So, you found a co-founder. Now what?

Make sure you talk about these tough but critical questions.

Tl;dr: Equity split, roles and responsibilities, time and cash commitment – these are all questions you should talk about with your co-founder before starting, and possibly also document it in a Founders Agreement.

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Hey there, if you’re new to the founder memo – welcome! Every other week, I share an insight from my decade-long legal practice to help founders navigate the startup journey – and especially fundraising – like a pro.

Shout-out to Mark Benliyan for the topic idea for this post! More on him in the member highlight section below.

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Love a good horror story 🧟‍♂️

Things can get really nasty if there’s a co-founder fallout. In fact, it’s regularly flagged as one of the primary reasons that startups fail. It can be something as fundamental as divergence of vision… or seemingly trivial as preference of task tracking systems. But when it happens, it can bring the whole startup down.

Here are a few examples from previous posts on the founder memo:

Dead equity makes your company uninvestable

Unvested shares don't just "buy back" themselves

No IP assignment? No investment.

Would you be my co-founder? 💙

Although romantic dating and a business co-founder relationship have several similarities (you can see why – there may be days when you interact with your co-founder more than with your partner), there are important points that are particularly relevant for a co-founder relationship.

This is what this post is about.

Co-Founder Dating Alignment Checklist ✅

We’ll talk about whether you need a co-founder and, if you do, how to find one later on. But to start off, let’s assume you’re past that stage and need to align with your co-founder.

Here are questions to ask and answer.

Vision & Product 👀

It might sound like a given, but you’ll be surprised at how often two co-founders start a company only to realize soon after that they don’t share a vision. Have an extensive conversation (multiple, in fact) with your potential co-founder to make sure that you’re aligned on what the company’s big picture is.

Needless to say, keep in mind that this vision (and, especially, product) can change quickly and drastically as you build your company and pick up signals. But it’s important to by synced on this on Day 1.

Equity 🥧

The question on a lot of founders’ minds: how much equity is each of us going to get? This is a hard conversation that you and your co-founder(s) must have as early as practical – after you’ve decided that you’re ready to commit, but before you actually fully commit.

There is no bright line answer here, but there are a bunch of resources out there that can help you educate yourselves on the topic. YC says split 50-50 regardless. Carta says a 55-45 split is more common. Stripe doesn’t hint at any split, but instead lists a number of factors to consider.

Remember, there’s no one size fits all here, and it’s more art than science. It should be born out of a robust, educated conversation with your co-founder, where you arrive at a decision together – one you’re both fully comfortable with it.

Roles & Responsibilities 🛠️

Right off the bat, a corporation has two key categories roles associated with it: the officers (the CEO, CPO, CTO, etc.) and the directors (the individuals who serve on the Board). It’s common for the co-founders to split these roles between them.

Beyond these corporate functions, it’s important to talk substance with your co-founder – namely, who’s going to lead each of the following functions:

• Product

• Design

• Engineering

• Operations

• Sales and Marketing

• Fundraising and Partnerships

Decision-making 👩‍⚖️

This is an outgrowth of the previous point, but merits a heading of its own. How will decisions be made? Sure, you can fall back on corporate governance regulations (essentially, what the law, your charter, and your bylaws say), but in an early-stage startup, you need to get more personal.

I like to follow the “negotiate, consult, inform” framework, where each decision item has its owner and is tagged with one of the following:

• “Negotiate”, for items that should be robustly discussed between co-founders with the aim of arriving at consensus;

• “Consult”, for items where the owner should consult with the other co-founder, asking for and taking into account that person’s feedback; or

• “Inform”, for items where the owner should notify the other co-founder, without the need for further negotiation or consultation.

There should also be an ultimate “tie-breaker” authority: in case the co-founders have a fundamental misalignment of positions (short of warranting a split), which one of the co-founders will be making the final call?

Commitment 🏋️‍♀️

This boils down to two key commitments: time and cash.

Time commitment is expressed as whether each founder is committed part-time, full-time, part-time, or (ideally) “double full-time” – basically, that the startup will be their exclusive engagement.

Cash commitment is expressed as money invested by one or more founders and the terms at which it’s being invested. In case you are going to invest cash, there are two main ways that I suggest doing this – Safe or founder note – each with their pros and cons (a topic for a future post, though let me know if you’d like to chat about this).

Motivations 🫀

Here’s one that often gets glossed over: why are we doing this? Are we doing this to (hopefully) make oodles of money? To leave an impact, a legacy? Because we can’t live with the idea that this problem isn’t solved yet? To prove a point to ourselves (that we can, in fact, build a business)… or to others? To avoid the regret of not having taken the shot?

