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How to Find the Co-Founder and Formalize Your Relationship




Why is finding a co-founder so important?


Not saying that it’s impossible for a startup to thrive having only one founder. It’s just that companies with multiple co-founders tend to be more productive. It has been said that multi-founder startups get a 30% higher chance of receiving funding.


Google Larry Page and Sergey Brin

Microsoft Bill Gates and Paul Allen

Apple Steve Jobs, Steve Wozniack, and Ronald Wayne

PayPal Elon Musk and Peter Thiel…

We hope you get the idea ;)


Sure, you can haul the weight of the whole startup on your shoulders and hire employees to take care of specific tasks. However, there are some things that only a strong team of co-founders will manage to accomplish.


The visionary-hacker-hipster triad


It's said that a successful startup requires three key roles: A visionary (often called the hustler), a hacker, and a hipster, each with their own responsibilities.


The visionary comes up with grand ideas and sees the company's future and its potential to become an outstanding brand. They have the personality and charisma and are ready to be the face of the startup.


The hacker is a technically skilled expert in concept design and engineering. They need to be able to lead the development team, as well as perform certain tasks on their own.


The hipster knows everything about modern trends and is a guru at understanding the customer perspective. They are the ones who will lead UI/UX design teams to create a friendly interface for the product.


These roles will give your startup more focus and direction. It’s also wise to stop there: more than three leaders create too much friction. Having too many chefs in one kitchen makes for more chaos than harmony.


Co-founders can feed off each other’s energy & ideas


Brainstorming on your own can sometimes be discouraging. It’s much more fun and productive to bounce around ideas with your co-founders. Often, leaning on your co-founder’s advice will allow you to avoid pitfalls you could have never anticipated.


When you rush to the market with your great idea, a prudent partner can always prevent a false start and remind you to go steady by weighing in all of the variables. With someone covering your back, you have a better chance to prevail.



How to choose the right co-founder


First and foremost – approach your quest of finding a co-founder just as you would finding the perfect soulmate for a long-haul relationship. Remember, you will spend the next 5-10 years alongside this person, so, basically, you are looking for someone close to marriage material.


“When selecting a co-founder, keep in mind this is a person you spend the most time for the next 5-7 years, more than with your family. Give feedback to each other. We shop a Costco together and talk often to restock our groceries at the office”

Ankush Gola, Co-Founder at LangChain


However, a co-founder needs to be much more than that. Paul Jackowski, CEO of Asper Brothers startup development studio, says: It’s crucial to understand that finding the right co-founder goes beyond shared history or complementary skills; it’s about aligning ambitions and aptly anticipating growth trajectories.


1. Co-founders should balance each other out


A startup is more likely to succeed with two or more co-founders with complementary skills. Just like in a regular relationship, you don’t want someone who is exactly like you. Diversity is key.


For instance, it’s very common to have one co-founder with an all-round business mind who is ignorant in terms of technology, and the other who is tech-savvy and knows almost everything about design and development.


Just as it is for hard skills, the same goes for the co-founder’s soft skills: it’s important your team has different kinds of character and personality.


Having a co-founder extrovert, for example, helps when you need to pitch the product to your investors or engage in networking to further expand the team.


At the same time, having two or more extroverts may create a rather loud atmosphere and lead to burnout or everyday quarrels. Finding the right balance is imperative if you would like to have an ideal space for creative thinking.


2. Look for exceptional leadership skills


Not all-star players have what it takes to become team leaders. A person has to have the quirkiness and power to motivate and inspire. They have to have social, emotional, and cultural intelligence.


When considering partnering with a co-founder, lean your conversation in a way so you can recognize whether they have the traits of a good leader. Ask about their previous experiences and try to understand their mentality and way of thinking.


3. Little to no fear of failure


Just as product and business strategist, Reid Hoffman, says:


Building a company is like jumping off a cliff and building an airplane on the way down.


Just because you spent a year developing a product and it all went down the drain, doesn’t mean it wasn’t a meaningful experience. Every failure is a lesson learned. You need to find a co-founder willing to explore the extremities of bringing your idea to life.


