Establishing Your Founding Team
Take this seriously, and think about it as a clear and distinct decision. Picking the right founding team and frankly discussing “who gets what” early on in a venture’s life cannot be overvalued.
Read on for some thoughts on who should be a founder, how many founders is too many, and how the company should be divided between founders.
Who Should Be a Founder? How Much Should Each Founder Get?
Bad partnerships and ill-conceived founding teams can be the death knell for an otherwise promising young venture. While frequently, especially in hindsight, the right decisions around forming founding teams seems to be a matter of common sense, in reality these decisions are often made without much critical thinking.
With a few simple exercises you can at least minimize the chances of a founder dispute/disaster down the road.
- Do not, I repeat DO NOT, take the decision of partnership lightly. A casual, accidental partnership can work, but so can a one-night-stand-turned-wedding. It is undoubtedly playing with fire.
- Write down what you bring to the table and what might be ideal to have in a partner. This should include things like skillsets, commitment level, expectations for success, thoughts on failure, and many other things that will be specific to you and your venture.
- Talk openly with potential partners about anything and everything.
- IMPLEMENT A VESTING SCHEDULE from the get-go. A vesting schedule is a great mechanism for ensuring that motivations stay aligned and also provide a natural mechanism for allowing people to go separate ways without devastating a venture.
- Try to have some intellectual honesty around how valuable existing assets are (things like IP, know-how, experience, a strong network) to the business today versus how impactful they are in the grand scheme of a ventures success. A great idea is worth very little — people have them everyday and take them nowhere — without great execution and (usually) perseverance. So think about it upfront. How much of the value is really in the idea versus the execution. What are the implications for the ownership structure of your company?
- Realize that evenly distributed partnerships across a large number of people almost never work out. If you have a six person founding team and are thinking that it will be easiest to all have equal shares…think again. Even four founders with equal shares can be a tricky thing to manage as a venture grows. Practical problems arise around who is in charge, who can overrule who, and maybe most importantly things can get slowed down when everything is a committee decision — definitely no way to run a startup.
A great resource for learning about “Founder Frustrations” (many of which stem from bad partnerships) is Noam Wasserman’s blog. He does real research on the topic and it is definitely worth a look.
Negative Ownership Stake
The founders are showing a negative ownership stake! Can this really happen?
Well, no, not exactly but this is really for conceptual illustration purposes. For this to have happened, the founding team would have to destroy significant value in the company after raising money; and while this doesn’t mean that you have to write the venture a check, it very likely means that you will be in danger of losing your job.
In reality, when this happens there will be a restructuring of othe company and if the board of directors still believes in the founding team they will be issued enough shares (or options) to motivate them to turn the ship around. In any case, we recommend trying to avoid this situation.
