I am at the point where I need a co-founder / team member to join my startup. I am right now by myself. I am a coder and created a prototype so far. I want to be very careful of who I hire to my startup venture and I am aware of vesting and cliff vesting options. However, right now i am in the stage of proof of concept and not sure if my startup is even worth to pursue in a month, year or two. So, therefore, I wanted to ask here the community on how you would approach this.
I was thinking the following. I was thinking to be straight and honest with my potential partner. I would tell the person to give him a one year period to prove himself that he is the right guy to join. So, whatever he/she contributes financially to the startup expenses, it will be refunded to him/her if i think that we are not a good fit after the one year period passes. So, the only time that he/she might sacrifice is time. The money will be giving back. After that one year i can make him/her 50/50 partner.
Is that something that sounds kind of right? Is this a good way to approach it in my situation?
thanks for your input guys.
I have a bad habit of joining startups for sweat equity. But I never invested any of my own cash UNLESS i wanted to. Say I needed a tool or to pay a campaign to make my life easier.
I still think time is one of the most valuable resources we have, the trial period should be like 3 months tops so you can get a feel of the person, offer a 10% and grow it to 50% a year in, so that person knows they're not putting in time and may not get anything out of it.
The big problem I see is if you ask him to invest money when there's no contract or hope for a future.
There are a lot of single founders out there also, maybe you need funding more than a partner?
Without knowing what you are doing, I think you need to ask them to invest time or money, but maybe not both.
I also think you need to have a better governance model to handling equity - can consider to negotiate starting contributions value (as-is) and allocate shares to that to both of you. Going forward, determine a fair wage for both of you and pay each other either shares (using same initial per share valuation) or cash for that wage until company can afford to pay all cash.
You've already got some
I agree that 1 year may be too long a period to get to know your potential partner. I am also assuming that you have exhausted your own network (and their network) and were unable to find the complementary skills that you were looking for.
I'd ask the cofounder to also invest money, in addition to time, so that they really have skin in the game.
If you offered me to pay back my investment if the business doesn´t take off I turned around and went straight away. Let alone in this context, if I got it right: I would invest my money and you decide after a year whether you “trust me/found with me” or you pay it back? No way.
When people invest money they expect a share otherwise they don’t invest (and please note that shares bought for cash are usually not subject to vesting). They also expect a reasonable investment and commitment from your side. This is not negotiable, and I can´t imagine an investor or business founder thinking differently about that. If one invests money in your company you have an equity partner immediately, not in a year from now after you decided to “trust him”. I´d be curious what others say but I have never heard about a constellation like this.
The bigger question is: Why should I walk away from my own idea and my current projects to work on yours? (Don´t tell me it´s a great idea; we´ve heard them all, believe me, there are a lot of very bright people in the world).
If your idea has the potential of solving a real problem persistently better than current and future competitors, if you show the necessary commitment, and if it is not all about earning money, then you may find an investor/co-founder. As far as I can read from your post, though, you may think to just hire a freelance consultant so you can decide later whether or not to “co-found”. That could eliminate a lot of headache for both of you.
You can not ask someone to invest their time/skills and money for a year! If they are really worth it, they wont ever join you. You need to consider a better sheet if you are looking for a co founder.
A year of sweat equity plus financial risk (effectively investment would be converted into a no interest loan) without the guarantee of any actual equity is a lot to ask of someone in my opinIon. There are quicker ways to determine if they are a fit as a cofounder.
Thanks Alin for your comment. I do agree with you at some point but here is my concern with the 3 months you mentioned as a trial period. I am aware that its a big gamble when you trust in a partner but I feel like its like a relationship. For me to get to know the person truly, it takes at least a year. The question is whether the person can prove enough within 3 months and wonder let's say if he does and then after 6 months not doing any work. That is why i thought 1 year would be safe in terms for me but I do also understand your point of giving the safety to that person.
In terms of the money, of course i have it planned to provide him or her something in writing that states that everything will be giving back to him in case it doesn't work out with us within a year.
I know its a tough thing to answer and I don't think there is one best solution for this. Funding now is for me right now not an option. However, i realize I need help on certain things to get it of the ground and then come to a point to ask for funding if it goes anywhere.
Hope this makes sense.