4. Search for a ground-breaker and out-of-the-box thinker


According to Mike Templeman, the founder of Foxtail Marketing:


One way to be a trendsetter is to think like a consumer. What products or services would you love to see?


When looking for an impactful co-founder, you need to find someone who likes exploring uncharted territory. Someone who can analyze problems and come up with extraordinary solutions.


Steve Jobs’ first iPhone presentation sums it all up:


Every once in a while a revolutionary product comes along that changes everything.

1984: We introduced the Macintosh. It didn't just change Apple. It changed the whole computer industry.

2001: We introduced the first iPod. It didn't just change the way we all listen to music. it changed the entire music industry.

2007: An iPod. A phone. An internet communicator. These are not three separate devices. This is one device. Today Apple is going to reinvent the phone.


You are looking for a person able to come up with these kinds of ideas. You are searching for a trendsetter – not a trend follower.


5. Reaching for excellence, not perfection


Your end game is to create a solution that is 10 times better than the competition. Find a co-founder who is as passionate about the product as you are.


However, the pursuit of high quality often leads to a perfectionist mindset which many say can be a killer for entrepreneurs.


Dani Olliffe, Founder Wellbeing Associate of Founders Taboo, a mental health and well-being online portal for entrepreneurs, powered by SuperCharger Ventures, says:


Instead of striving for perfection, strive for excellence, as in pursuing high levels of quality and ensuring good standards across the board.


Even a little thing can throw a customer off. So you need to make sure you cover all the bases from functionality to user experience and customer service. Everything needs to be top-notch.


Obsessing over details and striving for excellence is a great recipe for success. Find a sous-chef who can follow it.



Where do you find a co-founder?


Without a powerful professional network, finding a co-founder becomes tricky. But no worries, we’ve got you covered! We’ve gathered this list of places where you are sure to find the best match to co-found your startup together:

  • Reddit: there are many subreddits where you can find co-founders, to name a few: r/cofounder, r/SideProject, r/Entrepreneur, r/EntrepreneurRideAlong

  • YC co-founder matching service: YCombinator offers a co-founder matching service where you get matched with other entrepreneurs based on your interests, skills, location, and more.

  • CoFoundersLab: one of the biggest entrepreneur networks out there, with over 600,000 members. The platform allows you to find and connect with like-minded co-founders using AI matching.

  • StartHawk: on the Find a Co-Founder Page, you can find hundreds of entrepreneurs who are on the same quest as you are – looking for a business partner.

  • Indie Hackers: has a group dedicated to helping people find their business partners, called Looking to Partner Up. It may prove to be a great place to start your search journey.

  • FoundersList: a networking hub where you can join various discussion groups, browse upcoming events, and connect with other entrepreneurs.


How to formalize your relationship with a co-founder


First things first. Once you choose the right person, your relationship with a co-founder needs to be documented in writing. This way, even if things go sideways, you can rely on the stipulated terms of the co-founder agreement to regulate the situation.


The agreement must be clear and concise. At the bare minimum, you have to establish:

  • Co-founder roles

  • Co-founder responsibilities

  • Co-founder rights

  • Division of equity

  • Company shares vesting schedule.

We recommend using Panda Doc’s co-founder agreement draft, as it contains the essential segments that are most frequently included in these types of documents. Using this template, you may avoid the need to acquire legal services for the task.


This is not legal advice and consulting with a lawyer is still advisable when drafting/signing co-founder agreements.



How to split equity with your co-founder


But how do you split equity? You might ask. Surely, you have already done some homework and stumbled upon many resources on the web claiming it’s a no-brainer, and all you have to do is make a 50/50 split.


After all, you are launching a company, together, as founders, right? An equal share will be just fair, right? Wrong.


Dan Shapiro, CEO and cofounder of Glowforge, the iconic 3D laser printer, and formerly CEO of Google Comparison and Robot Turtles, a bestselling board game in Kickstarter history, says:


Splitting equity 50/50 is the only wrong decision you can make.


50/50 is more of a foolish compromise, than a business decision. Splitting equity is the first business decision you make together as a team and you need to face this challenge head on. So what’s the right way?


