Joining a startup as co-founder – think before you leap

“Come join my startup, I will give you stake”

“I will make you equal business partner in my company”

“This is your company now”

If anyone tells you these words, then of course you’ll feel happy, especially if you have been in a job before. A co-founder means becoming an entrepreneur, usually without actually starting one. Doing what you wanted to but didn’t know how to, often without investing own funds in it. Sounds too good to be true, doesn’t it?

Because people can change commitments and they don’t hold on to verbal words. At the end of day, whoever has greater stake on paper, remains the owner and you can be pushed out without notice. It happened to quite a few people, who then got back to square one. It might have happened to some people around you. Such people are talented, capable and magnificent who gave whatever they could to their startup. Yet they were very simple people at heart who trusted others on face value.

What happened to them is not an off case. The intent for writing this article is that it shouldn’t happen to you. In future, if someone offers you stake in their company and offers to make you a co-founder then keep these in mind.

1. Get it in written. How much %age stake will you have? 5% is not much for a co-founder. If you’re CTO then you deserve 20-25% or more. If you’re bringing in business from personal contacts just because they know it’s your company then you deserve a very good deal. Even if you do so much for someone when they needed it the most and later if they don’t value you enough then of course you’ll feel hurt. It’s not hypothetical – it happens in families as well as friends. To avoid such a scenario, have a proper written agreement with expected roles, responsibilities and monthly income. You don’t need someone else’s verbal validation to know your true potential, you deserve a good written deal based on your real worth.

2. Don’t jump too soon. Ask what’s the company’s vision, what kind of work you intend to do, and how ethical the company is. It shouldn’t happen that you sign up for a company based on goodwill and the company gets a legal notice due to misdeeds you aren’t directly responsible for. It’ll harm your reputation, by being associated with people who don’t have character.

3. How’s the company actually doing? A founder of existing startup, while offering you to join as co-founder, might tell you a lofty vision saying you’ll be making tonnes of money soon with everything else on automated mode. If he has a sales background then almost certainly he’ll talk big. To know the actual state of any company, ask for P&L statement of the company in last few years. If possible then take bank account statement as well. You can then discuss with your family or trusted people on this matter. It helps if you know any CA who’s worked with companies and can offer advise based on financial statements. If the company is loss making then the onus might fall on you to invest your personal savings for bailing out the company from an earlier mess created by the management.

4. Look at the founder’s profile. What do people in the market say about him? Is he a man of words? Is he a sweet talker who praises clients when meeting them and later says all kinds of negative stuff behind their back? Can his educational qualifications match up to yours? How is his ownership on customers that his team has brought up, like does he wait for initial payment to be received and then doesn’t pick up client calls for weeks? Is he of the kind who keeps defaulting on project deliveries as he had silently allocated the main resources from your project to another one of higher value? Was he a guy who did things contrary to what his well wishers advised against doing? Even if he’s a nice guy in real life, it’s professionalism on the job that matters, that you’ll get to know once you actually work with him.

5. Analyse the market. You can’t sell expensive digital marketing campaigns to customers in smaller cities, the way you can sell to customers in big Indian cities or international markets. A business is a business only when you are selling something that people are buying. Don’t get into claims by someone that you’ll be selling things which will be a runaway hit in the market. Find out if target market is favourable to your aspirations, before signing the dotted line. Are there going to be people buying the product there? Here also it helps if the company is clear on its vision.

6. Chart your priorities. Do you want to create a product but have co-founder offer from a services company? You don’t want to go ahead but are buoyed by the fact that you won’t have high or zero financial investment ? Don’t hurry into anything, try to select option where more things are in your favour. Talk to the founder on your areas of concern. Businesses are easy to start and later ego comes in, due to which the one with higher stake will want to do things his way, even if what you’re saying is right then he might not admit it. People prepare themselves for failure, seldom they prepare themselves for success.

7. What if you fail? Have a Plan B in place. What if you have to live in another city and after the company fails you’ll have to relocate? Hence think wisely whether you’ll do investments there or not such as buying an apartment.

8. 5 years from now. Probably you would have been asked before in a job interview “where do you see yourself in 5 years from now?”. You will have to think on these lines here as well, even though you’re not getting into a job. Suppose you got on-board with a company making theme based websites, then 5 years later will you like to do such kind of projects only? If you want to do something later then better do it now. If your partner has some other priority then don’t go ahead at all. It’s a like a professional marriage where only those succeed having a common ground to agree on.

9. Reason for partnership. Before signing up for any partnership, meditate and ask yourself – Why do you want to do this? It could be a variety of reasons such as vision, belief in co-founder,etc. If your think deep enough and the reason is that “Because no one else gave you this offer” then you shouldn’t go ahead. Your reason for acceptance should be if your personal goals align with those of the company. Think, what if this was the last day of your life, will you be doing this work? If your answer is no then don’t go ahead. You can stay in a job, learn new things, and take up your passion project as a side hustle. I know startup founders whose employees are making more money than them, because team members have to be paid salary on time, and hence the founders end up borrowing from family and friends to keep things going, often causing a great mental pressure on them. If running and maintaining a startup was so simple then many wouldn’t have failed at it.

10. Financial transparency. At all times you should know how much money is coming into the company and from where. The problem is not just about how to make a startup succeed – the problem is what if it succeeds and both partners claim that they had bigger role in making it a success? If your founder calls you an “equal partner” then make sure you draw out equal money every month from the bank as him, if not more, certainly not a penny less. Otherwise in future there can be issues.

11. Can you do it alone? If others can start a startup then so can you, don’t join as a co-founder if you feel you won’t be able to become a founder yourself. Don’t worry about anything. Just life the life you want to live. You don’t need someone to achieve your vision, rather it is others who need you. Think long term and have faith in your dreams.

Remember. Starting a company is easy. The real deal is to continually maintain it for years. Make sure your founding team is well thought of. Don’t treat starring a company as climbing Mount Everest – treat running a company akin to climbing the Mount Everest. The best way to keep going is to enjoy the gradual process. Do you want to run a short sprint or to run a marathon? The choice is yours.