How to Find (and Compensate) a Co-Founder (March 23, 2017)

Hi, welcome everybody. My name is Jonathan Gritchen. I am a co-founder of the Founder Institute, and today we are here to talk about some really interesting topics, co-founders specifically, which could be one of the most important things that you do to start your business. So before we get started, I will just provide a quick introduction. As I said, my name is Jonathan. I help run all of our global marketing initiatives around the world. And at the Founder Institute, we are an early-stage startup launch program. And we also call ourselves an idea stage accelerator. Basically, we take people, we take co-founder teams, but we also take solo co— solo founders, which is one of the more unique things about the Founder Institute. But we take them, we put them through a really hard, honestly challenging process, 3.5 months, and any of the founders on the on the line today can attest to how challenging it is. But the Founder Institute is hard. Starting a company, an enduring company, is much harder. So we put you through a process, 3.5 months, challenging real-world assignments, constant evaluation and feedback from expert mentors to a point where you're either, you know, launching your company, trying to build it sustainably, bootstrap, that sort of thing, or raise funding. And we're currently located in over 150 cities around the world. And I know we have a lot of people joining us from Europe today. And we have a lot of cities in Europe that are currently accepting applications. I know, for example, Paris, Sofia, Madrid, Dublin, and Chisinau, their deadlines are in the next 2 weeks. And London, which all the esteemed guests here today are from, their deadline is also in a few weeks as well, and they just opened up applications. So if you're interested in applying to the Founder Institute, you can apply for free at fi.co/join/webinar. And one of my colleagues will put that into the chat here for you. And to see all of the cities where we're enrolling, you can go to fi.co/enrolling. All over the world, not just Europe. But we are, you know, have a great collection of speakers today from London. So with that said, why don't we get started? As I mentioned, Co-founders is one of the most important things that you can do for your company. I mean, if you speak to some of the greatest investors in the world, they'll say more often than not that they don't even care about the idea if the team is strong. They'll write a blank check to a really strong team. So today we're going to have— we have 5 people on the line, including myself. I'm a co-founder, but we have 5 people on the line today that all have co-founders. We're going to talk about how they found them and some of the strategies, things to avoid, and stuff like that. So I'm going to make myself smaller here so we can bring together some of our guests. First, I'd like to introduce Kamal. Kamal Hassan is currently in Toronto, correct, Kamal?

That I am, yes.

So we actually, we have several countries on the line today, US, Canada, I think Croatia and UK. So Kamal, why don't you tell us a little bit about yourself? Sure.

Well, I've been an entrepreneur for 18 years. Actually, the first business I ran was in Europe. A company called In Your Pocket, which was headquartered in Lithuania, and we ended up expanding it to 12 countries across Eastern and Central Europe. So I know the European scene reasonably well. I have been an entrepreneur since then. I started angel investing about 12 years ago. I've run the Founder Institute chapter in Toronto for the past 3 years. We've actually run— I've run 5 cohorts. I've seen a lot of, I've helped a lot of entrepreneurs get themselves going. In fact, Stipa was one, one of our programs, as he'll tell you about, and I'm currently helping with Founder Institute London. And last but not least, I am co-founder of a company called InkMind, which is software to help entrepreneurs with their fundraising. And we're looking at some ways to pivot that because there's been some challenges, and we have some co-founder challenges to go with that. So I'll be happy to talk about that as the subject comes up.

Definitely be interesting to talk about that if it's happening right now. So next up, let's, let's say hello to Stephan. Stephan is also a co-director of the London Founder Institute. Stephan, why don't you tell us about yourself?

Hi everybody, and thank you, John. Yes, I'm Stephan, based in London. I am the co-founder of Wonego.com, which is a flatmate matching platform, which we started off in London a year and a half ago. We did this after graduating from the Founder Institute program in London in 2015. I joined FI as an aspiring founder back then after spending 12 years in investment banking. I was really wanting to make a move on from my career, and back then I'd been investing in real estate on the side for quite some time and was very keen to solve one of the problems in property, in real estate, on how to find better tenants, how to find a better home I met my co-founder Stuart on the Foundry Institute program in London, which was a very, very interesting and good process and extremely helpful, and we've been working together very well since meeting on that program.

Great. Okay, yeah, we'll dive into that a little bit deeper too. So next up, I'll bring Emily. So Emily's got a really cool company. I was just speaking to her before the webinar that I use the Unfortunately, her company is not available here in the US, but I use a very similar company in the US. I love it. It makes me healthier. It saves the environment. Why don't you tell us about that and yourself, Emily?

Yes. So basically, I founded a small social enterprise which is called Oddbox. And I was as well part of the Founder Institute 1.5 years back. And that's through the Founder Institute that I kind of built on that idea and built this startup. So what Oddbox does is that we fight food waste by rescuing misshapen and surplus fruits and vegetables, and we sell them directly to customers through weekly veg boxes and office fruit boxes. And so when I started, I started it on my own, and through basically this journey and realizing that the effort it took to build a proper business, I onboarded my husband as a co-founder.

Yeah, it's an interesting story. We have a really interesting mix of co-founders here. So husband-wife co-founder team and everything in between. So we'll get into that as well. And finally, last but not least, Stipe is the co-founder of Team Players. He's calling in from warm and sunny Croatia. Stife, why don't you tell us about yourself?

So it's Stipe. I finished Founder Institute in Toronto, quite unusual way to do it in a completely different continent, not the country. Kamil was my mentor and at the beginning trying to sell computers online, basically came up with a sports startup. It's like LinkedIn for basketball with educational components, and I'm also ex-professional athlete with master's degree in computer science.

