How much equity should you give up to your cofounder?
The Six Percent Entrepreneur
How much equity should you give up to your cofounder?
July 13, 2021
In this episode, we talk about whether a visionary should bring on a cofounder or not.
All right, so you might be looking for a co-founder and wondering if you should get into a business relationship with someone else. And you see all these different co-founder meetups and co-founder labs and all these different things where you have co-founder dating. Is this really the right way to grow your company? 

So if you're looking for a co-founder, you really should evaluate why you're looking for a co-founder, what's the main reason that you're looking for a co-founder? Because most of the time, what is going to end up happening, especially if you are the visionary in your organization, is if you bring on any co-founders and you are giving away equity, they are going to result in deadweight and they're just going to not be up to the same standards as you are, they will kind of take you backward, and it's a really shitty situation that you can put yourself in. 

As I saw a thread earlier today in a forum where someone was asking how they can get out of the business relationship with their co-founder. They got into this equity partnership and the co-founder isn't holding their weight and they want to dissolve. And now it's like a big mess and there are all these other people that are commenting that they've had the same issues and it's also a big mess. And one of the common ways that they get out of that situation is just to dissolve it and cut their losses. And this is exactly what I did with my company Coinfeed.

I brought on a co-founder because the person that I brought on, they were experienced at raising money, or so I thought from other people and they've done other companies before and I've seen them raise money before, so I was like, okay, I personally do not like raising money. I hate raising money. I want to focus on product and I want to focus on my really just product at that point, I wasn't even focusing on customers yet. So this was like me in my early stages of learning how to be a founder. 

So I brought on this co-founder and we pretty much split the company 50-50 and I'm thinking, you know, that's a fair deal because this person is going to bring in all the money and without this money, I'm not going to be able to make this, get this traction right? So this was all before the whole G.P.D.S framework that I developed um to help start-up founders be able to start their companies without giving away their equity to investors. 

So I'm sitting here, I have a company where another co-founder has the majority of shares but they're not doing any work. So their ability to raise capital was pretty much zero. Not only that, um, it turns out that whenever they were going out and seeking investors, they weren't just talking about my company, they were trying to represent all these other companies where they had equity shares and they were just seeing what sticks and what lands. So there was no dedication on this person's part with my company. And it really put me into a bad situation because I felt like every time I lifted my finger to do any kind of work for this company, it was really my co-founder who was benefiting because here I am doing 100% of my effort and this other person is getting, you know, half the company, the value that I'm building up just because I made this stupid agreement with this co-founder that ended up not really adding any value to my company. 

So it's kind of stuck in that position and you know, just thinking about it a little bit deeper, Like if you are the visionary, you are going to have such a difficult time keeping other people up to your standards, being able to move as fast as you do. So what's better Is not getting into these equity relationships at all, keeping 100% of your equity, and hiring these things out. And if you can't hire it out, then figure out how you can incentivize people without giving away equity. 

So this might be like a revenue share agreement or something else. But the main important thing is you do not want to give away equity because as soon as you give away equity, not only are you giving away control, you're also just dragging along this dead weight. That just really sucks. And what your end up, what's probably gonna happen is you will probably not get to revenue, you will probably end up exiting with a huge loss. And even after the huge loss with this company Coinfeed, for example, we can't figure out how to split it up. Like I don't even want to do the work to figure out how to exit from this because even that, even though I spent so much of my money was actually a lot of my money, um definitely 100% of my time and this is just a bad situation overall. 

So that feeling kind of left me with this, this notion that you know what the next time I build a company like I don't want to go through with all that investor bullshit. Like the only, the only reason that I hired this person out was because if they're raising money for me, first of all, you can't pay someone a commission to raise money for you. That's against the rules of the SCC and you can't do it. Like they have to be an officer of the company, right? So they were an officer of the company and I thought this was something that they were going to be able to come through with, but they weren't able to do it. 

But what ends up happening is with all this like creative investor bullshit that they put you through, they will start diluting your equity and like very creative ways. They will create new classes of acid shares. They will do all these different things and they will just dilute your equity and they'll play all these different games to where instead of you spending your time, focus, and energy on actually building value for your audience and building up your audience, you're spending a lot of time just trying to figure out if you're going to get scammed or not, and you're spending a lot of money on legal things and all this bullshit. It's just better if you just do it yourself, keep 100% of your equity, do not give away control. And if other people want to work with you, you find ways to work with them without giving up, you know, a piece of your company. 

You know, you can give them a little piece of the action, but that's as far as I would get. And if they're not able to perform, then I would say adios. So if you are looking for a co-founder, just watch out a lot of founders that I know that I went the co-founder out, they didn't end up happy. And if you just look around different startup forums and things like that, you will see that this is a very common complaint where startup founders, they get into this partnership relationship and it just kills the company. So if you are a visionary founder, if you are a 6% entrepreneur, do not get a partner. Do yourself a favor and keep 100% of your equity. This is Robin Copernicus. Boom bam. I'm out. 

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