The BSList: You Need a Co-Founder (No. 93)
A recurring theme in a lot of my BSList posts is that, if an investor thinks they can make a boatload of money with you, they’ll go to all sorts of lengths to invest. That includes investing way earlier than they would normally, investing outside of scope, investing with their personal capital outside of the fund, etc. So when someone gives you a single, declarative reason for a pass, they’re either saying one of two things:
In my experience, companies that have this particular attribute have an outsized risk associated with them that isn’t in my view made up for by the potential return.
There are lots of reasons I don’t see the risk/return tradeoff in this company being worth a bet, but I just picked one because I don’t feel like spending the time to list all of them.
It’s your job as a founder to find out the specific risk associated with that attribute and to find out if the reason given is the only reason.
Does the VC think that a designer needs to be on the team from day one if you’re going to build a better version of Instagram? That’s fair.
Does the VC think that a machine learning engineer needs to be there to build a real version of Tony Stark’s Jarvis? Ok, I can accept that.
But if these people are willing to come on without the co-founder title, that’s between them, you and their employment contract.
Not everyone is motivated by titles—but keep in mind that if you do have these key people on the team, you should ask yourself what the downside is of giving away this title (and not necessarily double digit chunks of equity) just to make everyone feel special.
So, figure out what makes everyone feel bought in, figure out if you can afford whatever that is, and then go execute—and if they are bought in on the right thing, investors will come along no matter the titles everyone has.
In the case of VCs not liking solo founders, there are lots of counterexamples of successful solo founders, so it’s not like anyone has proven that you can’t win this say. There are, however, legitimate concerns that a VC might have with your team generally that the presence of co-founders might solve, but doesn’t always.
Let’s first talk about the definition of a co-founder. Technically, it’s a title. I could start a company, keep 99% of the common shares and give 1% to you, but call you a co-founder. I would control all the board seats and voting power, but you’ve got this fancy title you can put on your LinkedIn and use when you speak at conferences later after we IPO.
What exactly would that solve for? Probably nothing, because you’d basically just be an employee with a fancy title. However, you might feel invested like a co-founder by having the title and that kind of thing is really important to a founding team. Going from zero to one at a startup is incredibly difficult, so in order to find success, you’ve got to have an early team of very committed people. Sometimes these folks are highly committed because they’re called co-founders, which gives them a sense of ownership and pride. Other times that commitment comes from the equity you give them, which could be super generous without necessarily coming with the co-founder title.
It could also come from belief in the mission or trust in the founder, but my favorite source is internal—just being the kind of person who fully commits to anything they put their mind to and who wants to do exceptional work always.
If you hire these types of people from the startup, it really shouldn’t matter what titles they have.
Given the fact that the money you raise will mostly go to making hires, by definition, all teams are incomplete. No team starts off with exactly enough people it will take for a company to get to a huge exit or IPO. What a VC might be trying to say to you when they say you need a co-founder is that your team is critically incomplete at this stage.
What that means is that not only do you not have the whole team you’ll eventually need to find success, but you don’t even have the people you need to get started on the groundwork for hitting the next fundraising milestone. Forget about just getting there—I don’t think you’d know where to start and I don’t think it’s going to be easy to just hire these people, so you’re going to need to make them a co-founder because this function of the company is critical.
That might be a knock on you—because maybe what they’re saying is that no one with that skillset would come work for you.
Does that sting? Prove them wrong—or, identify a team that fills your gaps and is clearly capable of giving this company the DNA to build your way to key milestones. I say “identify” because if you don’t have the cash to hire them yet, that’s ok. It’s a perfectly legitimate pitch to say, “This would be my team the day we close on the money, but they have day jobs because costs.”
And remember, don’t make anyone a co-founder simply because you don’t have the cash to pay them enough salary. Co-founders should be the type of people you’d trust to run the company in your absence. They’re people you would give board seats to and that you want in the trenches for foundational decisions. They shouldn’t be “the only dev I knew who would work for free.”