Great, okay. So with all that being said, I'm gonna bring up really quick, show you guys the agenda for this event so we can get right into it. So there's gonna be— we are talking about today. Topic 1: is finding a co-founder. So where should you look? Well, when should you start? Where should you look? And we're definitely going to talk a little bit specifically about co-founders, tech co-founders as well, since that is something that always seems to be an interesting topic. Secondly, we're going to talk about qualifying a co-founder. What is the optimal team? You know, how do you know if someone's the right match and how do you divide the responsibilities? And then finally, we're going to talk about co-founder agreements, which is always fun. What does the agreement entail? How do you divide the equity? And then any common pitfalls as well. So important thing to note, you know, we're going to follow this basic agenda, but I also have a team that is looking at all of the chat on the right and will be putting in questions so that I can ask the team members here and the speakers your questions as well. So please, this is supposed to be a conversation. Any questions that you have in the chat, we will look at them. So just ask them in the chat to the right. Put my face back. All right, cool. So why don't we get started? So topic 1, finding a co-founder, right? So it's interesting, right? I think the first part, let's say, is before we talk about where, let's say when. So Emily, you mentioned that you know, obviously you guys were married beforehand, but you got to a point of looking for a co-founder after you had kind of done what steps in your business?

Yes. So basically I had done a pilot and then I was just relaunching. And so the thing for me is that I'm still working full-time. So I'm kind of doing it at the same time as a full-time job. And we got a very good opportunity to provide mishepen fruits and vegetables for a campaign that The Economist was running. And to manage the logistics, I needed somebody. So initially, my husband just helped on the logistics and got so much involved in the business that we kind of decided that it made sense for him to become a co-founder and that we had complementary skills, basically.

Makes sense. So basically it was very much a need-based thing. Yes. You know, I know, did other people on here kind of have a need-based thing? So I know Stipe, for example, you, you moved back to Croatia and found a tech co-founder, right?

Well, I found it while I was at the institute. So while I was in Toronto, I communicated with my network in Croatia and tried to find the person that has kind of sports background so it can understand the problematics and in the same time to have technical expertise to actually be able to deliver the product. The perfect timing, at least for my example, as it how I did it and I think how most of the people should do it is after you actually do some market research and evaluate your idea with the population you are presenting it to. So we had a few tasks on Founder Institute to actually evaluate what, what we are proposing to deliver to market. And as people get excited, I felt more comfortable presenting the idea and more confident. So with, with that emotion and the will to do it, I tried to call everybody I know from my network and found a person that actually has capabilities and passion to do it.

Right. And once you start to validate an idea, if you are actually going out there recruiting a co-founder, right, if you have the validation, maybe even if you have advisors or mentors or something like that, all those types of things are basically, you know, it's what's known as social proof, right? Or it's just, you know, you start kind of beginning to earn a co-founder because you've already done this work. You've already shown in a number of different ways, you know, validation. So it helps you along that path. So did anyone else— so this is kind of like idea, you know, get validation and then find someone else with complementary skill sets. Did anyone take a different path? I mean, I know that, you know, probably the other path would be even maybe even pre-Idea, where it's two people that have just worked together in the past, they kind of set out and try to do something. Is, uh, uh, Stefan or Kamal, have you guys been involved in a relationship like that?

So in my case, I mean, InkMind, the current business, was very much to do 4 or 5 months of market research, uh, start to really figure out what we needed to offer first, and then go look for a tech co-founder. So I followed exactly the same path as Stipe, exactly sort of, yeah, that path. I've also joined a company, the company I ran in Europe, I actually joined as the business CEO to launch a business which someone else had co-founded, and that had been founded by effectively, you call it a tech founder, someone who really understands the technology, could get the prototype, the first product out, but couldn't really scale the business. So I've come in and been the second person in then to take an established business, and you can actually launch a business almost as a sole founder and get a first prototype out there if you're technical, but you may want someone to then scale.

Right. Okay.

Yeah, I would say, I would say in my case it was about finding a co-founder who has a similar vision. And of course I needed a co-founder who has technical skills or who can run a technical team. But the most important is to find somebody with a common vision who I can work with and with complementary skills and with whom I can build a team in the future.

Definitely, definitely. So let's talk a little bit about where, where you find these people, right? I mean, a lot of founders, they, you know, that they want to get very tactical, right? So I know that there's a lot of programs out there, like there's something called Co-Founder Lab, right? There's Founder Dating, which I think was bought by Co-Founder Lab. But, um, you know, there's a lot of online networks, events, startup weekends, hackathons, things like that. I mean, what are your guys' thoughts? Does anyone have strong thoughts thoughts of whether that's a good place or not a good place to find a co-founder?

Sure. One piece of advice I'll often give is I like to compare finding a co-founder to getting married. You will actually spend more time with your co-founder than you do with your spouse if your business is really taking off.

For Emily, I guess.

For us, we spend all our time together and we argue all the time about the business. But then, see, yes, I agree. It's kind of, you need to find somebody with whom you're comfortable arguing and then going past that. And basically the fact that we've been married for several years and been together for several years before being co-founders is helping because we can have this kind of constructive discussion and also we kind of know that we can go past the arguments. And yes, we know that basically we're married as well, so we're not going to break our marriage and we are not going to let the business and arguments break the marriage. So at the end, we have to find a solution which works for both of us. And I think it's quite important when you look for a co-founder, and I would say in some cases it might be better to stay solo for a while before being with a co-founder because it can be tricky when you're two co-founders who have a really different vision of how you want to take the business. And it will happen in any case, even if at the start you've got the same vision, at some point you'll not agree on how to grow and how to progress. So there's got to be a very strong relationship so that you can kind of agree to disagree or agree to try something.

Right. And Kamal, I think you were going to say too that it's— go ahead.

