24 Mar Top 5 Conversations to have with your Co Founder before you unite in startup-trimony
1. Are you in it for the love, the money, or the glory?
One of the most critical conversations between co-founders is an often overlooked one. What do you stand for? Founders with mismatched values will inevitably have conflict. It is in fact the number one thing that causes startups to implode. Can you imagine Trump and Obama going into business together? Identifying your core values at the outset is critical. You should not be sharing equity with anyone who has a skill set you don’t, but doesn’t share your values.
An easy way to do this is to do a values alignment exercise. List the top ten personal values, what they mean to you, and the behaviours which exemplify them. Once you identify your personal values, you can then work out what the collective values you have as a team, from there you can work out the company’s purpose, mission and the direction of the company. It will also set the tone of the culture of your startup – this is critical to attracting investors, stakeholders and eventually keeping and retaining employees.
2. Who’s driving this thing?
The day to day actions and behaviours will drive your success in the early stages. So, what are you good at? What is your co founder good at? Who will you need to outsource/employ to plug the skills holes? These are critical conversations to have.
Having a basic outline of what you will be doing even divided into job roles which may be eventually be taken over by others, will save you literally years down the track. Also nominate who will have the final say. You may be equal shareholders, but someone has to be the driver and be responsible for which way the ship is turning. This is leadership, not rocket science. You must support the nominated leader. You may be the one driving at some point – so you wouldn’t you want your team to have your back?
If you don’t have a roadmap for accountability, you don’t have accountability.
3. Who’s getting what, who owns what and at what time?
At the beginning of any enterprise, there’s a moment when everything is dandy, but then the hard work sets in. What if you are doing more than your co founders, but getting the same equity or pay structure? That’s often a huge point of conflict for co founders. So solve it by having a vesting structure, where equity is “earned” over time, or when you hit certain milestones. Alternatively, have equity review periods where you might adjust the equity if there is a significant failure to meet a major milestone or its clear contributions are uneven.
Another way to solve this is to simply have the equity structure reflect the responsibility of the role of each person. If one founder takes over the role of another equity can be adjusted, or you can rely on pay structures to do the same, but keep similar equity provisions. Either way the ownership of the startup needs to be addressed, and needs to include provision for future owners in the form of investment. It also needs to contemplate the exit of founders and the equity adjustments that may need to be made at that point with the other owners.
4. How will we manage people, conflict, IP, legal regulations/tax & growth ?
Conflict is inevitable at any point in any human endeavour. Hopefully if you are values aligned with your team, you have outlined your accountability map and have a clear sense of where you are going, this will be minimal. Having a basic outline in the early days as to how you will manage conflict as a procedure will save you time and money down the track.
In addition, developing a listen reflect & respond culture where you regularly review what you are doing and why, is critical to long term management of your team as you grow.
Legal regulation and tax are areas often overlooked in the early phases of growth. Appointing someone to be on top of it is another way to minimise risk and will assist you to be ready for investment when you need it to quickly scale. Do you really want to lose a Series A round simply because you were sloppy with your compliance or tax returns?
If you are going to invest the huge amount of time & energy to get this startup off the ground – make sure you own the intellectual property you are creating for it along the way. Again this is often overlooked between founders, or contractors you hire for periods of growth.
5. Where are we going and when do we stop?
Finally, where are you heading and what is the exit plan? This is probably the best conversation you will ever have with your co founder. When you put a time frame for achieving certain milestone, you create a sense of momentum. Like climbing a mountain, you have a clear picture of when you will reach the top, so your exit may be when the team has reached a certain point. The climb is not over, but it may be over for you as a founder, at which point another leader with different skill sets may be needed to lead the team to complete the journey. Both founders need to decide at what point an exit is right for them personally, and what is right for the company in the long term, which may very well go on with or without them for years to come. What’s the ideal reward for the founders at this point ?
Summary – Co Founder’s Quick Legal Checklist
- You don’t have to incorporate right away – but make sure you have a CoFounders pre incorporation agreement in place prior to incorporation – get a lawyer to help with this – do not rely on templates – there are none
- Take the time to choose the right corporate structure and get advice on it
- Get the equity split right, but don’t get hung up on it – things will change so allow for some flexibility
- Learn about the tax & compliance stuff don’t rely on lawyers and accountants- it will impact on you
- Decide on roles early on, be upfront about what your skills set is, and identify your skills holes early on and who will fill them at what point
- Create an IP Register and use it – record domain names, trademarks, and patents and who owns what and what will happen when more IP is created
- Create milestone schedule and vesting procedure for equity shares to keep yourselves accountable
- Have a conflict procedure – including bringing in an umpire if necessary
- Know your exit plan personally and for the company long term