EXPEDITION TEAM

jack of all, master of none

You will ultimately need a co-founding team if you are going to launch your idea into a product, build awareness, grow, measure your impact, iterate, create a business, reach product market fit, scale and land an exit. In fact most investors require having a solid team in place before they even consider investing. In this guide, we explore how to put together an Expedition Team of founders to execute and formally launch your mission. We will also explore best practices for distributing equity and formalizing agreements to protect everyone’s interests.

Co-founders compliment

So what makes a good co-founder? Shouldn’t you want just a clone of yourself? While you may think finding someone like you would make a great co-founder, you would end up conflicting on about every decision and not gain any new skill sets for your team. Therefore, the best co-founder(s) compliment your personality and skills. But how do you know whether someone effectively compliments your skillset? There are 3 archetypes which represent the fundamental co-founding skills. These are the problem solver, builder and storyteller. Perhaps there are other archetypes that contribute towards a rockstar team, but from my experience these three are essential in the early stages of a startup. Let’s take a closer look at each one. 

The Problem Solver

The problem solver can look at complicated situations and break them down to understand the mechanisms that lead to different outcomes. They can listen to customers/users and collect feedback to synthesize patterns of opportunity. Finally, they can design solutions leveraging existing tools and resources already available. This archetype is generally represented by the COO, CPO, product managers and UX designer roles.

The Builder

The builder is able to architect, develop and ship quality experiences from design specifications. This archetype is generally represented by the CTO, software developers, engineers, and architects. The Builder is an essential archetype for tech products, who typically is the first co-founder, assuming you are not a Builder.

The Storyteller

The Storyteller is able to tell and sell the story of how an experience solves a problem. This storytelling engages investors, other co-founders and team members, partners, and ultimately customers. This archetype is generally represented by the CEO, CMO, business development, sales and marketing roles. 

The proverbial whole of your team should be greater than the sum of all the parts. If you identify mostly as a problem solver and builder, you will need to find a co-founder who is an excellent storyteller, and vice-versa. In addition to having complementary personalities and skills, there are other essential qualities to look for in a co-founder. 

Co-founders share Core values

Not everything should be complimentary when evaluating a co-founder. The fundamental qualities that all co-founders should share are values. Everyone’s values will vary, but the important thing is to ensure any co-founder candidate shares your values. Examples of shared values for co-founders include commitment, communication, accountability, and trust.

Commitment

Commitment is the willingness to invest the necessary time and money to achieve your mission. If you are not willing to show your commitment of going all in and investing the means to achieve your mission, why should others follow you? Thus, it is important to lead by example if you want others to join you as a co-founder. Additionally, there may be a time where financial investment may need to be shared. If the upsides of success are going to be shared, it is important to have a co-founder who will share the financial costs to get there. 

Communication

Communication is all about making others aware of each other’s respective world. You will be spending everyday working with your co-founders. This means there will be a lot of collaboration and communication required in your relationship. It is important that you find a co-founder who clearly communicates often and early so that you are aware of what they are working on and how it relates to your role and work. If you have to constantly pull updates or information out of someone because they are keeping everything to themselves, they are likely lacking communication skills. This dynamic will eventually lead to misunderstanding and a dissolving of the relationship. 

Accountability

Accountability is about keeping your word and owning up to any agreements made. You want to find a co-founder who will not just talk the talk, but rather will walk the walk. Ideally, you want more walking than talking. Someone who under promises, and over delivers. When they are not able to come through on a commitment or agreement, they own their word and make you aware to manage expectations. Additionally, accountability is about acknowledging any shortcoming, learning from failure, and improving to be better.

Trust

Trust is created from being transparent, honest and genuine. This may be one of the most important qualities in a co-founder. At the end of the day you will need to trust your co-founder. While trust is not always earned right away, you will need to trust your co-founder(s) and they you. Honesty will be the ultimate currency in your relationship. Warren Buffet famously said, Honesty is an expensive gift. Don’t expect it from cheap people. 