Yeah, I'll just— to finish the answer your question directly, if you think of finding a co-founder like dating, look, when— if you say, where am I going to find my wife or my husband? You can't say, well, go to this one connection group and guaranteed you will find the person there. You try everything. So absolutely, the equivalent of online dating, these co-founder meetup groups, sure, they're a great thing to try. But you also tell everyone in your network, I'm looking for a co-founder who's like this. Do you know anyone? If you are a non-tech person and you're looking for a tech person, well, it's a little bit like, hey, you're a guy and all your friends are guys. Find a girl, find a tech person who has lots of friends who are tech people and ask them. Go where tech people hang out if that's what you're looking for. I mean, all of this advice is very much— take anything anyone has advised you for dating and do the same thing here and try all those things. Things and see what turns up.

Right. And Stipe, it sounds like you did, you basically blasted your whole network, right? To start to find—

Yeah, exactly. So, you know, if you're solving a problem, you have to have some market penetration in that niche. So you have to know some people already there because you wouldn't know the problem if you weren't participating in that activity. Just connect every people that you met. For me, it was easy, you know, I played basketball and I wanted to solve basketball problems. So I contact every possible basketball guy that did anything tech-wise. And then I contacted every tech guy that I knew and asked, do you know any tech guy that does anything with sports? And that's how I find it. So basically what Kamal said, the same approach. Just brute force and eventually you'll find somebody.

Brute force through your network. And I think I'll add here, you know, I definitely would not— all these events are great, right? Every entrepreneur, when they're first getting started, you should go to a lot of events and share your idea. Nobody's going to steal your idea, by the way. Share your idea with as many people as possible and you'll start to, you know, not only will you start getting the validation on the idea and the customer feedback and that kind of stuff, but you'll start to find people that have the same shared interests as you. Now, I think to Kamal's point, you know, if you hit it off with someone at Startup Weekend, that doesn't mean you sign a co-founder agreement. You don't get married, you know, in the next month, right? You want to test that relationship a little bit. But those are great places to find like-minded people to kind of grow your network and to maybe kind of see the relationships that can grow into a co-founder relationship. But certainly, you know, if you go to something like a Startup Weekend or really any hackathon, you know, get matched into a team and win, I've seen a lot of people then come away from that weekend or that week or whatever and say, oh yeah, they're all my co-founders. I'm like, no, they're not. You know, you work with them for 3 days, right? So great place to meet people, but definitely, you know, there's a lot of qualification involved and your network is really the most important thing. One other thing too, mentors and advisors can often connect you with some of those people. Again, just kind of an extension of building out your network. Um, the, so the other point here that we wanted to talk about specifically, and we got into a little bit, was how to find a tech co-founder, right? Um, tech co-founders are a little bit in demand. Um, so I know Stefan, uh, you found, um, you know, someone that could lead a technical team, right? Were there any kind of specific challenges, um, in that for you?

That's correct. I found somebody who is able to lead a technical team, who has got a lot of experiences in that field. I would say, well, the challenge still was that he is not a programmer himself, so we had to choose and select a good technical team, but clearly it helped us a lot to have him. He knows a lot of people in the field, he brought in a couple of advisers who could help us in selection of the team, monitoring the work, so that was incredibly helpful. I would add also, coming back to what Kamal also said when it comes to analogy with dating and what Emily said, it is true that the worst you could do is being desperate for a co-founder. Some people just team up with others because they are desperate for a co-founder, like in the case of dating in some cases as well, and that is clearly a mistake. And I did actually, whilst unlike Emily, I did know my co-founder found her very well when we teamed up. We managed to work together for quite a few weeks and months and to assess whether we could work together or not, and the result was positive. But I think working together for a few weeks and seeing whether it works is essential, and being very honest to each other is essential as well.

Cool. So we had a question from the crowd here really quick. So Catherine also, who's helping me on the backend, if you could put their name, that would be helpful. Is it critical to get a tech co-founder as opposed to outsourcing the technology? So I know this is always an interesting topic. Does someone want to grab that one? I have strong thoughts, but I prefer to hear your guys.

I think a lot depends on the business you're doing. I hear too often from people, investors especially, that look, investors won't invest unless you have a tech co-founder on the team because they feel you don't own the technology. But I think it's a mistake to push too fast to get a tech co-founder. When you have the perfect person, yes. But my personal opinion is to actually use an outsourced development shop to get a first prototype together, to start to build the business and start to make some real money, and then use that validation to go and get someone who wants to join a team because you have money to pay them. I think that's perfectly acceptable if you can't find a solution to finding the right person.

Of course.

Plus there are many mockup tools now that you can build some prototypes along with. So that will help you a lot. Even to hire some outsourcing team that will build a simple prototype, mockups will help. So do that if you don't have one.

I'm a huge fan of mockups, by the way. My CTO, my tech co-founder, had 3 CEOs all approaching him at the same time to join their company. And he said, look, what I want to see from whoever I— he said he'd show me how to do software development in a tenth the time and a tenth the cost. And I said, okay, I'm really interested. And he said, here's this mockup tool. In this case, he said Balsamiq a few years ago. Yeah, do your whole website, 150 pages. And I went out, I built 150 pages, I brought them to customers, I iterated the design back and forth, back and forth, back and forth. 2 months later, I came back to him and said, okay, I did what you— and here's what I have. And he said, you're the only person who's done this. And now, yeah, you're serious and it's worth building.

Yeah.

Oh, what an effort. That's cool. Actually, come on, let me do that on the institute. So he gave me a grant that they will throw me out from the institute if I don't do that. And it helped me so much because those mockups that I built, I basically designed the system we are using today really closely in that first phase. And my co-founder, which I found later, actually built the system based on that mockups. So it helped a lot.

Right. Did you use Balsamiq as well as a tool?

I think it was UXPin, something like that. It's very, very well built. Tool and you can build beautiful designs with that. But I think I actually built two. Balsamiq was simplest and then I built UXPin afterwards.

Right. And just, just great.

I didn't do 150 pages like Amal, it was like 20 or something like that, but it was worth it.

