarios that you have to protect yourself from and what are the rules that should be applied. Because of the course of action of building a business, sometimes we grow organically, sometimes we grow with VCs. When we have VCs on board, it gets easier because they take care of some of the parts of that legal aspect. But if it's, if it's organic growth, then you're up to your own and it's good to get some, uh, some experience from other people. If it comes to those ground rules, I would say you have to think about a timeline. If you already agreed to certain division of shares, where you feel like a main founder, you should always be the one that has the most of the shares, but then you have to figure out what kind of milestones in the future you want to achieve with your business, with your co-founders, and apply this milestone to their vesting, for example, period. They're not, they can get their shares immediately when you incorporate the company, but there is a reverse vesting mechanism saying that, for example, if they leave in a year or 2, There are different mechanisms applying and they, for example, have to sell those shares back, uh, to the company for a fixed amount.

I'm gonna disagree a little bit with you here, Simon, because now we're making it interesting, right? I completely agree with you that there should be a vesting schedule. And, and for those not familiar with the term, it basically means that you have access to a pool of shares or ownership. But you don't actually own it until something has happened. And Simon, you were talking about after a year it vests, and that's the normal way of doing it. A vesting schedule is typically you get X percent that vests over, let's say, 3 years. So you have to stay for all 3 years to get it. Here's why I'm disagreeing. I think potentially better way is to tie it to actual milestones for the business, because we both know That things take longer than we think, right? Getting to market, certainly what you're doing with the Ensign business, who knows? So recently I counseled a founder saying, I would tie it to either a financial milestone in the business. So for example, when we reach a turnover of X million, or when we are profitable, or when we reach a certain EBITDA level, because those are actually the things that ensures the business becomes successful. Versus a relatively arbitrary calendar.

That's excellent addition. And I think a mix of this is actually even better. So you have also protection. Think about it this way. So most cases when you, when founders meet, even before they register the company, they can agree on certain terms. Yeah. So the founder's agreement is being created, agreed on, and then signed. So this is even before you have registered your company very often, or this is even, you don't even know when you're going to register the company because you might be working overnight to build the thing, right? To build the MVP and just to validate your idea, which is often the case, especially in the US. This is how they're building businesses. Here in Europe, we seem to forget that. But, uh, hold on.

Were you just saying that Europeans take longer and are more lazy than Americans building companies?

No, I'm just saying that they think that they should go all in, which is not something that I advise.

Uh, I agree with you. I think Europeans have a tendency to have, they will release a product that's perfect rather than release something and get feedback.

Absolutely. And to build this MVP, to build this prototype or pretotype, you don't have to register the company. You don't have to go all in with the risk. All right. So you can do that overnight. You can do that in your spare time. But my point is that when you get to this point, when you're signing those agreements, often the case, you don't know if your co-founder's gonna join you full-time when the business is created, when there is money in the business, fundraised or whatever. So this is also important to highlight. And I actually did that in one of my businesses and I think I saved a Big chunk of shares because one of the co-founders, a technical person, didn't really join the company because he had another much better opportunity at his point of life, a much more stable one, which of course, when we have families, is obvious. Because the way how we built the founder's agreement and he didn't join the company full-time, he only gets probably 1/20th of his shares. And it was very fair for everybody else who joined it, who worked full-time for the business. It's just an example, like you have to think about multiple factors, not just one, not just time, not just milestones, but also the engagement, whether it's full-time, part-time, whether it's going to change, right?

And I think that's another one a lot of people are struggling with. How do we value our contributions, right? You said earlier, there should be a main founder who has to The majority of the shares or the largest chunk of the shares. But what, again, where I see people, a lot of people struggle is they sit around the table and they spend more time talking about shares than actually doing something. And I say, guys, you're trying to cut up a pie that doesn't exist. Let's make sure the pie exists. And then the other thing I said, I, so I had, this is a couple of weeks ago now, a guy has a new opportunity in the telecommunications space. Really interesting play, but he's the guy. So the people working on it with him shouldn't have a lot of ownership or, or stake. And he's, but he's a nice guy. So he's now struggling because he said, I told him this, that, and the other. I'm like, I know, buddy, but you're gonna say, this is how it's gonna be. If you wanna be in the boat, great. If you don't wanna be in the boat, fine. Then I'm just, because otherwise we cannot get started. We kind of run it. So I actually told him to be a little bit more like Mark Zuckerberg, right?