Defining what a co-founder is worth


Actually, there is no one right answer here. It all depends on what your co-founder brings to the table and how much they are involved in the startup’s life.


So what is a co-founder worth and how do you determine their value? Here’s a great formula suggested by Dan Shapiro:

  1. To start out, give every founder 100 shares.

  2. If you’re the one who gathered the team, add 5% to your tally.

  3. The CEO gets a higher share (+5%). It’s just the way the market works.

  4. If you envisioned the concept, grace yourself with another 5%.

  5. Making a first significant step like performing a demo or launching an early version of the product adds 5% to 25% to a co-founder’s holdings.

  6. Full-time co-founders are much more valuable than part-time partners (+200%).

  7. Co-founders with a reputation (serial entrepreneurs) make your startup more attractive to investors. Allow them to take an additional 50%-500%.

Summing up: After you get the number of shares for each co-founder, sum up their figures to get the overall number of shares and divide each co-founder's holdings by this number, so for instance:


If you got 200/150/250 for three founders, add this up to get an overall 600 and divide each number to get an ownership percent for the founders:


Founder 1 = 200/600 = 33%.

Founder 2 = 150/600 = 25%.

Founder 3 = 250/600 = 42%.

Easy-to-use equity-split calculator from Founder Institute

Al Bsharah is the Managing Partner at Interlock Capital, a community-driven startup fund that allows seasoned or aspiring angel investors to get into amazing companies within their own budget. He successfully graduated from both Techstars and Founder Institute where he now mentors.


He and his partners did profound research on how equity should and shouldn’t be split among founders. Together, they sat down and outlined the aspects and contributions they felt were important in business partnerships.


Their spreadsheet provides a more comprehensive formula and does all the calculations:



According to Carta’s Head of Insights, Peter Walker, their study of 7,764 US companies showed that only 41% of 2-founder companies split the initial equity 50/50.


Here’s what Carta’s data shows for the median equity split in teams with 2 to 5 co-founders:

  • 2-founder teams: 55% and 45%.

  • 3-founder teams: 47%, 33%, and 17%.

  • 4-founder teams: 40%, 27%, 18%, and 10%.

  • 5-founder teams: 35%, 22%, 17%, 12%, and 9%.

If you need a deeper dive into how to better manage startup equity, jump to Founder Institute's expansive YouTube webinar:




Defining a vesting schedule


Having a vesting schedule means that co-founders earn their shares over time. It’s a great protection veil against situations when one or several co-founders decide to leave the company at a nascent stage.


A vesting schedule is established in the co-founder agreement. If the co-founder leaves early or does not perform to the agreed-upon standard, the unvested shares are to be re-purchased by the company.


What is the optimal vesting schedule for a startup?


For years now, the industry-standard vesting schedule for startups has been 4 years with a one-year cliff. This means that after one year of service (the cliff), the co-founder acquires a fourth of his shares.


After the cliff, 1/36 of the remaining granted shares (1/48 of the original amount) is attributed each month until the four-year vesting period is over. After four years, the co-founder has the rights to all of his shares.


Is this the best way to vest your shares? The answer is no.


4-year vesting schedules are obsolete


The four-year vesting schedule dates back to the 80s and has no relevance in 2023 and beyond. These days, a four-year vesting schedule is nothing but a sure way to harm your startup. Why is that?


It’s because a free-rider can run away with their share of the company just as they complete their vesting obligations, without any intention of following through with the promise to deliver the company to a successful exit.


A long way from the average 4-year period back in 1999, companies now take at least 7-10 years to reach an exit, so there’s no reason not to adjust the schedule accordingly. Experienced serial founders have already caught on to this revelation and left the 4 to 5-year vesting in the rear-view mirror.



Conclusion


In many ways, your peers determine who you are and who you will become. That’s why it’s important to surround yourself with the right people: like-minded individuals who share your views and beliefs and motivate you to move forward.


Choosing the right co-founder is just as challenging as finding yourself. Look into your inner world, identify what’s there and what is missing, and look for a person who compliments your persona. Hopefully, our guide helps you on this path.



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