In February I received a LinkedIn message on various questions regarding co-founder, for long time I had parked that message to be answered later. Finally I am answering it today. I have changed the questions and I am keeping anonymity of the person who had asked these questions so that the questions and answers becomes generic and can be applicable to many co-founders who are seeking partners.
I have an idea (a web portal) & funds to develop/ hire the best of talent/ market it etc, but no technical knowledge. Do I need a co-founder for the same or I should hire a CTO?
In case if your web portal that you have thought to develop is a static website (i.e. build it once and no need of major haul year after year) then it is better to develop it using an outsourcing IT company or from a freelancers. And then pay a small AMC for maintenance year after year.
But incase if your website would be dynamic (i.e. you have business of buy and sell happening on the website, and website needs to get changed majorly year after year to keep itself on top) then it is better to look either for
- A tech co-founder or
- have a your own internal team or
- Hire IT professional as an employee
To manage the website. When you hire an IT professional or an internal team it is not necessary that they will always provide the best solutions for the website and think in your best interest. They might drain big time with cash out flow in terms of salary, rental computers and office space. Hence to plug-in these lacunas it might be better to have a tech co-founder. Tech co-founder will bring the best on the table and keep himself update to provide best of technology in present and future. More over investors feel more confident when there is a tech co-founder in the team.
If I join hands with a co-founder, who just brings tech expertise & may b a little or no capital. How should the equity % be split?
It is advised that all the co-founders should bring capital on the table but not necessary in the same ratio. This will lock in all the co-founders and compel everyone to perform at the best and work in right direction without out being a pillion partner.
Ideally the capital should be split equally; keeping mind that time and talent are heavier as compared to capital investment. Prof Nandani Vidyanathan author of entrepedia suggests the co-founder who has an idea should take 51% equity and his other partner should take 49% one percentage extra is for the germination of million idea. There is a website which provides tool to split equity among the co-founders http://foundrs.com/ but in my personal recommendation it is better not to use those tool as it might incept unrest and resentment in the heart of co-founders, hence simple 50%-50% is any day better.
When u say equity % be given. It is % of shareholding in the constitution of the company or profit %?
It is % of shareholding in the company or business.
Suppose I give shareholding in the constitution & the person (then co-founder) does not perform. Or does not perform the way we had expected. Or becomes un-interested, or loses the patience needed in a start-up, then? Or even stops coming to office?
You can have a concept where shares of the shareholding will mature only after completion of say 3 years or certain milestone say 100th paying customer. Till that time co-founders can have soft allocation of shares and that allocation needs to be earned simultaneously as the venture progress happens.