Often times these qualities become foundational values for the company that all stakeholders are expected to uphold. These shared values create the company culture. When interviewing future employees, it is this cultural fit that you are looking for. While values are personal and unique to everyone, the aforementioned values are critical to look for when evaluating a co-founder. 

Friends and significant others

If you are considering a friend or significant other to be your co-founder, it is worth reconsidering. The stress of a startup could alter the course of your relationship. You will need to make difficult business decisions while navigating the startup journey ahead, and friends and significant others may cloud your ability to make the right judgement. Thus, it is a good practice to make the decision early who to get in the startup spaceship with.

Co-founders don’t grow on trees

So where can you find a co-founder? You may meet your co-founder in the least expected places. As I mentioned in the previous guide, the key is to socialize your idea and network with as many people as possible. Perhaps someone you meet may not be a great fit for a co-founder but they can open their network up to you and connect you with someone who could be a candidate.

If you are looking for a technologist who is a Builder, then you need to go where Builders are. Every city has a tech community where technologists like to gather to learn about the latest tech. Not everyone is an extrovert and enjoys being social, but sharing your passion about your idea with others is a critical step towards expanding your network and finding a co-founder.

Case in Point

In 2012, I was flying to Nashville for Thanksgiving. Sitting next to me on the plane was a guy coding away on his laptop. I asked him a few questions about what he was working on, and had told him about my recent journey into teaching myself how to code. I could tell he was introverted, but we continued chatting about tech and startups. He told me that I should meet his friend Geraldo when I got back to NYC. I agreed to being up for such and exchanged emails.

When I got back to NYC, I met up with Geraldo. We both shared a similar passion for entrepreneurship. He had started a couple companies and worked on a lot of tech products in Brazil with his other partners. I was impressed and inspired by the risk he and his business partner, Assis took when moving from Brazil to NYC. When they arrived, they both shared the same air mattress on an apartment floor, just to afford living in NYC for the chance to make it as entrepreneurs!

I then moved to Amsterdam for a few months on an international project. When I returned to NYC, I realized that if I was going to start something, now was the time, as I now had a basic understanding of tech startups, I had taught myself how to code, and I had enough saved up to afford at least 6 months of rent. So I decided to take the plunge again…

I found purpose in a new problem to solve while teaching myself to code. I often needed a mentor to help me squash bugs and get unstuck, but they were often not available. I knew others had this same problem. There were tons of coding bootcamps popping up, all charging tens of thousands of dollars. There were so many others like me who wanted to learn how to code without investing a college tuition worth of money. The initial idea to solve the problem was to build an in person mentor community, where you could meet up at a coffee shop or brewery to swap skills. The basic idea was: “You teach me web development, I teach you something I know”. I coined it “Let’s Brew It”.

As I began on this new journey, I decided to catch up with all the people I met in the NY Tech community. I met up again with Geraldo and I told him all about my new idea. He and his partners were working on a new delivery model. They were doing web development work for clients, and any cash earned from such would go towards funding their own product ideas. He liked my idea and said that he would talk to his partners about me joining them and helping out to build it.

I began working with Geraldo and Assis at the WeWork in the financial district. As we spent more and more time incubating the idea, it became clear that we were all more interested in building a product compared to selling and delivering client development work. The rest was history. Geraldo, Assis, and I officially became co-founders. We raised money, built a team that, and built a company called HackHands. HackHands would eventually evolve into a new platform for programmers to get on demand help from a mentor community of experts spanning the globe. We grew to help hundreds of thousands of programmers get help, and partnered with the likes of GitHub, Microsoft, and GeneralAssembly. We later sold HackHands to Pluralsight, an enterprise training platform that would eventually go Public.

