Dispensing with a Co-founder
16 comments
For what it's worth, most serial entrepreneurs I've talked with tend to advise waiting a while before incorporating. If you're still in the kitchen table phase, which you say you are, then your co-founder may be right. Until you graduate and begin working full-time on the project and have a demo that are you pitching to investors, incorporating is really just a distraction. At best it doesn't really help anything and at worst you screw it up and it takes thousands of dollars to fix.
I wouldn't recommend incorporating until you need to. Unless you have money or legal documents that require a separate legal entity there is no reason to incorporate while you just have an idea. Incorporating is a bit more time consuming than filling in the check and mailing. Depending on the type of incorporation and the state you might find incorporating to be a serious distraction you can do without for now.
On the other hand if the reason your co-founder doesn't want to incorporate is because it would be a waste of $135 dollars than you seriously need to talk to him about his commitment to this.
On the other hand if the reason your co-founder doesn't want to incorporate is because it would be a waste of $135 dollars than you seriously need to talk to him about his commitment to this.
My business partner and I incorporated, specifically with an LLC. There was never a question about that. On the other hand, we weren't exactly a startup and we were diving into making some money. Our plan had always been from the beginning to spin off other ideas, and incorporate those as the time was right.
When putting together the articles of organization and the operating agreement, I remember a big emotional wall. It wasn't just the fees. It was as if, by signing my name and registering the paperwork, I would come out as a different person.
We got registered with the IRS, the state (all three agencies), and the city. Looking back, it seems trivially easy. However, if you are not operating and taking in customers, it is a lot of overhead in terms of ongoing paperwork.
We're currently working on a (real) startup idea right now, but we don't have plans on spinning it off into its own entity until we at least get a prototype or some revenue going.
In working with my biz partner, I have noticed something similar to the dynamic with my girlfriend. All the issues that crop up early in any relationship -- whether professional or romantic -- always repeats itself down the road. It is possible, though exceedingly difficult, to change that dynamic. They usually involve at least one person in the dynamic to become at aware of an uncomfortable truth about himself. Your misgivings about your co-founder (and friend) may point to that. It can end up as a source of a disaster, and left unexamined, you end up with a totally different set of people repeating the same dynamic. It can also be a source of strength; likely, what you find annoying (the hesitation?) may very well also be what's needed to succeed.
One last note, according to "The Google Story", the Google founders didn't incorporate until their first angel wrote them a check made out to "Google, Inc." At that point, to cash the check, they had to incorporate. And so ...
When putting together the articles of organization and the operating agreement, I remember a big emotional wall. It wasn't just the fees. It was as if, by signing my name and registering the paperwork, I would come out as a different person.
We got registered with the IRS, the state (all three agencies), and the city. Looking back, it seems trivially easy. However, if you are not operating and taking in customers, it is a lot of overhead in terms of ongoing paperwork.
We're currently working on a (real) startup idea right now, but we don't have plans on spinning it off into its own entity until we at least get a prototype or some revenue going.
In working with my biz partner, I have noticed something similar to the dynamic with my girlfriend. All the issues that crop up early in any relationship -- whether professional or romantic -- always repeats itself down the road. It is possible, though exceedingly difficult, to change that dynamic. They usually involve at least one person in the dynamic to become at aware of an uncomfortable truth about himself. Your misgivings about your co-founder (and friend) may point to that. It can end up as a source of a disaster, and left unexamined, you end up with a totally different set of people repeating the same dynamic. It can also be a source of strength; likely, what you find annoying (the hesitation?) may very well also be what's needed to succeed.
One last note, according to "The Google Story", the Google founders didn't incorporate until their first angel wrote them a check made out to "Google, Inc." At that point, to cash the check, they had to incorporate. And so ...
IMO, if he can't justify the 90 bucks, he does not believe in it, and will not be the right partner.
Even in times when I was completely college-student broke, I could find ways to come up with $100 for the right opportunity.
I'd also question his availability and opportunity to contribute if he will still be finishing studies for a couple of years. The first couple of years are arguably the hardest, and most formative part, of the whole operation.
Even in times when I was completely college-student broke, I could find ways to come up with $100 for the right opportunity.
I'd also question his availability and opportunity to contribute if he will still be finishing studies for a couple of years. The first couple of years are arguably the hardest, and most formative part, of the whole operation.
> We've got excellent personal rapport
Then why are you posting here instead of having a serious sit-down talk with him about it?
