At the beginning everything is hot and heavy, full of passion, sleepless nights, chemistry making everything seem like it is destiny. Then something becomes annoying, or promises are broken, and the excitement starts to fizzle. A failed romance unraveling is usually a fairly easy cleanup: returning some items and looking for closure. A co-founding partnership gone awry is, at best, a big mess.
We spend a fair bit of time in our accelerator and incubator programs having discussions that could be considered marital counseling for new companies. Rarely do we find true co-partners, where they are 50-50 from day one and both invest the same amount of time, energy and expertise to make the magic happen. The biggest challenges occur in situations where there is a clear single founder who brings on a co-founder or two. In setting the expectations properly, not only in terms of ownership and decision making, but in vesting of equity, time commitments, etc., the startup will have the proper foundation to flourish while mitigating risks if a problem does arise between the partners.
I asked Daniel Eisner, co-chair of the US Private Equity Practice at DLA Piper, what issues founders need to address in bringing on co-founders. I sought him out for this specifically because DLA is the market leader in servicing firms from startup through exits. In his New York-based role, he regularly sees the repercussions of not having the right documents in place years later, when the company is worth $100 million or more and the founder has headaches in managing his or her partners in addition to going public or closing a mega-investment round.
According to Eisner, a document between the founder and any co-founders should address the following elements:
While the tone of these clauses may not be representative of the warm fuzziness you feel for your partner and the beautiful new startup you are bringing to life, this exercise will help keep the emotion out of decisions by documenting a shared set of expectations and roles and responsibilities to help the team withstand the thousands of other stresses and challenges that come in building a business. The fun never ends, so choose wisely.
Susan Amat is the founder and CEO of Venture Hive, an entrepreneurship education company that runs an accelerator and incubator program in downtown Miami. You can follow her on Twitter at @SusanAmat