Right. Um, Emily, how about you? Um, you know, were you doing mockups and things like that before you started to bring on some dev?

No, but so what, so for us, what we've done is that we're using a platform which is already existing. So we didn't do at this stage, we've not done any tech development. So we're kind of building on something which is existing. And right now we're kind of going to soon reach a stage where we need to build the tech. But we didn't want, it wasn't the essential part of our business. So we didn't want to build something that we didn't need to start with. So I think sometimes people get focused on, yes, they need a tech co-founder because they need to build the platform. In lots of cases, you can just work on the kind of concierge service where you build just whatever you need and then do a lot of the backend manually. And then traction, then you can think about building.

Yeah, this is an amazing point and I want to just focus on this for a little bit. There are self-serve platforms out there for almost anything right now, right? So literally a couple of months ago, a friend of mine, you know, I'm a big skier, was saying, hey, I'd love to like build this company where people can like leave ratings and reviews on like ski trails and like share their photos and things like this. Like, how much would it cost to build? Quick Google search like SaaS ski platform or something. Like, literally, there's a platform for you to do that. Okay, so take that analogy and then put it to a lot of other businesses. Not only are there ready-made platforms that you can use right away as your kind of your MVP and things like that, and that's when you can start to, you know, build validation before building anything or getting a technical co-founder. But you could also stitch together a lot of other things and hack it too, right? One of the famous examples here in Silicon Valley is a catering company, Xero Cater. And, you know, this company basically connects catering companies with office managers at small, medium-sized businesses to basically, you know, facilitate kind of subscription catering. And they literally just had a landing page and a spreadsheet. And they had a spreadsheet, one tab was probably like, you know, office managers, the other tab was just like catering company. And they just, you know, like little, you know, monkeys in the background just match the things. And to the user, it looked like some beautifully designed algorithm that matched them with exactly the kind of food that they wanted. Um, but, you know, they were able to do that to a point where they're already generating revenue. And then, you know, imagine that the, you know, the, the strength that you would have at that point going out, um, trying to find not only technical co-founders but angel investors, advisors, things like that, when you say, hey, I'm already I have this many customers and I'm using a spreadsheet, right?

And then that way you kind of know as well what you need to build instead of trying to build something without having tested and knowing what's required.

Yeah, exactly. So I totally agree. You know, a lot of people think tech co-founders are extremely important. As Kamal said, a lot of investors won't, you know, it's definitely something that could scare them off, the lack of one. But, you know, for a lot of people at the idea stages, pre-product stage, investors are are further down the line anyway. So at this point, you know, it's more about validation and, and getting something out there. And there are online tools you could use, you know, there are a lot of services that do MVPs and things like that. You know, there are ways that you can kind of put that off.

And the wrong co-founder, of course, is a big mistake. If you end up in the wrong co-founders, like going back to the marriage example, being in a marriage where you're about to get divorced is way worse than being single. So you really want to be sure when you're stepping into bed with a co-founder that it is someone who, uh, so I don't know, we were talking earlier about sort of bad, bad co-founder stories and people were talking about it, but I've been through a co-founder divorce and it is really messy. And what gets hurt as a result is the business. So I went through a co-founder divorce, um, with a business and he managed to convince the board that it was him or me. And the board ended up getting rid of me because I was the business guy and he was the tech guy. And the business lasted another year and then went into bankruptcy. And there's, I mean, there's really, there's a lot of things that can go wrong. A business needs your full-time attention. And if you're busy fighting with your co-founder, you have no time and attention to give to driving the business. You want someone that you can both focus on building the business rather than fighting with each other.

Perfect segue to our second topic. So we just covered the topic, uh, you know, where to find them, how to find them. Um, so now let's talk about, um, have you found the right one or ones? Um, so this concept of, you know, it being a marriage, there being a divorce, um, just, uh, somebody did ask as well about a co-founder divorce. So maybe we start there and kind of reverse engineer it from what's terrible and then talk about what's good. So yeah, Tina asked, you know, were there any— well, Bresson asked, like, you know, how can you detect, like, what are the bad things that a co-founder relationship could look like, a bad co-founder relationship? And, you know, how do you go about a divorce? Kamal, if you want to start us off there.

I'll start with the divorce one because there's something which every co-founder, every founder should know, period. And it's really the concept of vesting. And you need to Google that term, understand what vesting is. But basically the idea is you start off with shares. So let's say I start with 40%, my co-founder starts with 60%. My 40% will typically vest over 4 years. So that would mean if I leave the company 2 years in, the company can buy back half my shares at the price I paid for them. And founder shares, you buy for pennies anyway. So the idea would be that there's a built-in agreement which says when this person leaves, this is how many shares they give back and how many shares they keep. And that's really essential because it does mean the biggest complaint when you're fighting is who gets what piece of the company. When you have vesting, and you should— vesting should apply for everyone, even the original founder. As long as everyone has vesting, then you've got a built-in agreement that takes the biggest source of arguments away, which is who owns what percent. I'll also mention that you really need to think hard at the beginning when you're agreeing to what percent you own, because that is one of the biggest arguments. And lots of people do this. You can sort of split artificially equally and then find out 3 years in that one person has done way more than the other person to grow the business, and you can't fix that in 3 years. It's really hard to equalize the number of shares in 3 years, so you really have to plan up front and think really hard and be really hard-nosed and almost brutal about it to say, look, who's going to contribute what over the coming years and what's going to be fairest so no one feels like they have too many or too few shares.