Then why are you posting here instead of having a serious sit-down talk with him about it?
why not? The guy is young, and is asking about some advice in here (which is probably the right place). When you are friends with or get along with somebody, sometimes it is harder to tell them up front that what they are doing is not working out.
He posted here asking about "Dispensing with a Co-Founder", not "Talking to a Co-Founder about Risk."
Different people involved in a startup have different risk tolerance. The general solution is for someone with more money and more risk tolerance to risk more money and get equity. I would advise this guy to offer to pay the whole $90 in exchange for a higher equity stake in the corporation.
Another option would be to delay incorporating until you're getting seed funding, and get some incorporation advice from your funder. YC prefers startups not to have incorporated when they apply, for example.
Different people involved in a startup have different risk tolerance. The general solution is for someone with more money and more risk tolerance to risk more money and get equity. I would advise this guy to offer to pay the whole $90 in exchange for a higher equity stake in the corporation.
Another option would be to delay incorporating until you're getting seed funding, and get some incorporation advice from your funder. YC prefers startups not to have incorporated when they apply, for example.
You are definitely right to question the other founder's commitment at this point. Me and my cofounder had a pretty big argument over whether to incorporate or not this summer. However, in our case the heart of the debate was whether or not it was needed yet, not the cost.
If they are having trouble parting with $100 or so, I really think they should consider what they are getting involved in. Startups are cheap these days, but they still are not free.
If they are having trouble parting with $100 or so, I really think they should consider what they are getting involved in. Startups are cheap these days, but they still are not free.
Dispensing of a Co-founder? check out Murdr, Inc
He MIGHT just be expressing concern over the cart-before-the-horse issue. I'd echo the "build something first" sentiment.
That being said, one of the hardest challenges to overcome is a founder with substantively less commitment than you. It's like dating/marrying a girl (or guy, I suppose) who wants to spend EVERY evening together when you still want to spend a lot of time with friends or alone... Either person who compromises has a good chance of feeling resentful.
So gather an understanding. Set some initial expectations, like:
"we will each spend an average of 25 hours per work a week until we hit milestone X"
"we well get together 4 evenings per week to work together"
"if we hit milestone Y, we will dump everything and work full time on it, borrowing money if we have to."
"if we fail to hit milestone Z after 8 months, we'll close it down."
That being said, one of the hardest challenges to overcome is a founder with substantively less commitment than you. It's like dating/marrying a girl (or guy, I suppose) who wants to spend EVERY evening together when you still want to spend a lot of time with friends or alone... Either person who compromises has a good chance of feeling resentful.
So gather an understanding. Set some initial expectations, like:
"we will each spend an average of 25 hours per work a week until we hit milestone X"
"we well get together 4 evenings per week to work together"
"if we hit milestone Y, we will dump everything and work full time on it, borrowing money if we have to."
"if we fail to hit milestone Z after 8 months, we'll close it down."
At the risk of sounding like a certain Quack Dr. on TV who just uses his first name (Dr.Phil) .... Perhaps the $90 is a stop gap measure to avoid discussing some concerns he may have about the working relationship terms & conditions moving forward -- happens all the time.
I was on a similar position some time ago.
I do think your co-founder isn't ready for the startup ride. You can talk all you want with him, but at the end it will come back and bite you. If he isn't passionated about it now, he probably won't be in some months.
If you really need to start rolling, go ahead, talk with him and tell him (gently) you're going on your own.
As many others have said, trust your gut feeling! Generally, the first reaction is the most visceral and truthful one. So if he is reacting like this to the incorporating issue, don't fool yourself, he's not the right partner for this venture.
Good luck
I do think your co-founder isn't ready for the startup ride. You can talk all you want with him, but at the end it will come back and bite you. If he isn't passionated about it now, he probably won't be in some months.
If you really need to start rolling, go ahead, talk with him and tell him (gently) you're going on your own.
As many others have said, trust your gut feeling! Generally, the first reaction is the most visceral and truthful one. So if he is reacting like this to the incorporating issue, don't fool yourself, he's not the right partner for this venture.
Good luck
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He doesn't have much perspective yet, but that's not too important. He isn't as completely bought into the plan as you are, but you have a head start so that's expected. If you can work well together, that's what counts.
90 and even 125 bucks are not that much, eh?
125 bucks is a lot of money for a coffee.