Yeah.

And, and he took that advice. And the thing is, people understood. The people he said it to, they said, you're right. We actually do want to do this. I'd rather have a 5% ownership of something that becomes a $100 million business than a 15% ownership of something that becomes a $5 million business, right?

Yeah, absolutely. And these are very important conversations. And especially it's hard for people, for example, like me, who are generous by design. Think about people first, then money second. And in my case, it is especially difficult to get those terms. And, but the experience really helps. So that's why you have to be very honest with yourself. Put yourself even aside in this whole story. Think about it like you're advising to your friend. Okay. The guy is the main person. His idea knows how to do this. Okay, this guy, he contributes here in the technology section. This guy contributes here and there and make a sensible equation out of it that's gonna validate over time because you don't have to even, even if you agree, okay, I'm gonna have 70, you're gonna have 30. We agree on a setup, but for example, your 30, if I'm inviting you to my startup, your 30 is gonna fully vest when those terms and timelines and contributions really meet, right? Because for example, after a year you can figure it out. Oh, this is not for me. I'm not, I don't like working with you. I don't like working on this or whatever, right? Things change. And then there has to be like a safe exit door.

Yeah.

And of course there are other things like, um, the exit itself.

So can we hold that thought one second and talk about that separately? Because as you're talking about this, I'm thinking there's plenty of VCs who's published kind of tables of what the distribution of equity ought to be, right? The CEO, the CTO, sort of VP of engineering, that kind of thing, right? So there's, there seems to be a model or a template. And I actually subscribe a little bit to that idea, right? I'd rather saying, guys, here's a template, use this, let's get going. With an agreement in place, of course, with mechanisms for conflict resolution, all these things. But this is, this is the model. One of the reasons is if you go to raise capital at some point and your cap table is screwed because your 8 friends that have gotten 12.5% each of the company, the VC is going to be like, guys, this looks nice, but here's how it's going to be going forward, right? We're going to, we're going to, we're going to lock down the CTO and the CEO because in this company, those are the most important guys. So they're just going to get most shares and the rest of you, if you want to be part of this, you're going to own much less.

That's true. Although benchmarks are great. Although I never think about a cap table as a fixed thing, right? Because even if there is a, let's say you have a mess in your cap table, happens. I talked to many founders like that. I would say, listen, the big part of the story is that you're building something that has to grow in value. Gonna, gonna be great one day. Now the, the, the cap table situation is your obstacle to that path. Fix it. Sit down with the people, fix it, and then you can go much faster. So that's important as well, not to get obsessed about it, I would say.

So what happens when there's trouble in paradise? You've done all these things, you've divided things reasonably and fairly, you have good agreements. Bob's not working out. You, you have to figure out what to do. Have you experienced stuff like that or do you have some opinions about how to deal with those situations?

Yeah. And this is, uh, I would say these are the situations that will happen. And the reason for that is that if your business is growing, meaning that you're successful, then obviously people will be, the business and their roles, they will outgrow them.

Mm-hmm.

Not everybody grows the same path, uh, same speed and, uh, and goes to the right path of their growth. You cannot expect a CTO of a 10-people company to be as, as good a fit for a 100 or 200 or 500-people company or any other role, including you as a CEO. Yeah. So you have to make sure that you have a growth path for all the key people. in the business. And when those paths are troubled, this is where you have to be very honest. And this is where those conversations need to happen. And they're not great conversations, but again, it's about, I would say, the shareholder value, right? For everybody.

Right.

It has to be at the front and center. And it's also important because there can be different trouble in paradise, as you said. Like also when people are leaving, there could be different scenarios, right? Like good leaver or bad leaver where different mechanisms should apply for those.

And I think to your earlier point, you have somebody who's done this before. If you have counsel, if you go to some of the many free resources on these agreements, it's all there, but you have to do it, right? You have to sit down and do it. I think that I speak to some of the more experienced founders with is we've started doing quarterly equity meetings, essentially. So they are the founder, the co-founder, whomever else owns equity in the business, no matter how big or small it is. And we come together and we talk about, okay, how are we doing in the business in terms of our individual contribution? Is there an issue with our VP of engineering who will be in the room who owns 12% of the business, but we don't really feel like she or he is contributing, right?

Right.