Right, okay. So we'll get into the legal stuff and we'll explain vesting and that in a moment too. But, and it's, it's vesting. I see some people saying vest-in. Vesting shares is what you would Google. Basically, it says that the longer that you're with the company, the more of the shares, uh, the potential shares that you can own, that you earn back. A typical thing would be a 4-year vesting with the 1-year cliff. So let's say that I was, uh, you know, entitled to 40% of the company, it would take me 4 years to earn back all that 40%. It would come in increments every month, but I wouldn't earn the first 12 months until after the first year. And that's what's known as the 1-year cliff. So that allows you— that makes sure that I don't sign the agreement and then just go, you know, on a yacht somewhere with, with, uh, with, with all my equity, right? I have to earn it back, and I have to work at least 1 year to earn any piece of it back. That, that's the standard that's used. It's It's the fairest way. It makes investors comfortable, but it also, you know, it aligns interests. So that's kind of been the standard. So that, you know, if you get a good agreement, that can avoid a lot of the co-founder divorce things. But let's track back a second to really, you know, finding the right match, things to look for, you know, in a relationship before you even start to outline, you know, the prenuptial agreements and things like that. So what is, what is an optimal team co-founder group look like? Now I know that there is a kind of a stigma, not a stigma, I don't know, it's just kind of a jaded thing where people will say, oh, well, you need a hacker, a hipster, and a hustler, right? The hacker being technical, the hipster being design, and the hustler being like business ops, sales, you know, all of the above. What do you guys feel about that? Does anyone have that type of group and maybe it's not 3 people, maybe it's split just across 2. But what are your guys' thoughts on that makeup of a team?

I didn't even know about that expression before, but it's kind of what we do have. So basically designer that's a bit crazy and hipster. And let's say I'm the hustler and the technical guy who does that. So, okay, I like that.

Yeah, I think it was termed by Dave McClure at Five Hundred. But, you know, I think is one point that I have that I think a lot of people get tripped up here too. Somebody will say, oh, I'm a designer, so I'm going to start a company so that I can like design a lot, right? That's not going to happen over a long period of time. Best case scenario, you'll do a ton of design in the beginning, but you're also going to have to learn a little bit of legal. You're going to have to learn a lot of different things.

Right?

So you're really looking for somebody that has a, you know, a wide skill set or is willing to learn a wide skill set, right? You know, how have you guys been able to go about, you know, qualifying if somebody is one of those types of people, right? Because if there's two people starting a company, one of you is going to be doing legal whether you like it or not. One of you is going to be doing accounting whether you like it or not, right? So it's really, it's having the ability to do things that you don't want to do and kind of try to be able to split it up equally. So how, how do you find that type of person that you think can do that?

Emily, I think in our case— oh, sorry.

Yeah, go ahead, Stefan.

Yeah, sorry. Um, yeah, I think in our case it was mostly about making sure that both of us are happy to do a wide range of things and making sure we work together well. And that's the advice I would give to anybody. Make sure your co-founder is not only a designer or is not only a a salesperson but is happy to also do the legal if needed or is also happy to help with the accounting if needed. And if the two or the three of you work well together, you can always see which one is best at what or who knows whom, who could help. I think it's all based on being a strong team and not necessarily on having somebody doing just one thing because if the designer just does design and the tech person just does programming, maybe it's good for a while but it's not necessarily good for the business if it's just 2 people or 3 people.

So it seems like what you're saying is that you need to work together on something, right?

That's correct. That's correct. That's the way I look at it.

Yeah.

Yeah. Would you guys agree with that? You know, it does. And on something doesn't necessarily mean that, you know, you went to high school together or you got married or you, you know, started another company before. It just, it just means that, you know, you need to kind of see how the other person acts and how they're able to, you know, work in a professional situation, right?

Yes, and I agree. I think it's not necessarily in terms of skills. It might be also in terms of kind of ways of working. So, I kind of, my background is in finance and operations, so I do some of that, but I also end up doing quite a lot of the sales and the customer service. My husband also has a finance background, but likes doing some of the design. So he ends up doing that plus a bit of the website and the tech. And then it's kind of, is, then we kind of challenge each other on some of the things that he's doing and that I'm doing just to look at, is there anything that we can improve in terms of processes. So it's not necessarily, so there's, it's kind of building on interest. Each person will have their own interest, but we need to cover everything. And also at some point you need to kind of go and pitch and network and that requires both people to do that. So it's not that one person will do only one thing. Basically when you're only 2 or even if you're 5, then you end up doing a bit of everything.

Right.

It's also so easy to outsource these days. You mentioned the designer. I've got a great designer who works for us, who's a contractor who lives in Greece, and we don't have enough design work to keep him busy all the time. And it doesn't matter. He's good. We balance things off. And it's the same when it comes to sort of accounting, etc. So many people think, oh, I have to do it all myself. There's so many people out there who want to do bookkeeping for small businesses. As soon as you can, get other people to do it for you and do what you do best.

And I think it's important too, because those two things maybe aren't core to your business, right? They're supporting aspects to the business.

And it's funny, I think we're in a transition with tech. So many people think tech is core to the business. And yet if you're doing just another double-sided marketplace, as you mentioned earlier, John, this has been done before. It's not original tech. I mean, even the software we've written for our platform, 90% of the software writing is finding the right pieces and elements of software bits which have already been written and sticking them together. So it's, I think we're in a transition period where everyone thinks, oh my God, tech is essential. Look at your business. If you're a business like Oddbox, look, the tech is not the most essential part. Focus on building a business. and you could outsource the tech for Oddbox and still have an amazing business. Yeah, right.

