Long-Term Perspectives on Co-Founder Relationships
As Paul Graham and others have often emphasized, startups aren't just about innovation and growth; they're about people. More specifically, the core group of individuals that sets the course for the entire venture: the co-founders. And a startup's success hinges significantly on the quality of these co-founder relationships.
From my countless interactions with first-time founders, I've observed a recurring theme of concern over equity split and co-founder vs founding team member conundrums. The recurring trap is focusing too much on the rearview mirror, giving weight to past experiences, skills, and effort spent in the past few months. But we must understand that co-founder equity isn't a reward for past work; it's a commitment for the journey ahead.
1. Equity: A Forward-Looking View
Rather than a retrospective analysis of contributions, the equity discussion should be future-oriented. The question isn't about the effort already put into the venture, but about the work still required to propel it towards success. If this equity is going to be worth anything one day, the company has to be successful, which in the world of startups is exceedingly rare. So when you're deciding on equity splits, think of the future hurdles that need overcoming and the value each potential co-founder brings to those challenges.
2. Equity: A Question of Not Getting Stuck
The essence of equity isn't merely financial compensation; it's about decision-making power and not getting stuck. It's more important that some decision is made, than the right decision is made. And equitable distribution of decision-making power fosters an environment where decisive action can be taken in times of disagreement.
Thus, the smoothest sailing co-founding teams have one person who can veto and make the call in times of disagreement. E.g., 51-49% equity splits for two co-founders, or 52-24-24% equity splits for three. (This is also why co-founding teams of two have greater success than those of 3 or more).
That being said, disagreements slow the whole team down and you want to make sure they're rare. So it's crucial that co-founders align on decisions independently at least 90-95% of the time; if you're persistently at odds, co-founding together may not be worth the struggle.
3. The Double-Edged Sword
Being a co-founder isn't merely a badge of honor; it's a weighty responsibility. If someone seeks a co-founder title and significant equity, they should understand that they're committing themselves to the company, come rain or shine. It's a promise to weather every storm, no matter how dire.
A co-founder departing (for whatever reason) leaves a strong negative impact on the company's morale and perceived health. So, if a prospective co-founder wishes to maintain their career's fluidity, they should consider a role as a founding team member.
4. The Organizational Growth Perspective
A co-founder relationship fundamentally differs from a founding team member one. A co-founder typically watches the organization grow under them, while founding team members often see the organization grow over them. So when deciding roles, one key question to really dive deep on is whether the individual desires managerial responsibilities or prefers the role of an Individual Contributor (IC).
5. Betting on Ambition
Given the choice between experience and ambition, always favor ambition. A less experienced individual with a burning desire to become a CTO may be a better long-term bet than a seasoned CTO with little to no drive. (The ideal scenario, of course, would be an ambitious person backed by robust experience, but you probably can't afford these people).
6. The Vesting Safety Net
Equity distribution need not be an irreversible decision. If a co-founder's grant ends up being oversized, their vesting schedule can be paused or reworked. If the individual fails to deliver, the hard conversation of a role change or even a parting of ways might be necessary.
In conclusion, co-founder relationships are long-term partnerships that require forward-thinking, shared control, commitment, and a healthy dose of ambition. By considering these perspectives, founders can construct a resilient foundation, ready to weather the storms that will undoubtedly arise on their journey.