In the evolving startup landscape, the founders and co-founders are witnessing changing investor demands and a challenging fundraising environment. Additionally, the tech industry has faced mass layoffs in the past few months.
Crunchbase data shows that seed and angel investment to U.S. startups fell 45% year over year in the first quarter of 2023 to $3.1 billion. The seed and angel investment in the U.S. is currently experiencing the lowest quarterly amount since the fourth quarter of 2020.
Finding the right people for your company was never more critical than today. Having the right co-founder is as essential as having the right product. It is not just because you can not have all the necessary skills to fulfill your business needs and vision. But having a partner or partners that supplement your skillset is also vital to securing angel or seed investment. Later on, it can become an absolute requirement for long-term success.
Who is the founder?
The founder is the one who recognizes a market need or identifies an opportunity. So, the person who drives the business idea and develops the vision is primarily the founder. The founder determines the business model, product, or service and how to make the startup profitable in the future.
The founders must decide early whether they want to deal with the company alone or involve a co-founder. There were a few cases when a solo founder achieved massive success. One of the most famous stories is Jeff Bezos, who was a solo founder. Although there was no co-founder in the case of Jeff Bezos, he did not build Amazon alone. He had a strong team with several co-creators, including early employees such as Paul Davis, who oversaw the back-end development for Amazon.com.
Launching a new company is a massive challenge, both mentally and emotionally. So it’s unsurprising that a solo founder did not establish the most unicorn companies. In most scenarios, founders with profitable ideas seek a co-founder to complete their skill sets.
Who is the co-founder?
While the founder may have the idea and vision, they may need more and different resources, skills, or expertise to make it come true. This is when the co-founder comes into play. Depending on the American or British usage, people refer to it as co-founder, some as cofounder, but it is essentially the same.
In general, the co-founder has the skill or specific resources that the founder needs to implement a business plan. It can be a technical skill, experience, and industry knowledge. Co-founders usually have an active and decisive role in the business, and the co-founder might be involved in a broad scope of duties.
Depending on the co-founder’s expertise, role, and the startup’s industry, the co-founder can be responsible for product development, business planning, financial decisions, and hiring employees.
Pros and cons of having a co-founder
There are many upsides and downsides to having a co-founder on board. Before deciding, you must consider what skills and resources you will need to build up a successful business in the chosen market. Making the right decision early on whether you need a co-founder is critical. You must ensure to have a clear resource management plan until you can hire your first employees.
Where to find the right co-founder?
Probably the best and easiest way to start looking for a co-founder is through your network. It can save time and effort as you already know these people and have mutual trust. You do not need to get to know each other’s personalities from scratch and already have an idea about the potential co-founder’s attitude and professional background. These people can be your friends, friends of your friends, fellow university students, or colleagues from previous jobs.
Social media platforms like LinkedIn, Twitter, Facebook, and Reddit can provide opportunities to connect with your future co-founder outside your circles. To find a co-founder on these social platforms, you can use hashtags related to the industry you want to start a business or join groups.
Startup-focused events and conferences are other options for meeting a potential co-founder. These events often provide networking sessions, discussions, and workshops where you can meet with people with similar interests.
It is like Tinder for entrepreneurs. These platforms are virtual hubs for thousands of founders, co-founders, and entrepreneurs. One of the key advantages of these matchmaking sites is to allow entrepreneurs from different corners of the world to connect and collaborate.
StartHawk’s online platform is dedicated to helping startup founders meet their co-founders. You can create a free profile on the site by giving information about yourself and your business idea. After completing your profile, StartHawk’s algorithm shows you potential matches based on your profile and needs.
CoFoundersLab is another network for entrepreneurs seeking co-founders, mentors, and advisors. Using the basic plan, you can contact a maximum of 5 co-founders monthly. However, to reach an unlimited number of possible co-founders and access other features, you must pay for the premium membership, which is $299 per year or $29 per month.
Startup School is a Y Combinator project that offers startup founders free online training. It can help match you with co-founders based on your preferences and skills. You can browse through all the profiles that match your priorities or search others and send messages to connect with anyone whose profile interests you.
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Keys to successful co-founder relationships
The only way to ensure you can work closely together is to start a trial project. A timeline, a tangible and clear project goal, and a scope of work are essential to measure how you can work together. The risk is always there, but having a trial project together can significantly lower the chance of choosing the wrong co-founder to join your company.
Shared vision and goals
The co-founder should have the same vision for the startup’s future. It is crucial to agree on long-term goals, values, and the overall direction of the business. Such a shared vision helps make strategic decisions and ensures everyone works towards the same objective.
Defined roles and responsibilities
It is valid for every work that you should have a clearly defined role, position, and responsibility to avoid confusion and possible conflicts in the future. It is especially true for the leadership team, as specific parts of the organization will be under their control in the future.
Therefore, the founder and co-founders should have a defined scope of responsibility and accountability. Agreeing on the roles early helps streamline operations, avoid disputes, and maximize productivity.
Conflict resolution and decision-making
Conflicts will be inevitable when launching and operating a business. The key is to handle these situations constructively.
Setting up processes to resolve conflicts and make decisions together should be a priority early on to avoid any unnecessary disputes in the future. Every founder and co-founder has to be able to listen to each other’s perspectives and use data-driven approaches.
How much equity should you give to a co-founder?
Determining the appropriate amount of equity to give to a co-founder is a crucial decision. It can impact the startup’s stability, fundraising success, and overall performance. While there is no one-size-fits-all answer, several factors should be considered when determining the equity split.
Co-founder contribution and agreed salary
Considering the skills, expertise, experience, and network the co-founder can bring into the business is an excellent way to assess the equity ratio. Finding the ideal balance between the agreed salary and equity ratio based on industry benchmarks is also necessary. This can also give you space to lower the co-founder equity in exchange for a higher salary.
Evaluating the co-founder’s role in your business model and industry is also a factor that should be reflected in the equity split. Suppose the co-founder is a tech person, for example. In that case, you should also consider that a person can be easily recruited with a high salary by a well-founded competitor or a company that is just simply bigger.
Company’s future funding and risk mitigation
It is essential to balance the initial equity split by considering the possibility of additional investment. Venture and angel investors typically want to see the founder have more than 50% of the equity at the beginning.
Click to read more on how to secure pre-seed funds for your startup.
Once you agree on the equity split, it is time to implement a vesting schedule. The vesting schedule outlines how you and the co-founders will earn the equity over time. This helps co-founders to remain committed to the business. It is also common for investors to require the founders and co-founders to start the vesting schedule or start it again.
Next steps to build a successful business
Finding the right co-founder is a long process. Having a trial project together and deciding the responsibilities, positions, and equity split requires time and patience. But remember that after agreeing on these points, it is time to do the legal paperwork and have all the arrangements signed.