So you want to start a company to solve a problem and make a difference. Many congratulations in getting this far, this is the first important step. You are nearly ready to step into the world by yourself. Remember the passion and excitement you feel now. Startups are a true roller coaster of emotion. Some days you will be flying high and think you are going to change the world and the next day you you will be at your lowest lows, wondering why you left that well paid, secure (but boring) job. Don’t give up though, things take time, usually longer than you thought humanly possible but persistence pays off. In fact persistence beats perfection every time.
At this important stage there are many things we want all early stage Founders to know. Things our Elders told us and their Elders before those. While we will pass on many tips to you over time, at this stage, there are just three we want you to know.
1. Vesting, vesting, vesting……
There are loads of great articles written about the importance of equity and the early stage distribution to Founders and other players. Take it from us, you will make mistakes. The friend you decided to give 5% to when you were discussing the idea in the pub who has turned out to do very little or even nothing will drive you crazy. The person who asked for some equity to be an advisor but has done nothing, the list goes on. Before you know you will have given equity to people who frankly don’t deserve it and have certainly not earned it. The bad news is you can do very little about it and it may even turn off future investors.
So the answer is vesting. Vesting is like a magic spell. It undoes many mistakes. Unless people are buying their shares and paying fair value then put in place vesting. 4 years with a 1 year cliff is as good as any structure but there are others. Write down clearly what you expect of each other and get some legal help to do this. It will be worth it when your company, the one you built, is valuable.
This way if your friend turns out not to be that helpful you have not just given away 5% of your company. You will need this equity to incentivise new starters as you grow. If you don’t you will end up paying for it yourself with your own equity.
2. Avoid “advisors” and “experts”
As you grow your company and start to make traction you will be amazed at the number of people who will come out of nowhere and profess to be experts or well connected to people who can help. While there are some genuinely good people out there who are willing to help you for free, perhaps they were helped before, many will ask you for something. By all means if there is a sensible commercial arrangement to be struck, eg. a share of revenue for a defined period for an introduction to a client, that’s fine but don’t give them equity ever.
Not only will you need that equity later, you will likely regret it. Even if the person is right for now it doesn’t mean they will be tomorrow. Do you want them to have 1% of your company FOREVER.
The only exception here is if they also invest their own money. Then I think the option of giving them a few extra shares (with vesting of course!!!) is ok. They are likely to help you but by no means are they guaranteed to.
3. Get a Co-Founder
Startups are hard work. Really really hard work in fact. They are not like the movies or films. While they are very rewarding and exciting, they are also a grind. Things rarely go as planned and things take a long time and people behave in strange ways. Even if you are a complete psychopath then you will find it hard to do it alone.
Find someone to join you from the start. Make them a Co-Founder. Don’t be precious about your idea. Ideas are nothing without execution. Find someone you like and respect. You will be seeing a lot of them. However, don’t work with someone who is a clone of you. If you are are impulsive, find someone who takes their time. If you think art is pointless then find someone who goes to galleries etc… It is important to have a balance of views and it means and your natural sine waves are less likely to follow each other, so when one of you is very low the other will probably not be.
On the practical side there are articles about how you share equity and we feel as evenly as possible is best to avoid issues in the future. Don’t forget vesting!!
Good luck as you take your first steps. There will be many highs and lows but no matter happens you will have a ride you never forget.