This is an incredibly important conversation because a lot of the strategic decisions that you and your co-founder will make will be stemming from this motivation source, including one of the most important ones: fundraising and exiting.

Fundraising and Exit 📈

Following on the heels of the previous question is the question about fundraising and exit strategy. Are we setting off to build a venture-backed business or are we going to bootstrap this? Somewhere in between? Two very different trajectories that should be weighed and well thought-through.

Similarly – what do we do with this business once it’s “mature”? Are we looking to be acquired? Are we going all the way (to an IPO)? Or do we take exiting off the agenda and instead build this as an ongoing profitable business (much like the model espoused by Jason Fried at 37signals).

Legalese 🖋️

I’m going to bunch a group of legal points here, including:

• Vesting: Each founder’s stock is subject to vesting; if they quit early, they return some or all of their stock.

• IP Assignment: Anything each founder does for the company belongs to the company.

• Confidentiality: The business’s sensitive information must be kept confidential.

  

Do I need a Founders Agreement? 📃

Here’s a rule of thumb I’ve regularly used when advising if founders need a Founders Agreement: if incorporating the company is just around the corner, you can probably do without a Founders Agreement. However, if that’s still a prospect a few months out, best to paper and ink your agreement today.

All this being said, it’s a good idea to create a Founders Agreement regardless, if only because it requires the parties to engage in this thoughtful and crucial conversation. Case in point: when Serop and I were starting Corpora, we did prepare a Founders Agreement, even though we were planning to incorporate the week after.

In fact, here’s a template Founders Agreement you can use. It’s based on the agreement that we drafted from scratch for ourselves for Corpora.

Where can I find a co-founder? 🔎

Probably not Bumble or Tinder (although… who knows?). Here are some tips on how to find a co-founder, in no particular order.

Circle of friends 🔗

Take a moment to recall people you’ve interacted with professionally or socially through adulthood – in college, at the workplace, on a project, etc. Make a list of these individuals and consider if any may be a potential co-founder.

LinkedIn 🟦

Open your LinkedIn connections list (or Instagram, or Facebook – or wherever you maintain an updated social graph) and go through each of them. Take note of all the individuals who may be a potential co-founder.

YC Startup School 🟧

This is as close as it gets to online co-founder dating. YC has a module where you create your profile, view other founders’ profiles based on your search criteria, and even participate in live speed networking events with founders with similar interests.

Manifest 📣

Tell people that you’re working on a startup idea. Ask for introductions. Meet people that you’re introduced to, and maybe ask them for introductions too. As Steve Jobs said, “you can only connect the dots looking backward.” This is how I met my co-founder.

Do I need a co-founder? 👥

There’s no right or wrong answer here. Elon Musk and Jeff Bezos are going it alone. Larry Page and Sergey Brin joined forces, as did Steve Jobs and Steve Wozniak.

Arguably, I would say it’s much funner with a co-founder. You’re on this rocky journey with someone who has his heart in it as much as you do. When one of you is feeling down, the other is there to lift that person up. The lows are more tolerable, the highs all the more ecstatic. But hey, I’m biased, because I got an awesome co-founder, Serop. 🤘

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Startup Ecosystem Member Highlight 🔦

Over the past years, I’ve had the opportunity to meet with amazing people who are super passionate about startups. I’d love to introduce them to you through this newsletter, as they can be helpful to you as you start, grow, and scale your startup.

Meet Mark Benliyan

Mark counts Figma, Netflix, NASA, Tinder, BitGo, and Clever (yep, quite the mix!) among the companies he’s interned at while in college, giving him exposure to an insane variety of workspaces and cultures. So, what does he do with all that experience? Of course he turns it into awesome content for up-and-coming software engineers on YouTube and LinkedIn!

A UCLA alumnus, he snatched his Bachelor’s degree in two years (after realizing that computer science is so much more exciting than pre-law), during which he found himself jet-setting between SF and L.A. to take his mid-term exams while staying on top of his internship.

Now, armed with his startup experience and knowledge, he’s eyeing starting his own venture. Onward and upward!

Make sure you follow Mark on LinkedIn and YouTube, especially if you’re a future software engineer.

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Until next time!

Stepan

A bit about me: I’m a corporate lawyer with 10+ years of experience helping 100s of companies navigate the legal journey, including early-stage startups and unicorns. I quit my private practice to start Corpora and help founders raise money faster and more affordably. Let’s connect on LinkedIn.