So it varies for each business. Definitely, you know, a couple, couple points that I'll, that I'll make here as well. So what we're saying is, you know, if it's not core to your business, it's something that you can outsource, right? In the beginning, while definitely skill sets like, oh, I need a technical co-founder, I need somebody to do this, is important, you're all going to be doing a lot of stuff. In the beginning, right? Um, so really the ability— and the ability, not only the ability like to, to move from one thing quickly to the next, but the ability to learn something quickly and be willing to learn something even if it might not be the most exciting thing, uh, because somebody needs to do it, right? So those are very important traits, and it's hard to really find those unless you've worked with somebody before. Um, now, you know, something that we encourage people do in the Founder Institute with co-founders is a side project Right? So what could a side project be? Honestly, you know, the best example I'll give is go run an event with somebody, right? Let's say that your company wants to build an app for construction or something like that. Go, go run an event, get like the top guy in construction technology or whatever, and just, just go put together an event. Number one, you'll be making the contacts that you need, getting validation. Number two, you know, an event is probably something new to a lot of people. So you'd be working with somebody doing something something that's brand new to both of you and, you know, just tackling all these different problems. And, and I just think that's really good proxy to see how you'll work and, and learn and do new things in the future anyway. And it's not a totally useless exercise because you'll be building a mailing list, etc. Um, you guys think that's a decent piece of advice or am I crazy?

I think that's great. I also think don't be afraid to spend a little money. You can even have someone do a project for you within the business. Spend a small amount, whether it's an outside event, whether it's just like, hey, I want you to do this in my business, and look, I'm going to pay you a few hundred dollars for the time. It's nowhere near worth it, but I want to work with you in the future, and here's something we can do together without my having to give you shares or have that conversation yet. Let's just try something out, right?

Um, so there's that. One other point too is, you know, how do you know that somebody has kind of the same vision vision as you do, right? Some people might be wanting to start a company to become the next Bill Gates, whereas some people might want to be starting a company so that they could go to Croatia with, with Stipe and, and, you know, just sit on the beach and live a comfortable life, right? Um, so some people kind of want to get on the express train and raise VC. Some people want to do it a little bit more slowly. How do you— um, I assume that you guys have had those conversations. Are there any tips on how you can have those conversations and make sure that everybody, you know, is kind of at least going in with the expectations.

Yeah, I think in our case it was— sorry, yeah, in our case it was— thank you— my co-founder and I, when we were talking about teaming up, we sat down together for one day, pretty much 8 hours around a cup of coffee or 2 cups of coffee, and decided where do we want to be in 5 and 10 years. Do we have this vision to build something which is gonna be around in 10 years, or do we want to build something and sell out in 1 year or 2, or do we want to have a nice little lifestyle business which earns us a decent amount of money but doesn't take us more than 40 hours a week? And we decided on our long-term vision first of all, how we want to— what kind of business we want to have in 5 or 10 years, and we also talked about our own preferences and lifestyle and how we work to make sure that, that we are agree on that common vision and of course what type of business we want to build.

Great.

We actually remind ourselves every time when we have, when we wonder how to solve a problem, does this contribute to the long-term vision? Do we still agree on the long-term vision? And we generally do, but how do we best contribute to that long-term vision by solving this current problem?

Great.

And Christopher had a question too. So he's saying that he has a fear that his co-founder doesn't doesn't support his long-term vision. And I know a lot of these conversations aren't the easiest thing to have. Some people just don't know. You might look at somebody and they think that they're really ambitious and stuff, but then you think, I think this person would be happy just not doing exactly what I want to do. Is there a way where if you have a suspicion or a way that you could test that to make sure, like, hey, this person really does share the vision. You know, this is really challenging, I'm not going to lie. So if anyone has any, any thoughts on that.

I bring up something which Emily brought up earlier, which is try to find a co-founder that you can disagree with. So if you're afraid to even have the conversation to see if there's a disagreement, you have a problem there already. Bring it up. If you have any doubts about your co-founders' visions, bring it up and talk about it And if you've got a good co-founder relation, you can disagree. My tech co-founder, he's a tech guy. He's a pure tech guy. I'm a really experienced business guy. He has feedback. We have arguments literally about business strategy, which is really good. It shows he's engaged. It shows he cares. And we've got it in a great— we've got an arrangement where we can disagree. And yet we still want the business to succeed.

Yeah, it sounds like honesty and kind of complete openness is important. I mean, just, you know, Adeo Ressi, who's the CEO, the founder, who's my co-founder, we've been working together now for 10 years. We fight all the time, right? And sometimes like people will come into the office and they think it's like kind of weird. And then, you know, but then other people in the office will be like, no, like they just fight like grandparents. They always do. Right. It's fun.

And then one thing I would add is I think I think it's quite important to kind of know how much each of the person wants to put into kind of building the business and be clear and whether it's through kind of the percentage of share that if one person can put less time than the other, then it's okay on both sides. Because I think lots of time that's the thing which creates issues between co-founders, that one person is more invested than the other.

Right.

Perfect segue again. Thank you. You guys are making this job easy for me. So final topic, creating a co-founder agreement. So why don't we jump right in to, you know, this concept Kamal mentioned before, Emily just mentioned it, you know, having this conversation on, you know, dividing the equity, right? It is kind of— it's something that a lot of co-founders dread having the conversation, but it might be one of the most important conversations you have for your business. So Kamal, you know, has a kind of a special expertise in a lot of these legal matters. Kamal, how do you think, you know, the different things that would generally determine who gets what in terms of the equity split. And I guess the easiest way to say that would be, do you think 50/50 is ever a good idea? A lot of people just default to that.

Yeah, I would say whatever you do, 50/50 is the wrong idea. Because the thing about 50/50 is it allows you to get in a deadlock where both of you are arguing and one can't outvote the other. If you have a 51/49 This sounds crazy, but if you have a 51/49, economically it's the same thing. Yeah, but the— you have $51 million or $49 million when you sell your company, who cares? But the big difference is you will no longer have the same arguments because you know that one person can always outvote the other. Therefore, paradoxically, you don't let the fight get to that point because you have to talk about it and compromise because you don't have the, oh, we'll default to a fight. You can't default to a fight. So I would say just one thing to remember, no matter what, make it a 51-49 or even more. And look, if you look at the classic splits, like when my co-founder and I were doing it, there's formulas you can find online and different people who say depending who's contributing what, what different pieces. But if you look at classic splits like Apple and so on, I think the Apple split was a 65-35 split. I think Microsoft was a 60/40 split. I mean, things— it's very common to see splits which are sort of up to 70/30, anywhere from sort of 51/49 up to 70/30. And you shouldn't feel ashamed at all to have things where one founder has as much as twice the number of shares. The other thing I saw in one of the questions which people often ask is, what if someone's bringing in cash? You really want to do it as two separate things. You want to start off and say, number one, We are splitting our shares as co-founders just based on what we're bringing outside of cash. And you split up those shares and then you say, okay, great, now we're ready for investment. Oh, let's figure out the split of who puts what, sort of, this is how much our shares are worth. And if someone's writing a $100,000 check to the business, great, our— is worth 20%.

