As co-founders, you need to connect with each other in real life. You do that with a co-founders agreement. You make clear agreements in advance, to avoid unpleasant surprises later. In this article we focus on the most common stumbling blocks for start-ups that are best put down on paper, such as the distribution of shares, responsibility and decision-making rights.
Who gets what?
Ideally, as a start-up, you divide the shares equally among the number of co-founders. For example with 4 founders, everyone gets 25% of the initial shares. But in reality, it’s rarely evenly distributed.
Founders sometimes contribute their own money at the beginning. It is crucial to agree in advance how you will treat this money: as debt, or will it be converted into shares? Make a trade-off according to the ratio, effort or capital (financial, intellectual, social…) that the founders contribute.
Who’s the boss?
In a start-up, not all domains are growing at the same pace, so your tasks may overlap. Clearly agree who is responsible for what. Think carefully about why that person is responsible and under what circumstances. If necessary, create a clear traditional demarcation between finance, sales, marketing. Do not choose responsibilities you want to have, but choose things you can effectively realize. Here it is essential that the founders strengthen each other in terms of skills. A start-up with 3 marketeers as co-founders where nobody has know-how about business, administration & operational management, has less chance of success than a well composed and complementary team.
What decisions do you make yourself? And which ones in consultation? Make sure it’s clear when you need to have unanimous agreement. Lay this down in the co-founders agreement. For example, you can agree that for all purchases with a value of €25 or less, you will not have to consult anyone.
Important to keep in mind when distributing voting rights:
- Don’t always link it to the amount of shares
- Distinguish between voting and non-voting shares
Some founders want a sustainable business that keeps running. Others work purely result-oriented. Still others want a temporary project with rapid growth and high impact. When you are not on the same page, tension is created.
“Will this be the main activity for all of us?” A common question for starters. Many conflicts with co-founders stem from misunderstandings about how committed everyone is. Will anyone keep their day job until the company gets off the ground? Or will he be cooperating from the sidelines?
Can’t you reach a common goal?
Within a start-up, the possible departure of a co-founder might not lose any sleep. However, it is good to be prepared for this. For example, limit how a departing founder sells his shares. As a start-up, opt for the first right to buy back shares before the departing co-founder resells them to an external person.