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Thursday, May 25, 2006

How to choose your co-founders

Normally startup entrepreneurs face this problem. The co-founder has left midway. Most of the times for very natural reasons like - he has a family to support and can't stay without income for long. At other times, it could just be that the departing founder may have lost hope in the venture and wants to stay quit.
Anyway it's a daunting task ahead for the other(s) who stay dug in. All the development plans, cashflow projections and budgets go haywire if the contribution from the walking out partner is substantial and is critical to the venture. Normally startups have in some way or other equal contributory roles from all the founders and mid-course departure of one is surely going to burden the other(s) with pro-rata share of the load ( financial and developmental ). Remember, the startup stage is even otherwise the most painful and slow stage of growth of a business, and it always pays if you choose the right co-founder(s).

Here are a few things to do before you accept a co-founder ;

a) Background check : Ideally he must have put in at least 3 -5 years of career which yielded him a reasonable networth in terms of liquid assets. It's important that he has no great immediate demands on his resources by way of massive loans on house, car etc. He should be able to pull on without income for at least 2 years.
b) Documentation of implications : There should be clear understanding in writing between the founders regarding their roles and proportionate distribution of venture risk ( to avoid blame games ), financial implications of mid-course departures ( like forfeiture of investments ) , parameters and circumstances under which to bring in another founder ( acceptable to the remaining founders). All of these and more should be built in the initial subscription memorandum or whatever document that is.
c) Consistency of expectations : Get people who have a realistic expectation regarding the various stages. For eg. "I expect the product to hit the market in 6 months" will not work. Document the idea clearly and subject it to validations by outside agencies or even potential customers. Important - communicate their findings at a meeting where all would-be co-founders are present.

d) Lifestyle patterns : It's always better to choose people who have more or less similar lifestyle tastes and choices. At least those who share the same values and outlook towards money, life, career goals etc. That way, their forward moves tend to be predictable. You can sense a storm before it hits.
Will add to it later. If you have some valid points, please comment in.


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