Can I travel back in time to co-found after the product is live?
June 8, 2012 6:46 AM   Subscribe

I started a company, but it probably would have been better to co-found. Do people ever do this sort of thing? How?

I'm older than the typical startup founder, and I don't live in a start-up hub, so when I left my job, I did half of the coding myself, and used an (excellent) freelancer for the other half. The thing's been going pretty decently (product in marketplace, keen users, early sales), but I'm no more confident with CSS/Django than when I started, and as a sole-founder with two employees, I don't feel like I can take the time to go off and learn it properly.

What I'd ideally like to do is bring on another programmer as a co-founder. Then when we raised funding, we could say "we are two programmers looking for $$$ to do X", rather than the far-less-convincing "I am seeking to raise funding in large part so that there is actually someone doing frontend stuff."

Does this sort of thing happen? If so, what terms are typical, and what is it called? I googled "retroactive" and "retrospective" confounding, and found nothing useful.
posted by piato to Work & Money (9 answers total) 1 user marked this as a favorite
It's not really "reatroactive" anything to bring on somebody with equal responsibility for the company -- you just make your partner a part-owner by transferring them a significant part of the company stock, and viola! They're a co-owner. Give them half, and they're an equal owner; but it could be more or less, depending on what you feel their contribution is. Founding only really happens once, but is not particularly important once ownership starts to change.
posted by AzraelBrown at 6:49 AM on June 8, 2012 [1 favorite]

It absolutely does happen. Where do you live? Many cities (not just the start-up hubs) have events where you could meet a potential co-founder.
posted by OLechat at 6:57 AM on June 8, 2012

Best answer: You take things off of your plate for a finite amount of time (say, six months), in order to free yourself mentally to find the right person to be co-founder. Maybe you can hire a temp or an assistant, or maybe you can expand the roles of your existing employees. But this is a decision that will have tremendous consequences that last for the rest of the life of your business, and possibly for the rest of your own life as a result. Think of it like you're getting married -- it's just that serious.

Then, you shake the professional network that you've already got, you ask any mentors you have for advice on how to attract candidates and whether they have anybody that they would recommend. You interview these people extensively: you interview their previous bosses and co-workers, you run problems by them to see what they think.

Then, when you've decided on a candidate, you talk to a lawyer about writing up a partnership agreement. You give them some equity -- maybe 50%, maybe less. Maybe you structure the transfer of equity over time. You build in a way to pull the plug if something's not working out.

A final thought: before you do anything, think really hard about your comfort level and about handing some of the reins over to somebody else. There's a reason you didn't start your business with a partner already. Consider that.

Good luck!
posted by gauche at 6:58 AM on June 8, 2012 [1 favorite]

Don't think about it as looking for a co-founder; you're looking for a partner.

Gauche has good advice (as always) about the practicalities. Another alternative is that your partner needs to buy in. You have a promising software with customers. If they were going to be an equal partner (and there is no reason that they need to be--they could get a "profits interest" rather than a "capital interest"), they should contribute capital or IP equal to the value of your assets (so that you'd be 50/50).

See if you can hook up with other entrepreneurs in your area; it doesn't matter if they're in startups or not. It sounds like you need a little grounding in the way businesses are owned and how other venturers are brought in (which is totally a fine place to be). There is literally infinite variation in how you bring in new partners. Talk to a lawyer, too.
posted by Admiral Haddock at 7:04 AM on June 8, 2012

Talk to a lawyer before you do this. You're not just getting a "super-employee" who's more incentivized to do good work, you're doing the business equivalent of getting married.
You wouldn't marry your spouse merely because s/he was good at keeping the lawn mowed; you shouldn't "marry" a partner merely because s/he has one particular skill you need.
posted by spacewrench at 7:19 AM on June 8, 2012

Best answer: You've already started a business, thus you can't technically have a co-founder. You're looking for a partner, as mentioned.

To recap on the two options above:

1) You take a Partner on and pay them a base salary. Then you award them a group of shares, and they participate as you do, in the dividends. Their shares can be awarded all up-front (not recommend) or vest according to conditions – either time or milestones. In the latter case, that can be revenue or profit targets.

2) You take a Partner on and they buy-in, basically purchasing their share allotment with cash that is contributed to the capital account of the business – working capital, salaries, etc.

You can mix the two as well. Essentially what you are balancing is 1) you're giving up an ownership stake, in return for 2) their skills, existing contacts/customers, IP, cash, etc.

There is probably not going to be a strict methodology of valuation – especially if you are an online business – thus it's good to have a lawyer advise you in terms of what you are giving and what you are getting.

The key thing in this exercise is once you give shares you cannot get them back (easily). They are private property; thus treat them as such.

In terms of the type of Partner, have a think if you want to duplicate your existing skill-set, augment it, or acquire a completely different skill-set. One thing to consider is that at the moment, you are thinking from a place of being overwhelmed, thus what looks like a good option now, may not be the best option in the future.

An alternative would be to bring on a Senior Lead front-end person, pay them a below-market salary, and reward them with shares or options, vesting as mentioned above. Often founding partners split equity based on risk. You have substantially de-risked your business, thus someone is joining a company, not technically starting a company.

If there are two mistakes investors often see it's 1) taking money too early or too late, and 2) giving away too much equity early on. In the former case, you're either too rich or too poor – either not hungry enough, or unable to take advantage of opportunities. In the latter case, if your investment dilutes existing shareholders too much, you may well lose them, in which case you may lose the investment as well.
posted by nickrussell at 7:21 AM on June 8, 2012 [1 favorite]

This is really something you ought to be discussing with a lawyer, especially if you're contemplating raising outside capital.

The reason that you want to discuss this with a lawyer is that the choice of corporate/company structure you choose, and the nature of your and your future partner's equity in the company can affect (1) the willingness of investors to fund your enterprise, (2) the valuation at which your first and subsequent round of capital is raised, and (3) your vesting schedule, if any.

And, obviously, you want to discuss these issues with a lawyer conversant in startups and venture capital. If you don't live in a startup hub that may mean that you need to travel to where startup lawyers are (Silicon Valley, NYC, Boston, Austin, etc.)
posted by dfriedman at 7:53 AM on June 8, 2012

(Sorry, I clicked through to your website and see that you're located in Wales, not the US. In which case, I would say that much of the advice I offer above is likely the same, but you would need to find an attorney in, presumably, London or Cardiff...)
posted by dfriedman at 8:01 AM on June 8, 2012

In the US tech industry, this happens all the time. People are brought in as co-founders well after the initial product/company launch. There are all kinds of strategic reasons to do so, both in terms of skills and in terms of business relationships. You don't need to call it "retroactive" or anything, just think of it like any other title (somewhat meaningful, somewhat arbitrary) and make sure you have a good contract in place with that person on issues of intellectual property, compensation, etc. to protect yourself going forward.
posted by judith at 9:04 AM on June 8, 2012

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