Your first sale! A Co-Founder

Your first sale! A Co-Founder

You know when you’ve made your first sale for your new company – it’s when you get a co-founder to join you. Congratulations!  You’ve successfully persuaded someone to join you on this great adventure called a startup.

I’m in the middle of evaluating Seattle Startup Next applications, and thought I’d share some scoring feedback on the value of teams. In general, most accelerators use www.F6S.com in evaluations and the standard scoring method is 1-4. Each program rubric can be different, but in general:

  1. Hate it – this is also a default score for a startup that lacks a team
  2. Don’t like it – you have a co-founder or team, but don’t have a product
  3. Like it – team and prototype
  4. Love it  – team, prototype and traction!

The next level down is how we look at what type of co-founder you have.

  • Technical – if you’re starting a tech startup and you’re not technical, this is a critical role to get filled on your team. In general, technical talent have a lot of options in this hot hiring market. If you’re able to get a technical resource you’ve done well. The message that sends is that the startup idea has some value – at least compared to getting a job at a big company for cash and benefits. Having more than one dev? Make sure you have a project plan of who is working on what feature.
    • Score +++
  • Design/UX/UI – this one depends on the maturity of the product and the startup, but design matters in tech, so have someone who can provide design resources as well as know how people will interact with you.
    • Score ++
  • Finance – finance people are risk averse by nature, so if you have a finance person joining your team when the product is still unproven that could be an amazing vote of confidence for your startup. The question would be, is there any finance to manage?
    • Score ++
  • Marketing – you don’t have money to build a brand, so make sure this person is willing to do the tactical marketing to go get customers.
    • Score +
  • Business – the “generalist” is the classic early startup team member or co-founder. Just make sure you are clear on the objectives that they need to deliver – get clear objectives and key results (OKRs)
    • Score +

So what should you have to pay for this talent? If you’re looking for a longer discourse on the equity topic, you can find a great book at “Slicing Pie.” It’s a complex topic based on a number of factors, like who’s putting cash into the business and who is taking cash out.

Just to be clear, everyone has expectations whether they are stated or not. And the sooner you get those expectations out in the open, the better it will be for the business. Let’s take the two extreme positions as a place to start – and then we can work our way back to a more reasonable middle group.

  • You expect people to work for free! Just to be clear, it’s not likely your idea is so amazing that anyone is going to work for your for free! Even if it’s amazing (Google, Apple), c0-founders happen before you have cash so you’re going to have to let go of some equity.
  • They expect 50% equity plus market rate in cash! The opposite extreme is the Sr. Developer who’s giving up $150k a year plus stock options and wants the same comp and 50% of the equity because they are critical to the success of the startup!

Now that I’ve given the extremes, how do you meet in the middle? Start with talking about expectations.

  • Is it early in the process and do you have traction as a solo founder? If you’re at more than the idea stage you will likely have to give up less of the company as a percentage of ownership.
  • Have you incorporated yet? If not, you’ll want to look at using stock with a low cost basis as an incentive.
    • Don’t forget the 83B election!
    • Don’t forget a reverse vesting schedule!
  • Are you putting in cash on a pro-rata basis? For example, if you own 51% and they own 49% and you need $10k, do you put it in pro?
  • When do you take cash out? Are you getting paid the same or different amounts?
  • How long can you go without taking cash?

One thing is for sure, the longer you wait to have this discussion the worse it will likely end up.

 

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