Right, keep the cash. And, you know, if someone's bringing the cash, that can also be issued as debt, for example, which can then convert into shares. Basically, cash into a business should be treated as an investment. It shouldn't, um, you know, determine the founder shares, uh, that you have in that company. Um, something else that I'll mention, so definitely 50/50 is, is generally not a good idea. You could do something like a 45-45, you know, 10 split. At least then you'd get rid of the deadlock. But in my experience, um, doing a, you know, having, uh, co-founders with an equal amount of percentage is kind of like just punting a, uh, you know, a, an important discussion further down the line. Um, what do you guys think about that? When I, whenever I see it, it definitely causes a red flag. because almost inevitably somebody is inherently bringing more to the business, right? So if the founders can't have that discussion ahead of time and just determine that, it could be, you know, a recipe for disaster in the future. Does anybody agree or disagree with that?

A couple of things I look at. One formula to look at is what would your salaries be if the two of you went out and got companies and other jobs in other companies? What would your salaries be? Another thing to keep in mind is whoever's the CEO should get a little extra for being the CEO. And by the way, everyone thinks, "Oh, the CEO, that's the power." Actually, that's the worst job to have because when you get outside investment, you often need to grow. Outside investors will fire CEOs. In fact, the CEO is the only person the investors hire and fire. Everyone else in the company is hired by the CEO. So, if the company is doing poorly, they fire CEOs. That's what they do. So if you want to be kicked out from your company, take the CEO job. Or if you want that risk, that axe hanging over your head. And if you don't want that axe hanging over your head, maybe you're more comfortable not having to worry about it by being a tech person or a salesperson, whatever you want to do.

Right. So we're getting a couple questions here about multiple co-founders as well. So Sajit asked, And this is kind of related, you know, is there such thing as too many co-founders? Now, I think the answer is yes. I don't know what the number would be. I think it would, you know, it always, you know, in a lot of cases that there's not like a normal supreme answer here. It really depends on the business. But do you guys have any thoughts on what too many co-founders would be?

I've seen studies that said the optimal number of co-founders is between 2 and 4. Yeah.

Yeah, that makes sense. You know, it's kind of too complicated if it's too many to align the vision of everybody in the big team from the beginning, it would be like hell.

Right. And Fabrizio is then saying, you know, so if you're looking at 2 co-founders, it could be something like a 51, 24.5, 24.5 split. You know, things like that. The other thing to keep in mind too is that, you know, you can have an advisor, you know, that you could have a tiebreaker be an advisor or an early employee or something like that as well when you're starting to determine the equity. But I think that a lot of people get too hung up on it in the beginning. You know, how did you guys have those conversations? I know, Stefan, Why don't you, you know, and you don't share any, you know, information you don't want to share, but how did you have that conversation with your co-founder?

Yeah, sure. So we started this business together at the outset with a common vision and very complementary skills. And we decided, you know, it's not a big secret, we decided to share the equity fairly equally between the two of us. Um, we saw it as a big incentive to have the same share, um, each one of us, to drive the business forward. We had come across other examples, other cases of startups where the divide was 70-30 or 75-25, but it seemed like the two co-founders were doing an equal amount of work, and the one with a lower share was quite rapidly getting decentralized, um, with the one with a larger share basically trying to take over but making the wrong decisions. Um, so this was an example we saw which we certainly didn't want to follow, and we, we both need very high incentives. Um, that's why we, we decided to split fairly. But I can, I can, I can see why in many cases you would disagree, especially if you bring on a co-founder at a later stage. They would get a lower share, that's for sure. But starting together at outset with a common, um, vision, I found it fair to start equally.

Okay. Um, there's a common thing a lot of people will assume that if they bring the idea, that that's worth something. Um, now the Founder Institute is very much, uh, in, in the, the mindset that ideas really don't mean anything. Um, and that a co-founder bringing the idea, you know, that, that, that's not really too much value. Value because the work hasn't even started yet, right? And it's all in the execution.

Give it 5%. I mean, it's worth something, not very much, right?

Okay, um, let's see here. So a couple other questions. I mean, what are the biggest— what's the biggest legal mistake that you think someone could make with the co-founder agreement?

The number one is not having vesting. Right. If you do not have vesting in your co-founder agreement, you will end up— it's almost guaranteed that you will end up in a situation 2 years down the road when one person, for whatever reason, doesn't want to give as much to the business as the other person, and they'll probably end up leaving. And if you do not have vesting, then you are sitting there with a fight over whether the person walks away with nothing or everything. In neither case works. Your business is dead. So make sure you have vesting. Look it up. Tell your lawyer. John, you mentioned it earlier. Say, I want 4-year vesting with a 1-year cliff.

