On finding a cofounder
Hey friends,
Let's start this newsletter off with a critical topic; cofounders. Finding the right cofounder is the most important decision you will take when starting out. This is someone you will spend more time with than your own family for the next few years - or decades if it goes well. Your cofounder relationship is critical to the success of your company. Cofounder fallouts are one of the most common reasons that startups fail.
From personal, painful, experience, I can tell you that apart from your spouse there is no relationship that will have a bigger impact on your life.
Choose wisely my friends.
In this article:
👉 Where to find a cofounder
👉 What to look for in a cofounder
👉 How to split equity
👉 Cofounder agreements
👉 Resources
Let's get to it.
Where to find a cofounder
In the ideal case, you want a cofounder that you already know, but not your best friend or a close family member. Why? Because working on a business for years will be an intense experience, and one that many relationships don't survive. If you have a relationship that is precious to you - don't start a business with that person.
One circle out from close friends and immediate family, you have work colleagues and acquantances. This is the ideal place to look for cofounders, because you have an existing relationship and an understanding of their skills.
If you can't find a cofounder in your extended circle of contacts, you have to find someone you
One option is YC's Cofounder Matching. The platform is kind of like a dating platform for cofounders, and it has been thoughtfully designed to help you find the right person.
Meetups and hackathons can also be great options - look at what's going on in your city.
But there are pitfalls with this approach.
You definitely don't want to jump straight into a business with the first person you meet online. Instead try to do a couple of projects together. Time spent getting to know each other will be very valuable to deciding if you actually want to start a company together.
I made the mistake of jumping straight in with my first cofounder - and it was one of the most costly errors I have made in my life. It was a disaster - a story perhaps I will share more of here at some point.
The scars or trauma from a bad cofounder relationship can stick with you for many years.
“In YC’s case, the number one cause of early death for startups is cofounder blowups.” - Sam Altman
What to look for in a cofounder
You will often find advice about finding people with complimentary skills. No doubt skills are useful, but I think personality is much more important. You want someone that is ambitious, independent and determined. But even more than that, you want someone that is in it for the long term, and is willing to be generous.
My second company, A Chef's Tour, went to zero during the pandemic. Emerging from the pandemic, my cofounder Luke wanted to continue with the business. At this point, my heart wasn't in it. I believed, incorrectly as it turns out, that it would take many years for travel to recover to pre-pandemic levels. Luke wanted to get back some of the shares I had vested to also bring on someone else to help with the business.
This could have been a tense moment, perhaps resulting in conflict. Through a series of conversations, we started to negotiate what we both thought would be fair.
I realised at some point, that we were stuck in a short term game, and what I really cared about was making sure, above my own interest in retaining shares, that Luke came away from these negotiations feeling that we were still on the same team.
I offered Luke all my shares back, at zero cost.
I wasn't being generous here. This was about making sure Luke knew I was on his side, and on the same team. Though we haven't yet started another business together - we remain good friends, the the possibility of working together again is always there.
It's a long term game.
How to split equity
This is a delicate topic that could be an article in itself. But let's just start with a basic premise, that in most cases, you should split equity (ownership of the business) equally. There are many reasons people give for unequal equity split, but most of the time these reasons don't hold up. The reality is that even if you have already started working on the idea for some time - as Michael Siebel said; "Equity should be split equally because all the work is ahead of you."
You may want to split slightly different if one partner is working full time and the other part time, but generally VCs and future investors will take it as a negative signal if there is a very unequal equity split.
Cofounder agreements
Now you have found someone that has agreed to be your cofounder, you might think you can get started right away. Well, one crucial piece of paper you are going to want is a co-founder agreement. The most important elements of this agreement relate to IP and vesting.
Vesting is the process by which you earn your shares over time.
Let's say you have decided to split the company 50/50. You set up the company and allocate the shares. You don't get that 50% upfront, but rather you will earn them over a period of time - normally 4 years.
Critically, vesting should apply to both you and your cofounder.
Both of you are putting a lot on the line, and vesting is a way to protect you both in the event that a founder leaves.
IP is the other important part of a cofounder agreement. This makes sure that IP is assigned to the company, and avoids any confusion about who owns the code, design, etc.
Some founders neglect having an agreement like this up front because it feels like a marriage pre-nup. People don't want to think about potential exits when they are in the exciting new stages of a relationship. This is a mistake, you need a cofounder agreement to protect both you and your new partner. It makes sure that you are both on the same page about important topics such as vesting and IP from day 1.
I hope this brief helps you get off on the right foot, and avoid some of the common pitfalls when getting started with your cofounder.
And remember - play long term games.
Until next time
Jamie
Resources
How to Split Equity Among Co-Founders
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