Finding cofounders · Cofounder

At what point is a co-founder role no longer appropriate?

Chicke Fitzgerald

May 3rd, 2016

I have seen various posts on FounderDating that indicate that when someone is seeking a co-founder, that they may already be too far along for that to be appropriate.

Is there a rule of thumb?    

I am a solopreneur within an entity that I've used for various purposes for the past 10 years.  But the venture that I am working on right now is new.  I have been able to launch my MVP and I do have paying customers, but can't get to the next level without help.  


Mike Moyer

May 3rd, 2016

A co-founder is anyone who is not receiving compensation for their contributions of time, money, ideas, relationships, or anything else. 

You can call them a co-founder or an employee or a partner or whatever else you want. It doesn't matter. Their rights and privileges are not defined by their title, they're defined by what they put at-risk.

I'm assuming part of your question relates to whether the person is eligible to get equity in your company. Anyone who puts contributions at risk should get equity. Their % share of the equity should be based on their % of what's put at risk.

This is called the Slicing Pie model and I've written a book about it. You may have a copy if you email me through SlicingPie.com 

Alan Sack Founding member of SACK IP Law p.c., Intellectual Property Law and related Matters.

May 4th, 2016

In my opinion, the title of co-founder is really not appropriate, when the entity has moved along and the new person being brought in is in reality an employee or a minority partner.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

May 3rd, 2016

Like so much of the English language, the term "co-founder" has come to mean so much to so many that it seems to mean nothing to anyone. 

It seems like you already have the have the answer in your question. You say "I have been able to launch my MVP and I do have paying customers, but can't get to the next level without help." So what kind of help do you want? Do you want an advisor? An Employee? A business partner (some may call that person a co-founder, others may not)? 

Once you decide what kind of help you want, you can decide what you have to offer: cash, equity, credit (e.g., some form of note, perhaps convertible). Armed with these decisions, you can enter into negotiations and find a person where your desires and their desires overlap enough to negotiate the differences. 

Hope that helps! 

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

May 4th, 2016

A well drafted "while we're still friends" agreement can provide guidance for "when we disagree" which can greatly diminish the likelihood that "we're no longer friends". 

In my experience, every business partnership (every business relationships) is stronger when expectations are clear. Avoiding relationships because there may be some point in the future when they no longer work for all parties will, ultimately, impeded an organization's ability to scale. 

There are, in general, three kinds of entrepreneurs: 
  1. Freelancers - seek to own the job they do. 
  2. Lifestyle seekers - seek to produce sufficient income to support their desired way of life.
  3. Enterprise builders - seek to build enduring enterprises that have intrinsic value. 
Types 1 and 2 can operate perfectly well as single-person entities (with or without a few employees). Type 3 almost always requires some form of partnership. 

There are very few type 3 entrepreneurs relative to the total number of self-proclaimed entrepreneurs. None of these types in inherently better or worse than the others. What is valuable (arguably, critical) is to know what kind of entrepreneur you are and act accordingly. 

Chicke Fitzgerald

May 4th, 2016

And inevitably, the written agreement must address the "we are no longer friends" possibilities of what happens when things don't go well.   And so it goes. 

I was never a fan of pre-nuptials, so perhaps this is why to date I have not taken in a partner in this business.  I'm right on the cusp of profitability, so perhaps I'll just keep going solo.

Chicke Fitzgerald

May 4th, 2016

Very astute Joe.   I am definitely a Type 3, but a patient one.  

I want to have the foundation solid, before taking the next move.  And I've had the capital to self-fund.  We already have an MVP and customers, so now I just want to get customers in a few more sectors, get the proof points that we need of how the product behaves in those sectors, then begin adding the team so we can scale the business. 

We have a predictable, repeatable revenue stream that is transactional.  And we have a model for aggregating business that doesn't rely on traditional marketing. Our key partner provides the transactional processing services, the contract management, the financial settlement and customer service.  We can scale worldwide once we have the clients in place, and of course we'll test market in English speaking countries before we expand elsewhere.  We support 40 languages in our call center and have 20+ languages available on our site and as many currencies.

Fortunately, this is not my first rodeo.   ;)

Alan Sack Founding member of SACK IP Law p.c., Intellectual Property Law and related Matters.

May 4th, 2016

Joe, thanks of your comments and insights.  I think that you are 100% correct. I also recommend when they have the "while we are still friends" conversation that the parties to the new entity formalize their relationship with a written agreement.

David Jeske Software Entrepreneur, Architect, Manager

May 10th, 2016

If the people you're bringing on specifically for this new project are going to receive equity compensation, then you probably will need to spin-out the product from your "10 year entity for various purposes" and into it's own single purpose entity. Otherwise you'll be caught in an equity trap where you feel an equity amount is too much of your 10-year entity, while they feel they are getting too little of the new project equity.

Spinning out into a new entity can also make it easier to understand who the co-founders of this new entity are... they are generally people getting more than 10% equity.

Alan Sack Founding member of SACK IP Law p.c., Intellectual Property Law and related Matters.

May 4th, 2016

Cheke, every Entrepreneur is different.  Knowing what your goals are for your enterprise goes a long way in choosing whether to go solo, take on a partner or employees.  Some are lone wolves, others work very well with others.  Know thy self and you will be happier in your situation.

Saravjit Singh Independent Consultant and Trainer

May 10th, 2016

Co-fouder's role is related to his expertise and how this fits in. 
In some cases, a co-founder's role will be short - as when the co-founder is roped in only to get initial business funding.
In many cases, a co-founder can become a valued member of your organization on a long term basis - as can happen when you partner with a co-founder who is a specialist in creating an excellent organization.