Poyni Bhatt is a founding team member and former Chief Executive Officer of SINE, the technology business incubator at IIT Bombay until October 2023. She has an experience of 38 years in industry and academia of which she spent nearly 20 years with SINE. Poyni is a qualified legal and compliance professional- Fellow member of the Institute of Company Secretaries of India.
Starting a business is an exciting journey. But its success, despite having the right technology, product market fit and funding, often hinges on two critical aspects: right founders and having a well-structured founder’s agreement. In the beginning, a tech startup needs at least a technical and business co-founder to play a role of CTO and CEO, although the need for CXOs’ roles may vary depending on the nature of a startup. The right co-founders bring not just skills and experience, but also shared vision, trust, and compatibility, which are essential for navigating the ups and downs of the entrepreneurial journey. However, even the best partnerships need a strong foundation, and that is where a founder’s agreement plays a vital role. It clearly defines roles, responsibilities, equity distribution, and mechanisms to address potential conflicts, thus ensuring long-term stability and alignment. Together, these elements lay the groundwork for a thriving and resilient startup.
As per the 2021 report of CB Insight, a firm that provides global database and analytics to investors and consulting professionals, the second most cited reason for startup failure was “Team Conflict”, accounting for about 23 failures due internal disagreements, misaligned visions, and conflicts among founders. This was based on post-mortem analysis of 101 failed startups. When founders split, the very existence of a venture is at risk. Finding a well-rounded and a cohesive team is not an easy task.
The question, therefore, is who to look for as a co-founder, and how to go about finding a right one.
1. Who to look for: Five “C”s
a. Competence: This is core to the forming of a founding team. Co-founders must possess the skills, knowledge, and expertise necessary to build and grow a venture. Each member should bring demonstrable proficiency in their respective domain, ensuring that the team can collectively execute the startup’s vision effectively, and respond to challenges with confidence.
b. Compatibility: With competence given, team members should also align in terms of work styles, their ability to take risk and sustain the long haul, communication, personal values and ethics. Compatibility fosters a harmonious working environment and minimizes conflicts that could derail the team’s functioning together.
c. Complementarity: A strong founding team is characterized by diverse and complementary skill sets, by which each member brings unique strengths that fill gaps in others’ expertise. This diversity allows the team to perform critical CXO roles, tackle a broader range of challenges and leverage individual strengths strategically.
d. Chemistry: Beyond professional relationships, there needs to be a sense of camaraderie and mutual respect among team members. Chemistry creates an atmosphere of trust and collaboration, which is essential when navigating the high-pressure environment of a startup.
e. Common Vision: All members must share a unified vision, mission, and long-term goals for their startup. This shared purpose ensures alignment in strategic decisions and keeps the team focused and motivated, even when facing setbacks.
2. How to look for a co-founder
Friends, classmates, colleagues and leads from familiar networks are the most common ways in which founder teams are formed. In some case, early employees, based on their performance, are also elevated as co-founder.
a. Previous acquaintance
Founders who have known each other for some time socially, or from school days, or have worked together professionally, tend to make a good team. Teaming together with friends and colleagues make an excellent founding team specially when they have an experience of working or building something together, such as a product or technology, or have worked together in a project team. The risk in this approach is that because of the personal acquaintance, often the potential co-founders avoid having an upfront discussion about their personal priorities, motivation, risk taking ability and personal values. This could lead to friction between the team, especially when the company is going through lean times. In a university set-up, professors teaming up with their students for venture creation is quite common. They are familiar with each other’s competence, personalities, and attitude. They make good co-founders if they transform themselves into particular CXO roles. Irrespective of familiarity and known background, founders would do well if they have an open and honest discussion about the above aspects.
b. Networks
Another way to search for a co-founder is to spread the word in networks. Some may explore even family circles for a potential candidate. There are platforms and events specifically curated to address co-founder search. For some, serendipity may work at various startup events. Here, it needs to be kept in mind that the potential co-founders need to be evaluated based on trust, compatibility, and flexibility to make it a long-term partnership instead of an opportunistic and convenience-based alliance. In some cases, the first investors (specially angel investors) also help in finding potential co-founders.
c. Elevation of Early Employees
Yet another effective way is to elevate some well-performing early key employees who have delivered outcomes expected of them especially under resource constraints. They really make good fit for being co-founders. Early employees have seen the journey of the startup from its beginning, have a sense of vision and future roadmap of the startup, and align with the original sole founder. There are examples where a venture is started by a sole founder, and eventually some of the early key employees with diverse strengths are repositioned in the role of co-founders.
d. Founder dating
In matured entrepreneurial ecosystem, a “founder dating” process is commonly pursued. The concept borrows its terminology from dating because it emphasizes finding the “right match” based on shared values, complementary skills, and aligned goals. Interested founders set up dates to understand one another’s vision and traits. Serial founders and experts also recommend creating a list of questions for discussion. Gloria Lin, a product veteran at Stripe, Apple and Flipboard used the “founder dating” process before she co-founded Siteline with Joel Poloney. In her widely circulated blog, she explained the process she followed, and a set of 50 questions she prepared for discussion with potential co-founders.
In conclusion, when a founder or founders decide to start a venture, they commit to a long-term relationship to lead that venture. They share the ownership of the company. Alignment of goals, personality traits and skill-sets of the founders are the most important for long term success of the company. Any imbalance within the founding team would put the very existence of the company at risk. Therefore, it is advisable not to rush into long-term founder relationships unless the five C’s framework is conformed.
(Part-2 of the blog on “Co-founder’s Agreement” will follow soon.)