4-year vesting, 1-year cliff. And I'll put some notes too in the email that we send along with this video to everybody on this webinar because we're starting to get towards the end. But yeah, 4 years vesting, 1-year cliff. Keep keeps incentives aligned. It's, you know, it's not a prenuptial agreement because it's not just for disaster scenarios. It's, it just creates an incentive structure that can also, in the case of a disaster scenario, you know, fix things as well. So let's see other questions here that we've been getting. So, you know, how does this relate to the employee option pool, Abby asks. Um, so, you know, I, I'll, I'll start with this one. Typically in a company you'll have, you know, multiple different types of shares, right? Um, you'll have— you could have something called founder shares, uh, which would be between the founders, and that usually has some, some different voting rights. You might have something called super voting rights, um, and, you know, those are kind of special shares, right? Then you might have common shares, and common shares typically don't have voting rights. And those shares, you know, would then, you know, that's where things like employee option pools and things like that would come out of common shares. And then, you know, as you start to bring on investors, or if you bring on investors, then you'll be issuing, you know, some preferred shares to investors and things like that. So, you know, the thing is that you should also keep in mind, you know, let's say you did split it 50-50, from the beginning, you're going to continue issuing shares. And that's what's known as dilution, right? So, you know, but the, you know, you have 50% of the shares that you started with, and you might add new shares in the future and have dilution. But, but it is, you know, the founders are separate from the employee option pools and things like that. I don't know, it was kind of a convoluted answer. Does anyone have anything else to add there to clarify?

You said the key point, which is options. You'll typically have, say, 10% of the company in options. They dilute everyone. If you have a 60/40 split, then guess what? By the way, I'm a big fan of common shares for everyone. It's a future conversation, but that's something to watch out for when you give super voting rights. When you give investors super voting rights, really understand what you're doing because that's making a big difference in who has what power in the company. And everyone having common shares means you're all on an equal footing.

I don't know if it's okay, so for people who maybe are not in an opportunity to get into or to finance Founder Institute or a program like that, that actually educates you legal-wise, I, for myself, I'm not English speaker and I read a book. I don't know if it's okay to recommend the book, tell me guys.

Of course.

So I read Venture Deals. So basically 5 or 6 years ago, I'm not like an extremely good English speaker, but still I managed to digest the whole book. So it's not very kind and it will help you understand lots of legal stuff that startup needs.

Yeah. Venture Deals, I would definitely recommend. I'll put a link in that too. It's by Brad Feld, the founder of Techstars. An organization that's great and that a lot of our graduates go to as well. That really goes through, I mean, it really just talks about all about how equity works, not only with co-founders and team members, but with investors and things like that. You know, someone else asked, you know, if you were to bring on, let's say like a president or somebody, you know, what type of shares would they get? You know, typically what I've seen, you know, really, really high level strategic employees can be somewhere, you know, between 10— or sorry, between 2 and, you know, higher percentage. And sometimes, you know, they'll be out of the option pool and kind of, you know, getting sort of founder shares or super shares as well. So we're coming up on time here. I wanted to ask the speakers if they have any other, you know, kind of one piece of advice, one thing that you wish you knew, um, you know, when you started, or, or, you know, just the one thing that you'd like to leave some of the audience with today. Obviously, people on this call are, you know, might be, you know, about to embark trying to find a co-founder. Um, they might, you know, even be in the process of breaking up with the co-founder. Um, so what, what's the piece of advice that you would you know, just as a kind of parting note. And whoever wants to start first, just jump on in.

Okay, so maybe I can start.

Ladies first.

Yeah. So, so basically I would say don't think that you absolutely need a co-founder to build something. Just start with your idea, build some traction, An idea, basically everybody has lots of ideas. Don't think that basically your business depends on the idea. Share your idea and then along the way you'll find somebody. So it's good to attend networking events, it's good to try looking for somebody, but then you could end up spending a lot of time just trying to find a co-founder and then finally not building a business. So always remember that it's more important to build the business than find a co-founder.

Yeah, definitely get out there. Um, Kamal, you wanted to say something as well?

Emily said it exactly. Don't, don't let it hold you up. Don't feel rushed into, oh, I need to find a co-founder and get into a relationship too quickly. Just build your business. You will attract people to join your business. And when you attract them, you'll You'll know when someone deserves to be a co-founder.

Right. Stipe?

Well, it's go hard or go home. So it's very hard being an entrepreneur. And if you are not willing to do all the stuff you said that, that you need to do and make you nauseous or stuff like that, you won't make it. So many people are trying to do something only persistent prevail. So that's basically it.

Yeah. Stefan, you there, Stefan?

While we're waiting, Stefan, just one big plug, I'd say do follow us on Instagram.

I've got some tech issues, I hope you guys can hear me okay.

Yeah, yeah, you're back now, thanks.

Should Kamal finish?

Oh, all right, I'll finish. Can you guys hear me now?

Yes.

We had the webinar going pretty smoothly until the last 2 minutes. But yeah, I guess, you know, the final thing I'll say is to, you know, in my experience, a lot of people when they're looking for co-founders, they put way too much emphasis on the skill set that they're looking for. While complementary skill sets are important, it'll force them to get into relationships with people. Just because this person knows how to do something that they don't, right? Uh, skills can be learned. Um, every founder in the company is going to sort of become a generalist, especially in the beginning, doing 30 different things in one hour, right? Um, so while, you know, the missing skill sets certainly help, um, you know, it can form a relationship, co-founder relationship with somebody, um, you know, that doesn't have the ability to, to really change gears and do a lot of different things. And that may be compatible with you. So thank you everybody for joining today. Let's, let's thank our speakers, give them all a virtual round of applause. I don't know, maybe there's emojis in the chat room as well. But for everybody that joined the webinar, you will be getting a video within the, probably the next few hours as well, and I'll try to put in some links for some of the resources that we discussed. And if you are building a company, please do check out the Founder Institute. You can see all of our enrolling chapters at http://fi.co/enrolling. And it's a 3.5-month program where, you know, we can help you find a co-founder, but also, you know, bring you through all the different processes that you need to do in the beginning to build a sustainable business. So thank you, everybody. Have a good day, and thanks for coming out.

Thank you.

Bye.

Thank you.