Founders · Founder Agreement

What is the best way to set up a "pilot period" with a potential co-founder?

Oran Bertelsen Product design and development

December 28th, 2014

I'm an industrial designer and currently talking to several potential tech co-founders for my startup.
I'm wondering how to set up an initial "pilot period" to test the relationship.
How to make sure both sides are able to back out elegantly without wasting any efforts or anybody feeling burned.
Any tips?

Brahm Singh Eng Head - Deep Search at Quixey

December 29th, 2014

My two cents - agree on an hourly payment rate and work for some time together. If things work out - great! Log the hours and split equity according to grunt fund. Otherwise, pay that person the promised amount.

I would be interested in knowing what other people think too. 

Aleksandra Czajka

January 2nd, 2015

I have been in a few arrangements like this. I'm the technical person. The way I work with each start-up is on a contract basis first. This is good for both parties. First, how will you ever know whether you want to commit to each other on equity basis before you know how well you work together? You need to figure out whether you would be a good team. This is why talking about equity does not work at the beginning. You need to work on an hourly contract basis. That is, pay the technical person for their time. 

Second, after your software is developed, there might be a huge lag time between when you will need the tech person again. If you need them to fix bugs, etc. that is easily done on hourly basis. What is the tech person going to do as you are going around selling, marketing, etc. Thinking about next phase? What if there is no next phase? It just makes no sense with an equity structure. 

Neheet Trivedi

December 29th, 2014

I just read a good article from First Round on this: http://firstround.com/article/Looking-for-Love-in-All-The-Wrong-Places-How-to-Find-a-Co-Founder. They recommend a minimum 30-day dating period and suggest that parties "agree on whatever terms make sense - you both get to keep the code, for example..." Of course, "code" could be replaced by something else such as prototypes, customer lists, marketing materials.

It can be tricky to set-up a way to split equity during this time. If you haven't incorporated yet, ownership stakes could become unclear if one person pursues it and the other does not. A simpler way would be to set out a specific project that both can own, or, as Ian suggests above, a project that is not critical to the business.

If you've already been working on something for a long time and you would still like to own the IP, then you could pay the person you're "dating" an hourly or total amount that both agree to. Or you could set up a clear timeline and total amount of time you both will work, in hours or days or weeks, by which time you'll both come to a decision on whether to work together. Set up clear metrics upon which you'll evaluate each other. Some of it will be subjective, but that can help to minimize the feeling that one's efforts are being unfairly valued.

This is a common question that I've faced so I'm eager to hear other peoples' thoughts as well.

averasko

December 30th, 2014

Agree with Brahm. Arrange a dating period and pay a contract fee.

Also, the contract you both sign needs to be very strict about the other party's rights on everything been done -- no rights at all. Otherwise, you might have problems going forward if not with the prospective person then with prospective investors. There are very bad examples out there.

Ian Maddox

December 29th, 2014

Brahm's suggestion is on track with what I've been doing.  It's a two-way interview, so the best thing to do is find a small portion of your project that requires input from everyone and use it as a tracer bullet.  I've found that 2-16 hours of work per individual is a good range.

If your project can't be broken up into smaller chunks, come up with something that is small enough to tackle in a few hours which you can throw away after you're done.

Here are a few suggestions for test projects:
  • Build a single page of the site
  • Concierge MVP
  • Whiteboard the site architecture
  • Whiteboard the business rules
  • Convert a non-technical specification into a technical one

Anders Solvang Channel Manager @ Avikom Distribution AS

December 30th, 2014

You could also set up a "work for equity" plan. If the agreed equity share for your partner is 40%, then for each year he/she works actively in the company he/she receives 10% of the company. Cheap for you, cheap for your company, and eliminates risk of partners not participating enough. 

Michael Downing Founder & CEO at Tout

December 30th, 2014

  • WFH Consulting period
  • Vesting on equity (4-year)
  • Cliff on all equity 12-months