When you start a company with someone, you are signing up for a multi-year journey together — and potentially, multi-decade. The relationship could very well last longer than the startup, because when the best teams form, they end up co-founding two or three companies over the course of their professional life.
I’m speaking from experience: I just hit the 12-year anniversary of founding Eniac with my partners, and we intend to spend at least 10 to 20 more years building Eniac together. So every minute you invest in vetting and understanding the dynamics of this relationship could pay off 10x in time savings down the road.
Here are six questions, all of which could take days or weeks to discuss, allowing you to uncover potential issues, shared or complementary strengths and weaknesses, and more. You should emerge from these conversations with a firmer sense of whether these are the people to start a company with — and if they are, how to best structure the company and divide responsibilities.
1. What are your goals for this project?
It’s important to understand what’s motivating your co-founders to build this company — and for them to recognize your motivations as well.
Each founder must see the startup as their life’s work for at least the next several years. Ideally, you should believe you’re one of the few people in the world who can solve the problem you have defined. That kind of passion and commitment will be needed for the arduous journey ahead, and it will help motivate everyone, especially during the inevitable periods of struggle and uncertainty.
At the same time, it’s worth acknowledging that everyone has financial goals as well — just ensure those goals align. A $50 million acquisition might not mean much to a VC’s bottom line, but for some founders it can be life changing. Are you all determined to build a multi-billion dollar company, or are you willing to cash out sooner for less? This question will also be instructive in deciding which type of investors to seek for financing.
2. How will we divide the equity and responsibilities?
It’s crucial to get the equity split right, in order to avoid resentment down the road. Many founders default to a completely even split — 50/50 between two founders, one-third each for three founders, and so on. An even split is usually not completely equitable when considering everything brought to the table. I have found this co-founder equity calculator to be priceless in framing these discussions. The key is to have a substantive conversation on this topic. What is each founder sacrificing? What are they contributing, and what are other value do they bring to the company? Are these elements reflected in the cap table?
This is something that a good early-stage investor will ask about, and unwillingness or discomfort in discussing the split is usually a pink flag, suggesting the founding team has difficulty with contentious, emotional discussions.
And you’ll need to divide the responsibilities as well, not only determining who is CEO but also who’s coding the product, supervising any other developers, writing the blog and the marketing copy on the website, and who’s pitching investors. Initially, you must also define who’s full-time and who’s part-time.
3. Are we ready to go into battle together?
Startups are a high-pressure environment, and you ought to know how your co-founders will handle that stress. Will they focus on supporting the team in difficult situations? Are they always trying to find productive solutions? Or will they lash out in frustration? Often, you can’t know someone’s mettle until it is tested, which is why it helps have a real personal history with your co-founders. You can also ask if they’ve dealt with personal or professional adversity in the past — a good sign they’ll weather it again in the future.
4. What will we do when the company outgrows one or both of us?
The right executive team for a five-person company may not be the best leaders of a 50- or 500-person organization. That said, there are ways for leaders to grow with a company, such as through working with an executive coach. And there are early indicators of whether or not that growth will be possible. The most important? Self-awareness — you must have a conversation about your past experiences and history, and where everyone can demonstrate their ability (or lack thereof) to recognize and learn from their mistakes.
At the same time, it’s also worth discussing the possibility that you could reach a point where, for either business or personal reasons, a founder should step away from the company. How will you make that decision, and how will you handle the transition?
5. Is there anything about your past I need to know that might affect our business?
There’s an understandable temptation to downplay or hide parts of your history that are embarrassing or worse. But it’s far better to raise these issues before establishing a company together rather than to discover aspects of a partner’s past while in front of investors. There’s nothing that can damage a team or an investor’s faith in a founder more than feeling that they’ve been dishonest — and conversely, opening up about unflattering history upfront can help to build trust.
Skeletons in the closet can have other implications as well, whether that’s on the PR side or the legal side. By raising these matters proactively, founders can control the narrative and establish a strong precedent for transparency.
6. Do we have the appropriate emotional / logistical infrastructure to resolve disputes?
There will be episodes when you and your co-founders disagree on the best path forward. Rather than waiting for a high-pressure situation, preemptively discuss how you want to approach making decisions together. Will you vote, will different founders have ownership and deciding power over different areas of the business, or will you always try to reach consensus?
Beyond the logistical questions, you want to understand their emotional style as well. Are they comfortable with open, honest debate? Capable of seriously considering other people’s perspectives? Can they have substantive disagreements without taking things personally or holding grudges?
These six questions will help you assemble the best founding team possible. It’s also worth noting there’s significant overlap with the questions that investors ask when they look at a founding team. So if you hash out these issues before starting a company, you should be poised to present yourself to VCs in the best possible light.
This advice is aimed to help founders navigate the challenges of building an early stage company. If you are a founder or investor that has any additional advice or feedback, please leave it in the comments below or share with us on Twitter: @timy0ung @eniacvc.
The article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.