All to say, you never know where you will find your next co-founder. Sharing your idea, telling others what you are working on, and networking was the second big lesson I learned in entrepreneurship. Without doing so, I would have never found my co-founders. All from that one conversation with a stranger on an airplane.

unicorns are not real

Does the perfect co-founder really exist? No, they don’t. Co-founders are human. Your soulmate co-founder is not out there waiting for you to find them. You may not be able to find a co-founder that compliments you perfectly or has every quality you want in a partner. Rather, you will need to accept the best possible candidate who will be willing to join you in your mission. So here are important steps to protect your interests when courting any potential co-founder:

1. Get references for a co-founder from their previous partners or employers

2. Work with this person via a trial period (test drive the car before buying it)

3. Protect your interests with a Founder’s Agreement

4. Hire fast, fire faster

If you have found someone who represents the qualities of a co-founder, a partnership is likely only going to happen if there is an equitable incentive. Equity can be a very tricky subject when forming a partnership, so let’s further explore some best practices to consider. 

Equitable Equity

There is a school of thought that goes like this: preserve as much equity for yourself as possible. As a first time founder you likely will not have this leverage. Equity literally means fairness. Potential co-founders are not going to be willing to give up well-paying, less risky opportunities for a sliver of a risky venture. Thus, you will need to hand over equitable equity. The equation for what is fair will come down to the amount this person is incentivized by to join you, and whether you believe this amount is worth giving up to secure said person. The best way to think about splitting any pie is to ask whether you want the majority of a pie that is cold and not fully baked or a filling slice of delicious warm baked pie. It is important to agree on overt and objective equity amounts early before the pie is put in the oven. This will help prevent covert behaviors and claims of larger shares after the fact when the proverbial pie is fresh out of the oven and now deliciously valuable. Now that you have agreed on sharing an equitable piece of the pie, let’s go over how to formalize any equity agreements.

Agreements between founders

The first step upon getting into business with a co-founder is to make an official agreement. Founders Agreements are typically the first step for formalizing any legally bound agreements. If you have already incorporated as a legal entity, you may have already established an Operating Agreement. An Operating Agreement often governs the essential duties, rules and responsibilities for those who are operational in the company. If not, an Operating Agreement is not necessary until a legal entity is formed. Thus, before incorporation it is wise to create a Founder Agreement as it governs any agreements made between founders. While there are many templates for Founders Agreements online, terms for the vesting schedule of equity should be included in your agreement at a minimum.

Vesting Schedule

Being ‘vested’ in layman's terms means when the equity is available. Generally, equity is locked up and only available as it is earned over time. There are three important terms when making equity agreements. The first is called a cliff. A cliff establishes the minimum amount of time someone must stay involved in the operations before they can vest any of their equity. Cliffs are typically at least 1 year in duration. The cliff would prevent someone from joining your startup and then leaving after a few weeks and taking the entire agreed amount of equity with them. 

Equity typically vests over a 4 year window. If such is the case and there is a 1 year cliff, that would mean earning 25% of the agreed upon equity after staying for 1 year with the company. After the 1 year cliff, the equity could then be agreed to vest monthly pro rata. Thus, after 1 year and 1 month with the company using the 4 year schedule, someone would be vested 27.78% (25% + (1/36)). 

Last, acceleration of a vesting schedule is when there are specific events that could happen in the future to trigger unvested equity to vest immediately. This could include a liquidity event such as an acquisition or IPO. Typically, acceleration should only occur when there is a liquidity event, but it can also be used to structure incentives and performance milestones.

Other Agreements

Other items to consider including in your founder or operating agreements include:

• Invention Assignment

• Non-compete requirements

• Capital contributions from co-founders

• Expenses and budgeting expectations

• Management and approval requirements

• Essential duties to the company

• Resignation and removal requirements

• Requirements and actions for dissolving the company 

Cap Table

The capitalization table generally lives within a founders or operating agreement and lays out what percentage of ownership each member owns. The cap table will ultimately track dilution of ownership as more interests and ownership are involved. As a rule of thumb, there are three simple ways you can keep your cap table clean to make your life easier down the road. 

Keep it Simple Stupid (KISS)

You don’t want to have to explain your cap table to future investors or acquirers. Thus, be aware of keeping your cap table simple from the beginning. If you can avoid it, do not give equity to any shell company, agency or group in exchange for services. One exception to this would be a strategic accelerator or incubator. Rather, only have individuals directly involved in your startup as equity holders on your cap table (ideally co-founders).