It is not a lot of money for incorporating a company and gaining all of the benefits of doing so. It is also not a lot of money if you compare it to spending 10,000 hours of time commitment.
It also is not a lot of money to start a company, compared to your hardware costs, etc.
It is not a lot of money for incorporating a company and gaining all of the benefits of doing so. It is also not a lot of money if you compare it to spending 10,000 hours of time commitment.
It also is not a lot of money to start a company, compared to your hardware costs, etc.
I was asking purely rhetorical question :) Surely 125 bucks is not a big investment into startup. We invest a lot more each month :)
Where can you get incorporated for 90$ ?
I always thought it was several hundred at least
I always thought it was several hundred at least
I paid $55 for an LLC in Oregon, and did the paperwork myself. I also shelled out around $100 for various Nolo books. (My calculation was that I'd rather spend the money to get a basic understanding of the process than to just pay someone to do some simple paperwork).
It varies by state. I think I paid $400 in Michigan, but that was mostly for legal fees to have someone manage all the paperwork for me. I don't remember the actual state-required fees to be all that excessive at all.
Yeah in my experience it's been at least $350+ for the year, once you factor in all the various fees.
If you want to do it all yourself you can probably shave half off of that.
If you want to do it all yourself you can probably shave half off of that.
Indiana is about 90
Dump and run.
Why finagle over a form? Why don't you make a product, court some customers, and design the webpage before spending the 125?
But it also seems the timing isn't right. I think in the back of his mind he might still want to do the school thing. I know I do.
But it also seems the timing isn't right. I think in the back of his mind he might still want to do the school thing. I know I do.
He hasn't understood what a startup means. If he did, $135 would seem very tiny compared to the huge amount of work he was planning to do.
He's not planning to do that work. Yet. Don't dump him immediately. People are complicated, and sometimes they grow into things very quickly, or there was only one little thing missing. And it's possible you misunderstood his reasons for hesitation, or there was some other kind of miscommunication.
So, go talk to him again and explain your vision carefully and how much work it will be, and why $135 is trivial. It's worth a try. And if you can't agree, OK, then go find someone else, with his blessing, since he will see that he doesn't want to be part of your vision (at this time in his life).
He's not planning to do that work. Yet. Don't dump him immediately. People are complicated, and sometimes they grow into things very quickly, or there was only one little thing missing. And it's possible you misunderstood his reasons for hesitation, or there was some other kind of miscommunication.
So, go talk to him again and explain your vision carefully and how much work it will be, and why $135 is trivial. It's worth a try. And if you can't agree, OK, then go find someone else, with his blessing, since he will see that he doesn't want to be part of your vision (at this time in his life).
Excellent answer. I deleted my response because this is a better one.
you bring up some good points in the psychological aspect of things. if they do incorporate now though, there may be future legal problems ahead. Someone can correct me, but I feel the main problem is that typical $135 dollar incorporation services don't include important terms like vesting, so if this other person decided to walk away after incorporation; he would still own x percentage of the company...
since I'm not a lawyer I don't know of any loopholes, but I have met people who had this happen to them (three person medical imaging startup. 3rd person quits and still owns a piece of the company no matter what happens...)
to incorporate the right way, I think it costs about 4-5k (in california and delaware that is)
since I'm not a lawyer I don't know of any loopholes, but I have met people who had this happen to them (three person medical imaging startup. 3rd person quits and still owns a piece of the company no matter what happens...)
to incorporate the right way, I think it costs about 4-5k (in california and delaware that is)
My about-to-be co-founder expressed hesitation. He's an undergrad student who left university for several years to work in IT, then returned and basically had to start over, so he's got a couple of years left, while I'm graduating in about seven months.
Effectively, he said that he didn't want to incorporate because the expense (90 bucks, if) wouldn't be justified if the venture failed, plus we'd be out the $35 required to formally dissolve.
Instead, we just bought a couple of domains from GoDaddy, and a year of hosting.
As you can imagine, this left me unsettled and severely doubting his commitment. The idea is going to be very capital-intensive, and simply can't tolerate founders who are going to waver on it. Although he brings some pretty good knowledge and connections, I wouldn't call him indispensable. My biggest concern going forward would be not having enough time to find a better co-founder, since the window of opportunity for this business is somewhat narrow.
We've got excellent personal rapport, but I don't think I can choose short-term goodwill over the chance to build something great. Sanity check? Advice?