So it's like a therapy session, but it's around essentially the equity ownership because it's a lot of us, at least in the Western world, and at least in Denmark where I live, we don't like discussing money. We don't like discussing religion necessarily. We don't like, there's a couple of topics that are taboo and it's the same thing in startups. People get really hung up on, oh, I have 12%, but Simon has 15 and Simon, he barely shows up for work. What is he really doing? And it's still pie in the sky because the vast majority of companies don't actually go to exit. Doesn't become valuable. Does not matter whether you own 15 and I own 12 or whatever, but people get attached to it emotionally. So we have these conversations saying, all right, how are we feeling about our individual contribution? Is it, is this setup aligned? In the cases where people are going towards external investment, I start preparing them For the reality that when a VC comes, they might actually rearrange the cap table and what that means and why we should be ready to accept that because we then can become a much bigger company, even though the individuals will own a smaller share, right? So there are some tricks there I think people can deploy. As a last question here, over the years, you've mentioned some of it today, but if you were to give a parting advice to somebody Thinking about starting a business with somebody else, what are 3 or 4 things that they absolutely must do?

Oh, I would say number one thing is to really learn what are the strengths, what are the traits of a character, the thinking styles of the person you work with. There is science to do that. There are different tools. There is CliftonStrengthsFinder. There is PrinciplesYou. Profiles. There's many ways to do that just to even speed up because in normal relationships we learn that over time, but in business we have to learn faster to mitigate the risk. So I really, I'm a big believer in ensuring that the teams, especially the early teams that are being created, that they energize really well. And that means knowing each other's strengths, weaknesses, understanding each other's perspectives and preferences that come out of, for example, life priorities.

Yeah.

So putting that on the table in form of documents, those profiles, this is really powerful because then you can go to a very meaningful conversation about the relationship, about the terms of these relationships, And, and becomes very, very structured. That's number one. Number 2 is it's business. This is a sports team that you're building. Sure, you can have a lot of fun doing that, but first of all, there is a purpose and either this purpose is to grow the company to become a billion-dollar company and exit, or is it the purpose different? Doesn't really matter. But make sure that the purpose is the most important element when you're talking about shares, when you're talking about contribution of people. Then I think it is very important to put away the trust element and ego element. These are like 2 very difficult things. Like trust, like when we talk about terms and talk about things, We can have a lot of trust between us, but when the bad times come, the trust kind of can be quickly shattered and having paperwork in place also gonna protect that trust.

That's a really good point. Sorry to interrupt you here. That's a really good point that actually knowing that you have an agreement to fall back on gives you a safety net in the trust sphere, right?

Absolutely. And for example, even if you part ways, there's going to be so much less bad water and you might even stay friends because these are the terms you both agreed on and executed on them as planned or as prepared for. So I think that's important. Ego is a really big enemy of all startups, especially for first-time founders. When businesses are growing, ego is going to be number one enemy for everybody, for the main founder to push their co-founders, as I had experienced from my friend who joined us, become the CEO, and then pushed people away from the business, from the power of his wealth. And, but also the other way around, ego can be, can blind people, can blind founders. About their abilities, about their skills. So it's super important to, I think what you're proposing is excellent. So have an annual review, shareholder review, when we talk about those things, when the ego is removed, there are metrics, there are facts. It's less about you, me, but it's more about you, shareholder value.

Right. And it's facilitated by a neutral party, right? It's not the CEO who says, I own most, so you guys have to do what I say. It's somebody else saying, let's actually just open cards here. How do we make this thing the best thing it can be? And that might mean redistribution of equity ownership.

Absolutely. Absolutely. So, and it's good that there is a mediator or somebody who can help to animate this conversation, but I think it's a good check on the temperature and hopefully the ego can be taken out of the equation.

Very good. I, I think we got a lot of the stuff done that I wanted to talk to you about, Simon. So I want to say thank you. Thank you for joining me today.

Thank you, Peter. It was a pleasure. And I hope we can skip some of the errors that we have been facing in the past.

Certainly, certainly. I hope that the listeners got, got a couple of pointers if they're in a situation where you're thinking about co-founding or are in a situation that's not going so well. Simon has shared a lot of nuggets today and hopefully I've contributed a little bit as well. This was another episode of the Whole Human Podcast. I do these with founders and CEOs that I find inspiring and amazing. If you know somebody that I should talk to, I'd always be happy to get an introduction. And if there's a topic that you want us to cover, we can do that as well. So thank you for listening. And until next time.

Thank you.