No Significant Others

This is a red flag for future investors and co-founders. A significant other as a shareholder is essentially a way to preserve more equity for yourself. The only exception to this is when your significant other is truly a part of your startup operation (again as a co-founder).

Option Pool

Set aside an option pool for future employees. This should be around 10% of the shares. This will make your life easier in the future should you make it to the stage where you need to hire employees.

Issue Enough Shares

Your cap table breaks down the overall ownership of the shares that have been issued. These are scarce units that calculate each shareholders percentage. If you only issue 1,000 shares, and 100 are left for future employees, you only have 900 shares less your ownership of shares to allocate. Assuming you own 50% of the company, you are left with 450 shares to allocate to future co-founders. Thus, from early on, your cap table should have at least 100,000 shares. Even this amount is likely to require the issuance of more shares. When issuing more shares, you will always need to pro-rata ownership of new shares or you risk dilution of ownership for shareholders. Thus, 1-10 million shares will suffice as significant shares issued to work with.

Avoid lawyers when possible

It is likely unnecessary to spend money on lawyers at this time to either assist in the incorporation or formation of agreements between co-founders. There is simply too much uncertainty pre-launch of your idea. Lawyers can charge thousands of dollars to get each founder on board into the company. There are many boilerplate agreements, which can formalize and legally bind any agreements you would have between other founders. Wait till your company is sufficiently capitalized before paying for lawyers to bless any agreements. You are likely going to change aspects about your company’s equity and formation anyway. Assuming the company is incorporated, you can also have a Consulting Agreement between a co-founder and the company. This can include equity and compensation in exchange for service commitments, disclose invention assignment, and cover any necessary non-disclosure requirements.

Board of Directors and Governance

Good governance is important to have in any organization. Depending on whether there is any incorporation, a Board of Directors (Board) may or may not be established. The Board governs the leadership in place. Thus, it is a check and balance for the CEO and management team. Therefore, the board is accountable for the ultimate decision-making of the company. It is important to decide whether co-founders should be members of the Board. As a best practice, it is best to have You and only you as the single Board of Director in the beginning. You will typically need to give up a Board seat upon raising capital from investors at some point. There could be some strategy to include another co-founder as a member of the board to protect founders. However, at this point it is unnecessary to do such. The Board is voted in and out by shareholders. Should the common stock of the company ever be issued in a way that you as the sole Board of Director are no longer the majority shareholder on the cap table, know that there is risk that you can be replaced as the sole Board of Director. You could then even be replaced entirely and fired as CEO of your own company.

Hiring employees

All this time we have been talking about finding a co-founder. What about hiring employees instead. In a perfect world, you would have an abundance of capital to conserve all of your equity and just pay very talented employees to help get your project off the ground. Unfortunately, most entrepreneurs are already taking enough risk to leave the comforts of a stable paying job and don’t have the cash on hand to pay for other employees. Once we have launched and have raised capital either from outside investors or generated revenue from our operations, we can consider hiring employees.

Expedition Team Checklist

In this guide we discussed best practices for finding and selecting co-founders that compliment your personality and skills. Additionally, we discussed pointers for distributing equity, and formalizing agreements that will protect all parties and preserve equity should a co-founder not work out. Thus, we have explored entertaining a partnership to share the risk and help get us to the next level of lift off. In the next guide we will understand how to establish a Ground Control made up of investors, advisors, and community to help us make a successful launch. When you find a potential candidate to co-pilot your launch, use the following checklist: 

1. Find a partner who is also able to find purpose in your mission

2. Evaluate whether their skills and experience compliment yours

3. Ensure this person’s values align with yours

4. Get a reference from previous employers or others in your network

5. Establish a trial period to evaluate if you truly enjoy working together

6. Agree on an equitable equity stake that will incentivize them to help you get to the next level

7. Discuss, document and agree to the governing rules (Founders, Operating and or Consulting Agreement(s))